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Patent due diligence in technology company acquisition

China patent due diligence

A technology development and patent portfolio management strategy may include patent due diligence to evaluate the intellectual property of others to gain freedom to operate in a given technology field. Especially when you are cut a transaction in China, it's important to first look at the Target company's patent information. Our China Patent lawyer reminds you to do patent due diligence in merger and acquisition activities.

An important goal of the acquisition due diligence process is to assess the strategic value of the patent portfolio to the Target Company’s business, including the extent of the exclusivity in the marketplace that these assets provide. As experience China lawyer of patent law, we provide full patent law service to international clients.

Ideally the Target Company has already mapped its patent portfolio to its products and services, showing which parts of the patent portfolio protect what lines of business. Unfortunately many companies have not done this basic analysis and because it can be time consuming it might not be practical to do in the short calendar time in which acquisition due diligence takes place. In a future post we will examine various approaches to address this problem.

Acquired Patent Risk: Exposure to Acquired Patent Infringement Risk

Examining the strategic value of a patent portfolio provides insights into the potential “upside” that the portfolio may provide.

Equally, if not more important from a due diligence perspective, is determining the extent to which the Target Company is at risk due to intellectual property rights of third parties – i.e., determining whether there is potential infringement liability in the Target Company’s current activities and in the anticipated post-acquisition activities.

Due diligence also may occur in evaluating a patent portfolio, such as in a corporate transaction that may involve patent acquisition.

Strategic Patent Due Diligence for Freedom to Operate and for Corporate Transactions

Before launching a new product or technology, as part of patent due diligence, a freedom to operate search of issued or pending patents may be performed to determine the scope of protection, and then develop effective clearance procedures, if needed, to avoid infringing the patent rights of others. In this type of patent due diligence, we can help craft freedom to operate search parameters, analyze the results, and provide guidance on effective strategies for obtaining freedom to operate to avoid or minimize the likelihood of prospective claims of patent infringement.

Intellectual Property Due Diligence

Corporate transactions also may require intellectual property due diligence, and this due diligence often may include patent due diligence, particularly if patents are to be exchanged in the transaction. Patents can often be the catalyst that drives corporate transactions, including mergers, acquisitions, and initial public offerings. We assist clients to engage in strategic IP due diligence to consider issues including the quality of patent prosecution, the competitive landscape, and even possible alternatives to the patented technology.

A patent due-diligence inquiry is only as good as its methodology. A traditional approach may answer important questions, but it will not go far enough. Only by taking a strategic approach can the company ensure that it is getting the perceived value of the deal. And only by educating patent counsel and bringing them into the process can the company achieve the benefits of a strategic approach.

Patent Due Diligence Cost

A target company may be willing to contribute to the cost of the infringement analysis portion of the IP due diligence. This is because a non-infringement opinion from counsel can protect a company from claims of willful patent infringement. When a company relies in good faith on a competent opinion of an attorney that the company's product does not infringe a third party's patent, the company will not be held to be a willful infringer. This is important because actual damages can be increased threefold in cases of willful infringement.

Areas for Due Diligence Review

The high level areas that need to be addressed in Patent Due Diligence include:

  • Ownership and Control of Target Company Intellectual Property
  • The Structure of the Proposed Transaction
  • Identification of Strategic Value of the Target Company’s IP
  • Target (and Acquiring) Company Exposure to Liability from Intellectual Property of Others

As a patent law firm, our patent lawyers can assist with advising on patent due diligence legal issues. See our Patents service line page for additional information about IP due diligence legal services.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.