IP Due Diligence

Due diligence is generally required and conducted prior to the transfer of intellectual property rights or assets through commercial transactions such as mergers or acquisitions, or where investment is being made into the business. Due diligence is an investigative exercise to check for the existence and quality of assets which are the subject of the commercial transaction. Those contemplating the commercial transaction are seeking a good understanding of the intellectual property assets underpinning the commercial transaction.

The due diligence process generally follows the steps of an intellectual property audit. Venture capitalists often undertake extensive due diligence exercises prior to committing investment. Such exercises should be endorsed as any due diligence exercise required upon the exit of the venture capitalist is likely to be even more rigorous. Anything that would not pass the exit due diligence should be detected before the venture capitalist invests.

Other aspects to due diligence other than those covered in an intellectual property audit may extend to considering potential regulatory issues, product liability issues, assessment of in-house procedures and staff training, trade practices and consumer sales advice and a review of the funding conditions. In many instances these aspects vary according to the nature of the business (start-up, spin-off, research institute, established company) and maturity of the technology.