Want to learn more about drafting, negotiating, and understanding intellectual property and technology contracts and have 10 minutes to spare? Grab your morning coffee or afternoon tea and dig into our Tech Contract Quick Bytes—small servings of technical contract insights prepared by our seasoned attorneys. This month, we're discussing intellectual property due diligence.
When evaluating a seller's intellectual property assets, the buyer should be aware of several "red flags" that may indicate further issues with the assets or the seller's management of its assets and licenses.
Expired or Unregistered IP Assets
The buyer should confirm all maintenance, renewal, or other fees and filing requirements have been satisfied for each of the seller's relevant patent, trademark, and copyright assets.
Cloud on Title
The buyer should confirm the existence and validity of any assignments from the inventor, author, or previous owner of an IP asset to the seller, to ensure the buyer is receiving its own assignment of the seller's IP assets free of any encumbrances. Otherwise, a "cloud on title" may prevent the buyer from being able to use the IP assets for its intended purposes.
Lack of Assignment and Confidentiality Agreements with Employees and Contractors
IP rights generally belong to the individual who first conceived of or created the IP asset, absent any contrary agreement. Accordingly, it is a red flag if the seller has not required its employees and contractors to assign all inventions created during the scope of employment to the seller as their employer. Employees and contractors should also have signed confidentiality agreements.
Inadequate Precautions in Handling Trade Secrets
To ensure the proper handling of trade secrets that the buyer may acquire, the buyer should review and confirm the existence of the seller's trade secret policies and procedures.
The Seller Is Subject to Third-Party Licensing Agreements
If the seller has granted a third party any rights to its IP, a buyer should review those license agreements to ensure that the rights are fully assignable to the buyer, or to ensure that the scope of the license does not frustrate the buyer's plans to use the assets.
Disputes Relating to the Ownership or Use of IP Assets
A buyer should inquire whether the seller has been subject to any disputes relating to its products or services, or party to any matters concerning infringement of its, or of a third party's, IP assets. Judgments or settlement agreements can affect the ownership rights or use of the IP assets of interest.
Co-Ownership of IP Assets
Any co-owned IP assets should be subject to a written agreement that clearly identifies rights, obligations, and revenue allocations for each party. A buyer should be aware of such agreements and make sure that ownership issues are resolved or an agreement is in place if a conflict should arise.
If you or your company would like to talk about intellectual property due diligence, please contact A.J. Zottola or Channing D. Gatewood. And click here to learn more about Venable's IP Tech services.
* Special thanks to Azniv Nalbandian for assistance with this article.