Articles
Time To Acquire: Or Just Time To Get Your IP House In Order?
December 31, 2001
This article provides a 24 item checklist for companies interested in auditing their intellectual property portfolio. The checklist is intended for those looking to acquire a company or for companies looking to be acquired, but companies not in either situation may find the checklist a useful self-evaluation tool.
Checklist is helpful for acquirors and companies on the verge of a public offering.
As everyone knows, the current economic climate for high tech and e-commerce companies is generally unfavorable for IPOs. If your company has recently conducted a successful IPO, congratulations. If you are getting ready to launch one, good luck. For the rest of you, that does not mean you have to stand still until happy days return again (and they will).
For some, this is the time to acquire. Smart business owners recognize that it is sometimes faster and more cost-effective to grow by acquiring or merging with other companies than by trying to develop needed assets themselves. This is one of those times. Companies with the necessary resources can find good values for technology, intellectual property, customer lists, market penetration and even people, through the acquisition or merger process.
For others, this may be the time to be acquired. Cash out. Get a fresh start. There are multiple reasons for welcoming an acquisition.
In either case, you will find the Intellectual Property Due Diligence Checklist at right helpful. If you are looking to acquire, use this list early in the process to help you price the deal or to make a "go/no go" decision. If you are on the other end of the process, looking for buyers for your company, use this list to prepare for the coming due diligence process. It will enhance the market value of your company by helping you have your IP act together when an opportunity presents itself.
Even if you are not currently in the market to acquire or be acquired, you will find this checklist useful as a self-audit tool and recipe for success – apply the checklist to your own company. If you do not like what you see when you compile the responses, it is time to get your IP house in order. Doing so will maximize the company’s value in the eyes of investors, future prospective buyers or even the stock marketplace when those happy days of IPO’s return.
Intellectual Property Due Diligence Checklist
1. Provide lists of the following intellectual property owned by the Company:
(a) Patents, patent applications and patent disclosures (U.S. and foreign)
(b) Federal, state and foreign trademark and service mark registrations and applications; claimed common law (unregistered) trademarks; trade names
(c) Copyright registrations and pending applications
(d) Mask works and mask work registrations and applications (U.S. and foreign)
(e) Trade secrets
2. Provide copies of all applications, registrations and correspondence with the government agencies relating to the IP assets described above.
3. Describe all technology, software or other assets that the Company believes are entitled to patent or copyright protection that have not been the subject of applications or registrations and explain the reasons for the Company’s belief.
4. For each trademark or service mark that is not registered anywhere by the Company: (a) identify the products or services with which it is used; (b) state when the mark was first used; and (c) describe the geographic areas in which it has been used. For each, state whether use of the mark has been continuous. If not, explain.
5. For each mark, registered or unregistered, state if a trademark clearance search was conducted. List all marks for which searches have not been conducted. Supply copies of all searches conducted.
6. For all claimed trade secrets, describe the steps and procedures used for maintaining the status of such trade secret.
7. Identify any third parties to whom Company trade secrets have been disclosed and provide copies of all non-disclosure or confidentiality agreements used with them.
8. For computer programs owned by the Company, has the source code or related developmental documentation been disclosed to the third party? If yes, explain fully and provide copies of documents/agreements related to such disclosure.
9. Provide copies of all assignments or other agreements pursuant to which the Company has acquired ownership of any IP rights.
10. Identify all third-party software used in the Company’s business and provide copies of licenses or other agreements that give the Company the right to use the software.
11. Identify and provide copies of any other IP licenses pursuant to which the Company has obtained IP rights from third parties.
12. Provide copies of any ASP (Applications Service Provider) agreements to which the Company is party.
13. Provide copies of all licenses granted by the Company to third parties for use of any of the Company’s IP assets. Describe their current status. Describe any licenses currently being negotiated.
14. Describe all encumbrances on the Company’s IP assets (security interests, liens, mortgages, etc.) and provide copies of relevant documentation.
15. Provide a sample of each different form of agreement that addresses the IP ownership and/or confidentiality obligations between the Company and its employees. Identify all employees involved in the creation of IP assets in any way and for each state whether they are party to such an agreement.
16. Describe in detail all third-party involvement (consultants, independent contractors, and other non-employees) in IP development efforts for the Company’s products/services, or for things used in the Company’s business. For each, describe the nature of involvement and provide copies of all agreements relating to the involvement.
17. Describe all third party IP that is incorporated (by license, component part or otherwise) into any of the Company’s products or services, and provide copies of all documents that describe the terms of such use.
18. Identify any significant portions of the Company’s IP assets used in the Company’s business that are in the public domain and explain the basis for public domain status.
19. Provide copies of all non-disclosure or confidentiality agreements under which the Company has received confidential information from others.
20. Identify any employees involved in creation of the Company’s IP assets who were previously employed or retained as consultants in the past three years by other companies or persons involved in the creation of similar or related IP assets. For each, describe the nature of the employee’s previous position and the third party’s similar or related IP assets. Provide copies of any non-compete and non-disclosure agreements between the employees and their former employers.
21. Is the Company party to any litigation based on asserted third party IP rights or claims of infringement by the Company? If yes, describe the litigation and provide copies of all related correspondence, litigation documents or other relevant documentation.
22. Other than litigation, has any third party communicated to the Company in any way that any of the Company’s products or services infringe or may infringe, on the third party’s IP rights? If yes, provide all details and describe all steps taken by the Company in response. Provide copies of all related correspondence or other relevant documentation.
23. Has any third party communicated to the Company in any way that the Company does not own, or may not own the IP rights in products or services identified above (due to an invalid patent, ownership by a third party, public domain, etc.)? If yes, describe the steps taken in response and provide copies of all related correspondence, litigation documents or other relevant documentation.
24. Is the Company aware of any infringements by third parties of any of the Company’s IP rights? If so, what steps have been taken to address such infringements? Provide copies of relevant information, correspondence, litigation documents, etc.