As a business or investment professional involved in mergers and acquisitions (“M & A”), are you conducting patent due diligence according to the standard practices of your M & A attorneys and investment bankers? When patents form a significant aspect of the value of the transaction, you are probably getting incorrect advice about how to conduct due diligence. The due diligence process must take into consideration the competitive patent landscape. If competitive patents are not included in your vetting process, you may be significantly overvaluing the target company.
In my many years of intellectual property and patent experience (more info here: http://www.jackiehutter.com/), I have been involved in a number of M & A transactions where patents formed a significant portion of the underlying value of the deal. As the patent specialist on these transactions, I took direction from highly compensated M & A attorneys and investment bankers who were acknowledged by C-level management to be the “real experts” because they completed dozens of deals a year. To this end, we patent specialists were directed to check the following 4 boxes on the patent due diligence checklist:
- Are the patents paid up in the Patent Office?
- Does the seller really own the patents?
- Do at least some of the patent claims cover the seller’s products?
- Did the seller’s patent attorney make any stupid mistakes that would make the patents difficult to enforce in court?
When these boxes were marked “complete” on the due diligence checklist, the M & A attorneys and investment bankers had effectively “CYA’d” the patent issues and were free from liability relating to patents in the transaction.