Due Diligence - nuances and constructs of the need and method

Measure of a company’s or an organization’s worth begins with the identification of its patent docket and ends with its monetary valuation. A strong patent portfolio and a favourable patent environment are two important criteria for the success of an emerging technology business. Not all patents are of the same value. Face value and true value of a patent may have sizeable differences; the face value being the conceived value, and the true value being the actual value. The ability to use or license a patented invention to earn a profit is, of course, the real value of a patent to its owner.

Due diligence, is hence, an essential methodology of evaluating and recording the true worth of a patent or a docket of patents and its off-shoots, such as the protection it provides, and the business it generates or is perched to generate. In the entire ensemble of things relating to mergers and acquisitions, growth and development, initial public offerings, it is patents which provide the engine for driving the same.

Each patent is also, only as worth as the strength of the words describing the invention. Hence, it is easy to design around some patents, and it is easy to block some patents.

Course of Action:
The path to obviate the after-effects of a vagrant approach towards recognizing the worth of a patent portfolio, which does not adequately define the cornerstones of its worthiness, is to indulge in a meticulous due-diligence affair. A thorough approach can be defined in lieu of the following steps:
1) Engage a competent counsel
2) Engage a validation professional
3) Identify the boundaries of each patent
4) Map out the mine of patents in and around each patent
5) Check for cross-connections
6) Render it fool-proof

The first path of the due-diligence process begins whilst drafting the patent application.

Purpose:
The basic premise of a due-diligence exercise is to provide the bearer of the exercise with a better understanding of the target’s business, its capability, its previous worth and its future course and value. Another object is to understand the liabilities of the target which may include license deals, or even surfacing of the fact that certain patents held by competitors have rendered the target’s practice or bouquet of patents virtually non-exercise-able.

In this exercise, the larger idea is to have a complete map, typically of the Research and Development output vis-à-vis the patents it holds, and hence, strive to perceive gains, losses, or pitfalls.

Path:
An ideal due-diligence affair should bring to fore the entire history of each patent held by the target in direct correlation with:
a) the competitor’s patents and technology;
b) the monetary edge over the competitor’s technology;
c) the hindrances posed by the competitor’s patents and technology.

When a person buys milk at the supermarket, he ain’t worried about the technology or the Research and Development or the other details of milking. The sentiment of such casual demeanour should be obviated strongly whilst dealing with the cause of take-overs and mergers, and hence, the need to practice an efficient due-diligence exercise, the steps of which include:

1. Review all issued, pending and abandoned U.S. and foreign patent applications and patents. Include all applications and patents filed by the seller, currently or formerly owned by the seller, or licensed to the seller.

2. Review all patent searches conducted by or on behalf of seller related to inventions or designs.

3. Confirm payment of maintenance fees for all patent applications and issued patents.

4. Review all cooperative research agreements, license agreements and merchandising agreements, regardless of whether seller was the licensee or licensor.

5. Review all threatened or pending interferences involving seller's patent applications or patents.

6. Review all invention disclosures related to the business assets being transferred that are either awaiting disposition or are to be the basis of a patent application.

7. Review all technologies that are material to the business assets being transferred, together with a description of how each such technology was developed or acquired and copies of all documents evidencing any such acquisition.

Meticulous planning and extreme alertness is the key to provide a due-diligence affair report, for it is upon this report that sizeable decisions would be chalked out and taken.