Mergers and acquisitions are among the most commonly adopted means of rapid business expansion. Almost always, the parties and their lawyers will conduct a due diligence exercise in relation to a myriad of financial, technical, business and legal issues to assess the merits of, and any risks inherent in, the proposed transaction. In this context, intellectual property (IP) is becoming increasingly important, not only because it may be one the of the business’s most valuable assets, but also because, especially for high-technology and multi-national companies, there may be anti-monopoly considerations to be taken into account in relation to it e.g. in a recently publicized acquisition of Motorola by Google, the Ministry of Commerce of China stipulated, in its decision granting conditional approval, the basis on which the Google Android system could be licensed and the FRAND (fair, reasonable and non-discriminatory) obligations with respect to Motorola’s patents.
This article discusses some essential elements that should be taken into account when carrying out an IP focused due diligence exercise.
I. Identification of relevant IP, including scope and ownership
From a legal perspective, IP-focused due diligence normally has three goals: 1) to determine the existence, scope, and ownership of IP assets, 2) to provide data necessary for an assessment of the value of the IP assets, and 3) to identify any vulnerability in relation to the potential infringement of others’ IP rights.
A thorough and comprehensive review and verification investigation must be undertaken. IP rights differ from traditional property rights in relation to ownership, duration, scope and termination. It is necessary to review all these elements in the light of relevant IP laws e.g. establishing the owner will involve considerations of whether the IP is owned by an individual or a company, whether there are any joint-owners; whether a corporate owner may be subject to control from its parent company; whether ownership is affected by any contractual arrangements; whether there are documents certifying assignment(s) of all interests from any and all of the inventors, creators, or authors; whether there are laws or administrative rules that may restrict the license or assignment of the IP; and whether there are other parties that may have prior rights (such as pledges) that may affect the assets. Without an independent and comprehensive review and verification exercise, it would not be possible to identify all relevant IP, or to estimate its value.
Announcement [2012] No. 25 of the Ministry of Commerce -- Announcement on the Anti-monopoly Review Decision on the Conditional Approval for the Proposed Acquisition by Google Inc. of Motorola Mobility Holdings Inc. Which Involves Concentration of Business Operators, Announcement [2012] No. 25 of the Ministry of Commerce
