What due diligence do you undertake specific to IP during the M&A deal process?

The following article discusses session one in the IR Global Virtual Series on ‘Dealing in IP: Successfully transacting IP as part of the M&A Process’

Indonesia – (JK) The first thing that we usually do is to identify all the IP owned by the specific target company. This involves doing searches at the relevant IP office, to include any trademarks, patents or copyrights owned by the company. We usually extend the audit to also cover the status of each IP and any potential legal action that might be involved.

In addition to that, we will also make enquiries and complete searches at the IP Court just to see whether there are any pending or completed litigation cases involving the target company, with regard to IP in Indonesia.

Going back to the searches at the IP office, we would also attempt to seek information on any potential assignments and or licensing involving the relevant IP, but that would only involve the licences that had already been recorded and not those recently filed for recordation.

Where patents are involved, we would do further searches with the relevant examiner, just to see whether there are any inventions that they have applied for in Indonesia. The IP office in Indonesia does not yet have an adequate database to allow this search to be conducted online.

With regard to the timeframe, that depends on the number of findings that we discover, and the size of the company.

Italy – (MR) First I try to understand the nature of the target business. If it's an industry, which kind of industry and how that might influence the kind of IP, or the problems we could face.

Secondly, I must identify the right person to refer to when collecting data on relevant IP. It could be in-house counsel, professionals or members of the company’s management.

I also want to know where I can get the information. It should, of course, be available online, but I think it is really important to talk with interested parties in order to get details about the nature and extent of the patent, or the trademark, or the IP and copyright rights. Issues like the possibilities of extending them abroad, or the pending status of any applications are important. This gives a snapshot of the complete IP assets of the target company.

Then, what we normally do is to get in touch with external lawyers, or in-house lawyers, to have a report of any pending disputes. This allows my client to know if they are buying a challengeable patent or a valid patent and how that might affect the value of a deal.

Oklahoma, U.S. – (PM) There have been some really good comments on how to research around published lists of IP and litigation, and those are all very important.

I'm going to focus on the unregistered IP, however, such as trade secrets. This could include non-commercial software, the management of IP, or how the target company operates. There's a lot of IP that's not listed in the patent or the trademark offices and, for that reason, conducting due diligence around unregistered IP, such as trade secrets, is very intensive and important work.

For example, my client was involved in the glass business and we were forming a joint venture with another company who also made glass. The other joint venture partner had some non-commercial software for R&D around the development of new glass formulations for specific purposes, and we found this through our due diligence on the trade secrets and unregistered IP.

We then did further due diligence around the retained entities in the organisation who needed this unregistered IP and the relevant trade secrets, unregistered copyrights and non-commercial information that would qualify as a trade secret.

When doing this due diligence, we want to know who is using it, how they implement their trade secret policy within the target, and whether they have a formal committee who makes IP decisions. We need to know that their employees and consultants have signed agreements to assign ownership of their IP to the appropriate entity to assess whether or not there are title issues.

It is also important to assess the need for any overlap for use of the IP assets in the operation of the retained businesses so that licensing arrangements for the retained business can be addressed. This is particularly important when you're representing the selling company, rather than the buying company because there might be entities within the organisation that still need some of those IP assets to operate their businesses. For that reason, the businesses will have to figure out whether they want to continue to own the IP and license it, or whether they want to sell it and retain a licence for themselves, which could affect the valuation of the deal.

Assessing how the target company operates its IP program so that you know how sophisticated an entity they are, is useful. You should be able to get an idea of the income-producing potential and the bottom-line dollar value associated with certain patents or trademarks, to figure into the valuation.

Switzerland – (SL) In Switzerland, as in most of Europe, we find that there is more unlisted IP than listed.

The type of due diligence I do actually depends on whether I'm on the selling side or on the buying side. If I’m on the buying side, then the first thing to do is to ensure the seller can actually sell the IP, after all the identification and research is done, and for that, we need the whole IP track in the background.

We had a case maybe a month ago, in which my client was acquiring a Swiss healthcare company using an IP box. We discovered that the IP wasn’t actually in the company, so the deal was off. It took us quite some time to uncover the full IP track, which showed half of the IP belonged to a university in Poland and half to the person who invented the code involved.

The first thing is to define the goal of the transaction, then identify the IP, and ensure that the seller can actually sell it. Most of the IP you have to identify is not listed and that makes it harder in a large company. It all depends on who has the rights to the IP, and whether they have transferred it to their employer or not, so checking the labour contracts they have in place is also required.

So really, the whole track is important. It's like if you own shares in a company, and the whole track of the shares isn't there. In the end, you don't know who's the actual owner. If you do everything properly in this respect, you’ll have an advantage in any negotiations.

Lebanon – (WAF) Due diligence aims, in particular, to assess, from a strict legal perspective, whether intellectual property (IP) rights do exist in a targeted company that is the object of a potential merger and/or acquisition. Usually, this is an important step to closing a deal, as normally a letter of Intent pertaining to a specific deal shall always be conditioned to a satisfactory financial and legal due diligence.

Such legal due diligence should give answers to a number of questions including;

  • Is there any Copyright certificate asserting the existence of a copyright, and has it been issued by a local office or by a foreign office and in this case is the country of that office member of Bern treaty or not?
  • Is there a trademark, logo or tradename that have been deposited locally or abroad, and if deposited abroad do they have a priority right locally?
  • Is there any patent, and what is the legal regime of the Patent office that has issued the Patent and is it final?
  • Is the deal infringing upon trade secrets that remain protected or violating confidential information by disclosing them before term?
  • Is there any geographic indication in the deal?

If the deal pertains to technology the questions include;

  • Do we have source codes? Are they protected in bit bucket accounts? Who keeps the passwords?
  • What is the proportion of open sources versus encoding in such source code?
  • Have third parties licensed their Copyright in the source code if any, and what kinds of license agreement have been signed?
  • Are the Intellectual Property Rights free of legal encumbrances or ongoing legal disputes?


Peggy Millikin (PM) Millikin McKay – Oklahoma, U.S. www.irglobal.com/advisor/peggy-millikin

Maurizio Ruben (MR) CDR & Associati – Italy www.irglobal.com/advisor/maurizio-ruben

Justisiari Kusumah (JK) K&K Advocates – Indonesia www.irglobal.com/advisor/justisiari-kusumah

Walid Abou Farhet (WAF) Abou Farhat Law Offices – Lebanon www.irglobal.com/advisor/walid-abou-farhat

 Sergio Leemann (SL) Wicki Partners AG – Switzerland www.irglobal.com/advisor/sergio-leemann

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