The Importance of Conducting IP Due Diligence for Companies

Intellectual property rights have emerged as one of the most important sectors of the legal system worldwide. It protects the rights of a company or an individual’s intellectual property, which refers to any invention, literary or artistic work, industrial model or trademark which can be attributed to a human mind’s potential to create. This can include patents, copyrights and trademarks, which possess some moral or commercial value. This entitles creators or owners of these intellectual properties to take the necessary actions required to get the benefits they deserve. (Information source: https://suzaanlainglaw.com/ip-due-diligence/)

IP Due Diligence Explained:

Because of factors such as globalisation and worldwide connectivity, the level of cut-throat competition is more than ever before, in almost every industry, business enterprises have started realising the importance of such intellectual assets. IP audits are thus conducted by law firms and attorneys on behalf of their clients, to get a better understanding of the full value of such intellectual properties.  Thus, IP due diligence can be referred to the process of evaluating a company’s IP portfolio which consists of intangible assets of high value. The main aim of this is to realise the full value of such assets, the risks involved and the scope of their protection.

Why is it Important?

IP due diligence should never be overlooked, especially if scenarios such as mergers and acquisitions come into the picture. It is also conducted when an investor wants to invest in a start-up or when a company wants to raise capital through mortgaging such assets. There are several important reasons why IP due diligence is required and necessary. Some of them are explained below.

  • It helps to reveal and examine any risks that may allow an unauthorised third party to claim the said assets.
  • It helps the company to determine the maximum value of such intangible assets, boosting the company’s balance sheets.
  • It aids the company to reorganise crucial operations in a way to enhance the marketability and commercial value of its products and services.
  • Failure to conduct IP due diligence can put the company at risk of over valuing or devaluing the assets in question.

In the modern marketing landscape, owners of small and medium sized enterprises looking to attract potential investors to their projects, need to conduct IP due diligence before they take part in any deal. In this case, the company owners are required to function like sellers, stress testing their IP to detect any inherent risks that may be present.  This allows them to rectify such risks and create a selling narrative when justifying the selling price.

From the context of a buyer, due diligence of IP becomes important as it is a source of information about the risks as well as benefits of acquiring the IP in question, which ultimately justifies the price.

Without the proper information, no business whatever the size maybe, cannot form the right strategies for mitigating the risks or to negotiate the value when risks cannot be mitigated.

Comments are closed