In classic M&A agreements, for example when acquiring a company, IP Rights (Patents, Utility Models, Trademarks and/or Designs) are regularly part of the subject matter of the agreement. The same applies to License Agreements in which a licensee acquires rights of use from the corresponding IP Right. As with any other purchase, nobody wants to “buy a pig in a poke”. Rather, they are interested in whether the IP Rights actually deliver what they promise. To find this out, an IP Due Diligence examination is mandatory.
IP Due Diligence is essentially a careful examination of the IP Rights that are to become part of a planned contract. The scope of this examination depends heavily on the specific subject matter of the contract, which contracting parties wish to conclude the contract and which framework conditions are to be observed. If, for example, two companies are involved that manufacture and offer products in a highly complex field of technology, such as aviation technology, the examination should be much more intensive than for companies that are only interested in the distribution rights of trivial products.
If all IP Rights to be examined are known (which may well be the first hurdle), their register status and actual substantive ownership of rights should at least be checked. It is not uncommon for transfers of rights to be incorrectly documented and/or not entered in the relevant register. Even at this early stage, the buyer may face the threat of avoidable legal disputes.
In addition, an IP Due Diligence examination can be used to estimate the future costs (e.g. maintenance fees, costs for pending infringement and/or validity proceedings), the economic value of the individual IP Rights and whether the IP Rights portfolio of interest also covers the actual product range. In the case of pending IP Rights grant or registration proceedings, the prospects of grant or registration should also always be assessed.
Ultimately, it is always advisable to carry out IP due diligence before signing an M&A contract or license agreement.
Do you have questions about IP Due Diligence audits or do you need an IP Due Diligence audit yourself? Please do not hesitate