Due Diligence in Transactions Involving Intellectual Property

The process of gathering information and assessing the merits, issues, and risks associated with a business transaction is called “due diligence,” which is a critical analysis in the acquisition and strategic utilization of intellectual property (IP) assets. Due diligence is a necessary precursor to funding a new venture, and it is critically important in many other business transactions, including mergers, acquisitions, licenses, initial public offerings, and, in many instances, litigation. Over the last several decades, businesses have placed significantly greater emphasis on developing and protecting their intellectual assets. The results of these efforts are palpable. It has been reported that in 2010, intangible assets accounted for 80 percent of the Fortune 500 companies’ market value. Yet, when conducting due diligence, businesses rarely dedicate a proportionate amount of time and resources to the valuation of IP assets. Given the current economic climate, businesses cannot afford inefficient allocation of resources. Accordingly, those enterprises that make IP due diligence a priority will be much more likely to engage in successful transactions and, in turn, reap profitable returns from their investments. This article provides an overview of the main principles that every business decisionmaker should be aware of when performing due diligence in transactions involving IP. Each transaction, however, presents a unique set of facts, and there is no one-size-fits-all approach to due diligence. As such, business decisionmakers should consult with due-diligence counsel to develop a strategy that is optimized for each particular transaction at issue. Understanding a Transaction: Identifying a Company’s Shortand Long-Term Business Goals