INTELLECTUAL PROPERTY AND DUE DILIGENCE
Intellectual property may be valuable let alone the core asset of the target company. Consequently IPRs should not be taken lightly in the DD-process. I always recommend that all trade marks, designs, copyrights and patents which are to be included in the transfer should be listed in an appendix to the agreement. The buyer should request warranties with regard to the following matters:
(a) that the object company is the owner of the IPRs;
(b) that those rights are valid and enforceable;
(c) that the seller has not granted any person a right to the IPRs;
(d) that the IPRs are not registered in the name of the seller or any other third party (a.g. a sister company);
(e) that the operation of the business does not infringe the intellectual property rights of any other person.
I have seen a case where the IPRs were not included in the deal; they were registered in the name of the seller and not in the name of the object company. This was very unfortunate and a proper DD should have revealed it. That error became very costly as the target was a product development company.
In this context I can’t help underlining another aspect ; some essential IPRs may be licensed to the target company. Therefore the buyer is well advised to ensure that it receives the benefit of all license contracts entered into between the seller and third parties which are important to the business. One we have used is to assign the benefit of contract. The buyer should, however, check in the DD whether or not the terms of the contact prohibit assignment or require the consent of the other party. One may also ask the seller to warrant this provided that the seller is ready to give such a warranty.