Investing in a Business – Intellectual Property considerations

Self-evidently, investors invest in order to seek a return on their capital. They want the business they invest in to be a financial success.

Intangible assets, such as intellectual property rights (“IP”) are often core to businesses, giving them a competitive edge and market opportunity.

However, unless they are properly understood, captured, and protected, shareholder value and anticipated future gains can be eroded and opportunities for growth lost.

Thus, before investing in a business, it is often important to know and understand the ‘health’ of its IP portfolio, whether its IP strategy is in line with the wider goals of the business and whether it is proportionately managing the risk of infringing competitors’ IP rights.

IP Due Diligence

This typically involves:

• Reviewing what registered IP the business owns
• Understanding what processes and procedures the business has in place to capture, secure, and protect IP which is generated 
• Assessing whether valuable IP is being lost and not appropriately captured, secured, and protected
• Determining the strength of the registered IP owned by the business
• Ascertaining whether third party IP is used by the business and whether appropriate licensing arrangements are in place
• Asking what IP the business licenses / could potentially licence to others for financial returns
• Assessing whether the business might be infringing third party owned IP / understanding what “ freedom to operate” checks it undertakes to mitigate such risks arising (especially before designing and launching new products / services)
• Understanding what IP issues (particularly infringement disputes and prosecution hurdles) the business has faced in the past / is currently facing / is likely to face in the future
• Whether the overall IP strategy for the business is fit for purpose, bearing in mind the future plans for the business (i.e. products / services / territories)
• Determining what steps need to be taken by the business to make it “IP healthy.” 

Conclusion

Unless an investor conducts appropriate IP due diligence before investing in a business, pitfalls will not be identified, understood, nor (where possible) steps taken to address them. This could mean the investment made does not result in the anticipated return.

If you would like to find out more about how our Intellectual Property team can assist potential investors in conducting cost proportionate IP due diligence, please contact Carl Steele, Head of IP, or your usual contact at Ashfords.