Due Diligence for Copyright

Using due diligence, a specific standard of care when buying a copyright can inform the purchaser of a copyright as to the value of that copyright and whether the copyright is valid, infringed, or infringing on another copyright. Especially in software, great care should be taken when purchasing these types of assets.

What Do I Need to Do When Purchasing a Copyright?

When purchasing a copyright, you should consider the following:

• Verify ownership: Although not an issue when the copyright holder is a self-employed individual, one of the most important issues that can come up is whether the copyrighted work is a work done for hire. The fact that it is or is not a work-for-hire can affect ownership. Verify the status of the employee-employer relationship before purchasing material generated under a work-for-hire agreement.
• Verify registration: Copyright registration is not required for copyright ownership. However, if a company later decides to sue for copyright infringement, the copyright must be registered with the United States Copyright Office. In addition, registration will be important in calculating damages in a court.
• Verify the scope of copyright: Important only for software copyrights, certain software code elements are not protectable, such as parts of a program that are used to achieve compatibility with other software or hardware and aspects of a program that conforms to industry standards. Make sure to check what was claimed in the original copyright registration.
• Copyright licenses: When the company or person bought its copyright from someone else, the scope of the company’s rights is defined by the copyright license agreements. For this reason, check the limits on a company’s licensed ownership rights in copyright before you purchase it if you are interested in a particular copyright so that you don’t end up with less than you bargained for.
• Copyright misuse: Copyright misuse results when a copyright owner attempts to impose restrictions on parties beyond the scope of their copyright. It has been common for courts to invalidate copyrights when a party that owns a copyright has tried to do so with other parties in the past. Check if a company has a history of invalidating copyrights.

What Are the Benefits of Intellectual Property Due Diligence Checklists?

A checklist is extremely valuable when completing an intellectual property (IP) due diligence investigation. Many pieces of data are collected when conducting an investigation, and a checklist helps organize the investigation.

Investigators can also use an IP due diligence checklist to avoid missing important information. Using a checklist, you can see what information has been gathered and what has not.

Questions To Ask When Creating A Due Diligence Checklist For Intellectual Property

Due diligence checklists simplify and streamline IP due diligence. As such, the list should include as much information and as many tasks as possible. Ask yourself the following questions when creating your IP due diligence checklist:

• What transaction is taking place? Is it a merger, an acquisition, or an investment in an IPO?
• What good, product, or intellectual property is being purchased or sold? Describe.
• Which is the most important product being bought or sold?
• Does it have a patent? Is it current? Who owns it?
• What is the market like? Is it domestic or foreign? Or both?

Creating a Due Diligence Checklist for Intellectual Property

Due diligence checklists for intellectual property are typically created by intellectual property lawyers and attorneys. Many firms use a standard IP due diligence checklist.

In each IP due diligence investigation, making small changes to the checklist is important. IP due diligence investigations are unique, and each checklist must be unique.

A complete understanding of the business transaction is required to create the corresponding IP due diligence checklist. 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 objective, the more accurate the IP due diligence checklist. IP due diligence investigations are more accurate when the IP due diligence checklist is accurate.

Types of Intellectual Property

Patent
A patent is a legal protection for the owner of an idea or invention if another entity uses that idea or invention.

Patents should be identified during IP due diligence investigations. When a patent has been identified, its strength and ownership must be investigated. Third parties should be identified, and the validity of the patent must be checked to ensure that it hasn’t expired or been sold.
If the patent is registered internationally, an international inquiry into the strength of the patent should be conducted.

To receive a patent, an invention must satisfy certain requirements and be unique and properly described in the application.

An invention must be novel or unique for a patent to be approved. A change in U.S. patent law can cause this understanding to shift, and it is particularly confusing in the biological sciences.
Patent approval requires a proper description of the invention. A prototype and a drawing may also be required at the time of application.

Trademark
Trademarks identify a good or service’s source and protect against unauthorized use and infringement. An annual maintenance fee is required to register and maintain a trademark. Trademarks are exclusive to the country in which they are registered, so it is important to know which countries a product is trademarked in.

Copyright
A copyright protects the author of an original work. To be approved for a copyright, the work must be in a tangible form, such as film, music, or writing.

Trade Secrets
Trade secrets are information that a company chooses not to disclose and are only valuable while remaining confidential. Trade secrets had no value before the Sarbanes-Oxley Act of 2002.

Sarbanes-Oxley Act
Publicly traded companies must disclose more financial information under the Sarbanes-Oxley Act.

Tasks of an Intellectual Property Attorney

Consider hiring an intellectual property lawyer if you need to create an IP due diligence checklist or conduct an IP due diligence investigation. Intellectual property attorneys have specialized knowledge about IP due diligence. They can help you with a variety of tasks.

Identification of IP Assets
An intellectual property attorney identifies intellectual property assets as part of an IP due diligence investigation. Transferring, licensing, or acquiring intellectual property requires this.

Validity of intellectual property can make or break a deal. An intellectual property attorney can help determine the validity and value of an asset.

Assessing Patents
Intellectual property attorneys also assess patent quality. Valuable patents must be valid and enforceable. Its scope is assessed to ensure the patent fully covers the product.

Assess Possible Infringement
An intellectual property attorney can also assess patent infringement. A patent must be fully owned in order to produce or sell a product. The product cannot be produced or sold if it infringes on a patent owned by someone else. A patent infringement assessment will identify any possible infringement.

Audit of Intellectual Property
When preparing for a sale, a company will conduct an IP audit. An intellectual property attorney conducts an IP audit in order to identify any problems with a company’s intellectual property. An IP audit also assesses the value of the intellectual property.

Negotiation
Additionally, an IP attorney can assist in negotiating the sale or purchase of intellectual property.

Ancillary Agreements
A negotiation is not always the last interaction of a sale or purchase. Ancillary deals are those that follow a sale or purchase. An intellectual property attorney can assist with these agreements.

Should I Contact a Lawyer Regarding My Copyright Due Diligence Issues?

A good copyright lawyer will understand that using due diligence will help facilitate the process of transferring copyright rights. In such complicated situations, it’s recommended to always contact a lawyer before purchasing a company, its assets, or its goodwill.