An Intellectual Property Evaluation MUST Be Part of M&A Due Diligence

Intellectual property (IP) are assets. They don’t just protect your innovation and hard work; they add value to a business. Still, many businesses move through a mergers and acquisitions (M&A) deal without doing a deep dive into the other business’ intellectual property portfolio.

The perfect time to do this is during due diligence. Your team gets a look inside the books of the other company to ensure what is being offered is actually there. During this process, you should work closely with an experienced business attorney who knows what to look for and how to evaluate a professional IP portfolio.

Are You Buying a Lawsuit?

In some business deals, a company purchases another without recognizing the significant legal risk they’re taking on. IP infringement manifests in several ways within companies and creates risk to the acquiring business.

Say you are acquiring a business and gloss over the fact that they have not taken the steps to thoroughly review whether or not their branding infringes on the intellectual property rights of other individuals or businesses. You sign off on the deal and continue pumping out products or services but are now doing so at a larger scale. This catches the attention of the business that actually holds IP protection on a name, logo, or product or service being used that you now control and profit off of.

This misuse of another entity’s IP could cost your company significantly and devalue everything your company just paid for. It’s imperative to review the products and services, and protections that are (or aren’t) present in an M&A deal before proceeding.

This same issue exists if a company believes they hold protection when an IP is actually registered to a former employee or an individual who can claim profits from a company product or service.

Is There Untapped Potential in the Deal?

Your company always benefits from IP reviews during the due diligence period. It gives you more data to work with and an understanding of the true value you’re paying for. But, could there be untapped potential?

Some companies hold an extensive IP portfolio that they rarely dip into. Executives often don’t recognize the value of what they have. This could, of course, result in an increase in the purchase price if both sides discuss those details, but it also could mean significant and immediate growth opportunities should you properly wield the IP portfolio of the company you are acquiring.

Does Your Company Need to Acquire the Entire IP Portfolio?

IP due diligence may allow you to negotiate the purchase price down. The business valuation likely includes much or all of what is held in the IP portfolio, but the new business created during the merger or acquisition may not need it all.

Your business should consider whether or not some of the IP protections in the deal can be left behind or even sold to a third party that has a more direct interest in those products or services. The trademarks, copyrights, patents, and trade secrets in the portfolio each have their own value and value as a whole – IP due diligence further defines this value and creates another chip in the negotiation.

Working with a skilled and experienced IP professional provides peace of mind in this process. At the Law Offices of Tyler Q. Dahl, we work with businesses to make sure their IP portfolio is thorough, efficient, and well-managed. If you need help reviewing another company’s portfolio during a merger or acquisition, contact our offices and make sure the review is done right.

The following two tabs change content below.

Dahl Law Group

At Dahl Law Group, we’re not just a law firm. We’re your trusted advisor for your business and family from beginning to end. As your family and business grow, we will be there by your side. Our passion is providing you with peace of mind and protection through personalized estate and business planning.