Patent due diligence is the practice of examining a patent or set of patents to support your business goals.
Depending on the conditions surrounding the requirement for diligence, there are many different ways to do patent due diligence. For instance, diligence might be “offensive” to find out if other people are violating your patents or if you can make money from them through licensing or divestment.
As a first step to enforcing your patents, such offensive diligence may comprise investigating other businesses’ products to see if any of them violate your patents. It could also entail developing a licensing strategy to produce income in keeping with your company’s goals.
To determine whether you have the freedom to operate your upcoming business venture, including whether you are infringing on other people’s patents and what steps might be taken to limit that risk, patent diligence can also be used as a “defensive” strategy.
Because of the legal expertise needed to evaluate factors like the scope and validity of a patent and develop a monetization strategy to maximize the return on your IP investments, companies frequently turn to qualified IP counsel when engaging in offensive or defensive diligence to analyze patents and identify how they may factor into business objectives.
What Does a Due Diligence Process for Patents Involve?
Depending on your needs, the breadth and complexity of the patent due diligence investigation can change dramatically. The following are typical elements of a diligence analysis.
Figuring out Whether Patent Claims Cover a Target Product
This analysis might involve looking at the history of patent applications, their specifications, and their claims, determining how specific claim wording needs to be read in a patent case, and applying the patent claims to a target product.
The outcomes of this study are frequently used to assess the likelihood of patent infringement connected to an ongoing or upcoming commercial activity.
Figuring out the Patent’s Enforceability or Validity
This analysis assesses one or more aspects of a patent’s validity, including whether the claims are novel in comparison to prior art, whether the invention is sufficiently described in the patent, and whether the claims are directed to patentable subject matter or an “abstract idea” that is not subject to patent protection.
The evaluation of any invalidity claims made by a third party in a previous court case or patent action may also be part of this examination.
Determine Whether There Could Be Problems with Ownership, Chain of Title, or Maintenance Fees
In this examination, the ownership, chain of title, and early expiration issues are evaluated. A patent’s initial owners are the named inventors; however, ownership may be transferred to others through patent assignment contracts.
Defects could significantly reduce a patent’s value in the title chain, making it more challenging to defend in court. A US utility patent will also typically expire 20 years after the earliest application for the patent was submitted to the Patent Office, with few exceptions.
Over a patent’s term, periodic maintenance payments are payable to the Patent Office; if they are not timely paid, a patent may lapse or expire prematurely.
When Should a Patent Diligence Analysis Be Carried Out?
Due diligence on patents may be especially helpful in the following situations.
Immediately Following the Receipt of a Notice Letter or a Cease and Desist Letter
In general, Notice and Cease-and-Desist Letters are frequently created to alert and caution alleged infringers about the existence of the patent rights, start licensing conversations, maintain patent enforcement rights, and obtain (and even instigate) the chance to collect damages.
Compared to Notice Letters, Cease-and-Desist Letters are more assertive because they also urge the alleged infringer to halt their allegedly violating behavior immediately. If you get such letters, you should plan your response and risk-mitigation steps accordingly, considering any potential for willful patent infringement.
The extent and clarity of the patent holder’s infringement analysis, if any, the patents’ expiration dates, any state laws that apply to claims of patent infringement made in bad faith, and the likelihood that the accused company’s technology would be found to violate the patents are all significant factors to take into account.
What Should I Know If I’m Buying a Company with Patent Assets or am Interested in Buying a Patent Asset on Its Own?
When buying a business with patents or a single patent, one must take care to ensure that the patent (or patent application) has been kept up to date by the owner. An important component of this investigation is diligence.
Performing thorough research should involve more than just compiling a list of patents and applications. The target company should be contacted for a wealth of information, which should then be independently checked.
What Details Should I Verify Prior to Entering Into a Patent Transaction?
Verify the duration and boundaries of every patent and patent application. This should involve looking over any term extensions and verifying that maintenance payments were paid on time. The existence and extent of rights in patent applications and patents held by a person or business should also be confirmed.
What Details Do I Need to Look Over Before Making a Patent Purchase or Sale?
To ensure that the patent is free and clear of issues surrounding ownership rights, you should evaluate agreements between inventors and the person or firm (workers and consultants), assignment documents, license agreements, development agreements, and government grants or contracts.
You should also go over all prior art searches that the company or person conducted or received.
Last but not least, you should look into any closed, threatening, or ongoing patent litigations, including any correspondence pertaining to the goods produced by the person or business in question or by third parties.
Strategic Due Diligence for Patents
Prior to the introduction of a new product or technology, our patent attorneys conduct IP due diligence evaluations for clients upon request. For instance, a freedom to operate search can help locate third-party patents and prevent infringement on other people’s patents. Lawyers on LegalMatch can offer advice on efficient patent portfolio management tactics using a patent due diligence analysis. In addition, prior to engaging in business transactions, an IP diligence assessment aids in determining the value of a company.
Due Diligence in Intellectual Property for Corporate Transactions
There is frequently a need for intellectual property (IP) due diligence in business and corporate transactions. The numerous IP types that will be traded as part of the transaction are examined as part of this due diligence. Corporate activities, such as mergers, acquisitions, and initial public offers, can frequently be sparked by patents.
In order to determine the true worth of corporate assets, we support customers in strategic IP due diligence. Considerations, including the standard of patent prosecution, the state of the market, and even potential alternatives to the patented invention, are beneficial.
Should I Speak to a Lawyer Before Buying Patent Assets Belonging to Another Company or Person?
The required independent research is time-consuming and challenging to comprehend.
A knowledgeable patent attorney will guide you through the necessary formalities for patents and ensure that you earn the most money possible when you sell or buy a patent or a business with patent assets.
