Due Diligence When Selling a Business

Intellectual Property Due Diligence

If your company is being acquired partly for its intellectual property, you'll want to be sure to understand the ins and outs of intellectual property due diligence.

No two due diligence processes are the same.

Due diligence is fairly straightforward in a business sale comprised primarily of tangible assets. But when intangible assets are involved, the due diligence process becomes more complex, particularly when the intangible assets involve the business's intellectual property.

Intellectual property includes creative assets that have been formalized through patents, trademarks, and copyrights. Although these assets can't be seen or touched, their presence is felt throughout the organization's outputs and financial data. If the buyer can't be assured of exclusive ownership of intellectual property, the entire business model could be in jeopardy.

During due diligence, buyers will subject your company's intellectual property to close scrutiny. To prepare for intellectual property due diligence, you need to understand the issues and concerns that are important to buyers - and the best way to do that is to conduct your own intellectual property due diligence process before you put your business on the market.

  • Take inventory. For starters, you'll want to take an inventory of your company's intellectual property assets. This includes not only the patents, trademarks, and copyrights you currently own, but also the ones that are in process or may be in process during the time of the sale. If future assets are in development, include them in your inventory as well.
  • Classify assets. After you have compiled an inventory of intellectual assets, start classifying them according to their level of maturity. Fully mature assets are assets that have been thoroughly protected and are well known in the industry while emerging technologies require a higher level of intellectual protection. Trade secrets may not require a patent or trademark, but should be clearly identified and classified with the rest of your intellectual property.
  • Evaluate the competition. A brief survey of the industry provides a sense of your intellectual property's value to buyers. If your intellectual property secures a strategic niche in the marketplace, it's value to buyers go up, as does the amount of attention they will give it during due diligence.
  • Consider current protections. It's important to make sure your intellectual property is adequately protected before you initiate the sale process. Intellectual property that is critical to the company's business model, but lacks adequate patent or copyright protection is vulnerable - and it may have little or no value to prospective buyers.

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