IP Due Diligence Checklist: Everything You Need to Know

What Is an Intellectual Property Due Diligence Checklist?

An intellectual property due diligence checklist is an organizational tool. It lists items to be completed during an intellectual property due diligence investigation. The IP due diligence checklist gives structure and organization to the due diligence investigation. IP due diligence involves gathering mountains of information, and the information must then be organized and analyzed for understanding.

IP due diligence investigations seek to answer whether certain intellectual property assets should be bought or sold. The checklist helps to make sure every piece of information necessary to answer that question is gathered.

Intellectual Property

Intellectual property is an intangible asset that comes in many types. It is an idea or trade secret that may be patented, copyrighted, or trademarked.

Why Are Intellectual Property Due Diligence Checklists Important?

A checklist is extremely important when completing an IP due diligence investigation. The investigation can be extensive, collecting many pieces of data, and a checklist helps to organize the investigation.

An IP due diligence checklist also helps investigators to not miss information. When referring to a checklist, you clearly see what information has been gathered and what has not.

Questions To Ask When Creating an Intellectual Property Due Diligence Checklist

A due diligence checklist is designed to simplify and streamline IP due diligence. This means that the list needs to include as much information and as many tasks as might need to be completed. When preparing your IP due diligence checklist, ask yourself these questions:

• What transaction is happening? (Merger? Acquisition? Investment in IPO?)

• What good, product, or intellectual property is being bought or sold? Be specific.

• What's the most important product being bought or sold?

• Is there a patent? Is the patent up to date? Is the chain of ownership clear?

• Is the market domestic or foreign? Both?

Creating an Intellectual Property Due Diligence Checklist

IP due diligence checklists are typically created by intellectual property lawyers and attorneys. Many firms have a standard IP due diligence checklist that is used for all IP due diligence investigations.

For each IP due diligence investigation, it's important to make small changes to the checklist. Each IP due diligence investigation is unique, and each checklist must be unique.

To create the corresponding checklist for an IP due diligence investigation, the business transaction must be fully understood. To find understanding, ask "What is the goal of the transaction?" By designing the IP due diligence checklist around the goal of the investigation, the checklist becomes more useful.

The more specific the goal, the more accurate the IP due diligence checklist. The more accurate the IP due diligence checklist, the more accurate the IP due diligence investigation.

What Does an Intellectual Property Due Diligence Checklist Look Like?

There are many examples of intellectual property due diligence checklists online, and you should look at examples to help you create your own.

Patent

Number	Subject	Date Requested	Date Received	Comments
1	Obtain copies of U.S. and foreign patents.
2	Find status of maintenance fees.
3	Find documentation of ownership and confirm with U.S. patent office.
4	If a foreign country requires that the patent be used, confirm use.
5	Identify opposition, scope, and status.
6	Find research and development documentation that might be needed for future patents.
7	Discover any patent claims.
8	Identify patents and inventors. Discover inventors' employment status. Check patent rights.
9	Find and review all patent agreements.
10	Get copies of all prior art searches. Identify if there are any patent validity concerns.
11	Get copies of all correspondence relating to patent disputes.
12	Ask for copies of all clearance procedures.
13	Check for correspondence of anyone requesting information on the patent status.
14	Make sure patent term extensions have been applied for.
15	Get copies of all patent term extension applications.

Trademarks

Number	Subject	Date Requested	Date Received	Comments
1	Obtain information on all state, federal, and foreign trademark applications.
2	Request copies of ownership, assignment, and lien records.
3	Find section 8 and 15 filings.
4	Look for opposition and cancellation proceedings.
5	Cross reference which products use a trademark and which do not.
6	Identify any unused trademarks. For how long have they gone unused?
7	List and schedule all non-used trademarks.
8	Read all agreements that pertain to trademarks.
9	Review all documentation on searches, conclusions, and reports on the validity of trademarks.
10	Read all correspondence dealing with trademark disputes.
11	Review all correspondence that requests information on the status of a trademark.
12	Do any trademarks need to be renewed during the due diligence phase?
13	Review information on valuation of trademarks that has already been completed.

Copyrights

Number	Subject	Date Requested	Date Received	Comments
1	Review all application and registration documentation for all copyrights.
2	Obtain copies of all agreements pertaining to copyrights.
3	Review information on searches, conclusions, and opinions on all copyrights.
4	Read any correspondence pertaining to copyright disputes.
5	Make sure all fees are paid and copyrights are up to date during due diligence and transition.
6	Find out if any valuation analysis has been completed and review.

Trade Secrets

Number	Subject	Date Requested	Date Received	Comments
1	Identify all trade secrets, including those obtained from third parties.
2	Review all agreements that deal with trade secrets.
3	Read all correspondence that deals with company trade secrets.
4	Discover and review any valuation analysis that has been completed.

IP General

Number	Subject	Date Requested	Date Received	Comments
1	Obtain documentation of any litigation or claims made on intellectual property.
2	Review all agreements made with employees about non-disclosure and protection of trade secrets.
3	Review all joint venture agreements.
4	Discover any agreements that are currently in negotiation.
5	Review any agreements with special warranties or indemnifications.
6	Describe products sold by target company.

FDA and GMP Regulatory Compliance

Number	Subject	Date Requested	Date Received	Comments
1	Obtain copies of press releases.
2	Review SEC filings.
3	Review personnel chart to determine who is in control of regulatory compliance.
4	Review documentation of in vitro, animal, mechanical, or chemical tests.
5	Find laboratory notebooks and data analyses.
6	Review information on who sponsored trials and if there were any conflicts.
7	Discover any events of clinical inefficacy.
8	Request clinical trial reports from FDA.
9	Request audits of research center.
10	Review correspondence between the company and the FDA.
11	Review documentation of FDA review and inspection.
12	Review any FDA warning letters.
13	Review any documentation pertaining to foreign product development and orphan drug status.

Reporting Problems Under Sarbanes-Oxley (SOX Act)

Number	Subject	Date Requested	Date Received	Comments
1	Do SEC filings correctly reflect the valuation of intellectual property and trade secrets?
2	Have audits been periodically completed?
3	Have freedom to operate searches been completed?
4	Does the company have internal monitors looking for intellectual property infringement?
5	Have pertinent events been reported to shareholders in a timely manner?

Types of Intellectual Property

Patent

A patent is legal ownership of an idea or invention that protects the owner if another entity uses that idea or invention.

During IP due diligence investigations, it's important to identify patents. Once identified, the strength of the patent must be investigated and ownership must be verified. Possible third party owners must be found, and the validity of the patent must be checked as it's important to know that the patent has not expired or been sold.

There is the possibility that the patent is registered internationally and an international inquiry into the strength of the patent should be completed.

An invention must fulfill certain requirements to receive a patent and must be unique and properly described in the application.

• Unique: To be approved for a patent, an invention must be novel or unique. This understanding can shift due to evolving U.S. patent law and is especially confusing in the biological science field.

• Proper description: An invention must be properly described to receive patent approval. In addition, a prototype and a drawing may be required at the time of application.

Trademark

A trademark identifies the source of a good or service and provides protection against unauthorized use and infringement. To register and maintain a trademark, a maintenance fee is required every 10 years. A trademark is limited to the country in which it is registered, so it is important to know in which countries a product is trademarked.

Copyright

A copyright provides protection to the author of an original work. To receive approval for a copyright, the work must be in a tangible form such as film, music, or writing.

Trade Secrets

A trade secret is information that a company chooses not to share and is only valuable as long as it remains secret. Prior to the Sarbanes-Oxley Act in 2002, trade secrets were considered to have no value.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act decided to require greater disclosure of financial information from publicly traded companies.

Tasks of an Intellectual Property Attorney

If you're considering creating an IP due diligence checklist or need to complete an IP due diligence investigation, consider hiring an intellectual property attorney. An intellectual property attorney has specialized knowledge about IP due diligence. There are many tasks that an intellectual property attorney can help you with.

Identification of IP Assets

As part of an IP due diligence investigation, an intellectual property attorney identifies intellectual property assets. This is necessary for transferring, licensing, or acquiring intellectual property.

The validity of the intellectual property can make or break a deal. An intellectual property attorney helps to identify the validity and value of the assets.

Assessing Patents

Intellectual property attorneys are also trained to assess the quality of patents. Patents must be valid and enforceable to be valuable. The scope of the patent is also assessed to make sure it fully covers the product.

Assess Possible Infringement

An intellectual property attorney can also assess possible patent infringement. To produce or sell a product, you must fully own the patent. If the product infringes on a patent owned by someone else, it cannot be produced or sold. An infringement assessment will identify any possible patent infringement.

Audit of Intellectual Property

When preparing for a sale, a company will complete an IP audit. An IP audit is completed by an intellectual property attorney and identifies any problems or future problems with a company's intellectual property. An IP audit also assesses the worth of the intellectual property.

Negotiation

An IP attorney can also assist during negotiations for the sale or purchase of intellectual property.

Ancillary Agreements

Often, the negotiation is not the final interaction of a sale or purchase. Negotiations or deals that follow a sale or purchase are considered ancillary. An intellectual property attorney can help with these ancillary agreements.

Due Diligence Procedure

When completing an IP due diligence investigation, there are three important steps to follow.

1. Prioritization

2. Investigation

3. Results

For each step there are specific goals and procedures to follow.

Prioritization

The goal of this first stage is to understand the goals of the IP due diligence investigation. Once the goals are determined, it's time to prioritize. The goals are put into order of importance so that the most important goals are investigated first and most thoroughly.

Once the goals are prioritized, it's time to create the IP due diligence checklist. The checklist and goals help to direct the flow of the investigation and serve as tools to keep the investigation on track. If the investigation veers or gets distracted, a look at the IP due diligence checklist can bring it back on point.

To define the goals and prioritize, here some example questions.

• What is the ultimate goal of the intellectual property transaction?

• Who is interested in the transaction?

• Are any of the assets involved in litigation?

• How are the intellectual property assets protected?

• What type of transaction is going to take place? (Merger? Acquisition?)

Investigation

This is the main part of the IP due diligence process and where the most time is spent. The investigation is the time for fact gathering and research.

During the investigation, these legal analyses will take place.

• Consideration of Freedom to Operate

• Scope and protection

• Validity and enforceability

• Ownership

This is where the IP due diligence checklist becomes most important and most useful as it keeps the investigation focused.

Results

This is the final stage of the IP due diligence investigation. Once the investigation is finished, it's time to gather and analyze the results. This provides structure for organizing the gathered facts.

The goal of the results section of an IP due diligence checklist is to answer the questions set forth in the prioritization. The results will answer if the intellectual property should be or shouldn't be purchased or sold.

Investigation of Intellectual Property: In Depth

To create an IP due diligence checklist, evaluate the intellectual property being bought or sold. The first step is to understand the intellectual property that's part of the transaction. There are four steps to investigating intellectual property.

1. Find and verify ownership.

2. Identify any possible third owners.

3. Assess validity and scope of intellectual property.

4. Identify freedom to use, produce, or sell the product or intellectual property.

Ownership

A patent is owned by the inventor or inventors, and inventors may sell their patents. When investigating a patent's ownership, it's important to look for possible third owners. A good faith effort must be made to identify all inventors, including seeking information on ownership challenges.

Validity and Scope

This section assesses the strength of coverage and the scope of the protection. Intellectual property is protected through patents, trademarks, and copyrights.

Freedom to Use

Freedom to use is the idea that production of this good will not infringe upon third party patents. An IP due diligence investigation will seek to understand how unique the product is to seek the breadth of the freedom to operate.

This affects the purchase or sale of intellectual property. If a product infringes upon someone else's patent, it cannot be produced or sold. If a product cannot be produced or sold, it's unlikely that someone will purchase the patent. This is the purpose of an IP due diligence investigation.

Freedom to use should be included on an IP due diligence checklist as it will identify the validity of using or selling the product.

Litigation

A search should be conducted to see if a patent has been involved in any litigation.

This search should also attempt to identify possible future litigation. If possible infringement is identified, the product may be able to be altered. If the product can be altered, the infringement will be eliminated.

FDA Regulation and Compliance

Some intellectual property products are regulated by the FDA. If a product is regulated by the FDA, its purchase or sale becomes more complicated. FDA regulated intellectual property must be FDA approved.

The IP due diligence checklist should include checking whether intellectual property is FDA regulated. The IP due diligence checklist should also include making sure that FDA regulated items are properly approved.

If FDA regulated intellectual property isn't FDA approved, this opens the door for litigation and liability.

Trade Secrets

Trade secret policies could have a limiting effect on intellectual property use. The IP due diligence investigation should review trade secret policies. Reviewing of trade secret policies should assess whether the intellectual property is free to use or not.

Open Source Code

If open source code is used or included in the intellectual property, it must be investigated for freedom to use. The open source code may place restrictions upon the use of the intellectual property.

Unregistered Intellectual Property

If intellectual property is unregistered, there is potential that it cannot be registered. Trademarks and copyrights do not have to be registered, but it could make using or selling the intellectual property more complicated.

When Is an IP Due Diligence Checklist Needed?

Any time an IP due diligence investigation is completed, an IP due diligence checklist is needed. An IP due diligence investigation is necessary whenever there's a sale or purchase of intellectual property and should be conducted as early as possible.

The more time that is allowed to complete the IP due diligence, the more thorough the investigation. A rushed IP due diligence investigation might have mistakes or missed important information. IP due diligence investigations often identify legal issues that must be addressed prior to the completion of negotiations.

It is a mistake to not leave enough time to complete a thorough IP due diligence investigation. An IP due diligence checklist can help to speed up the process of the investigation.

FAQs

• What does an IP due diligence checklist look like?

There are many examples of IP due diligence checklists online. You can also use the example checklists above to help you through the process.

• Who can create an IP due diligence checklist?

Anyone can create an IP due diligence checklist. Most often, an IP due diligence checklist is created by an intellectual property attorney.

If you need any help preparing an IP due diligence checklist or completing an IP due diligence investigation, don't hesitate to contact one of UpCounsel's intellectual property attorneys.