The first step in conducting intellectual property (“IP”) due diligence of a target company is to identify and list all IP assets indicated in documentation produced by the target company and any relevant information obtained during the preliminary examination of the target. For added rigor, it is prudent to look beyond the disclosure of assets made by the target and perform a separate search by owner when you are reviewing the IP asset records that have been disclosed. After considering how important each asset or asset group is to the transaction, the assets should be ranked by priority. The ranked list should also indicate how deeply the investigation will look for each asset, given its value and priority.

Using the prioritized list, each asset should then be examined to determine (1) ownership, control, and current status; (2) economic value; and (3) risk exposure due to actual or alleged infringement of third party IP. Today’s blog post will discuss the first focus area: ownership, control, and current status of the IP asset. Each asset should be reviewed to test whether all entitled registrations have been applied for or obtained and are current with the filing office, whether the title chain from the inventor or previous owner is clear, whether appropriate assignment documents have been publicly recorded, and whether any encumbrances exist.

Contracts issued to grant the right to use or control an asset should also be reviewed to identify restrictions on the asset. Any relevant patent, trademark, or copyright files and public records need to be carefully reviewed to verify that the target company has legal ownership of the applications or registrations. The registrations should all be valid and current on any applicable fees, including maintenance and renewal fees. The chain of title search should reveal that all necessary assignments have been executed and recorded with the applicable government agency. For patents, this last part is extremely important because the inventor is assumed to be the original lawful owner of a patent until it is assigned by relationship such as employer-employee or by a valid written assignment.

In case the public records search reveals encumbrances such as security interests or licenses, it becomes necessary to confirm that the target has properly secured and recorded appropriate and complete release. To that end, a search of the relevant Uniform Commercial Code database should be performed to increase certainty that all potential encumbrances have been identified.