“Due diligence” is a common legal and business term that refers to a “careful and reasonable investigation. It began as a generic phrase meaning “to do anything with due care,” but it was subsequently codified in the United States Securities Act of 1933, requiring broker-dealers to exercise due diligence when releasing information to investors.
Applications of patent due diligence
Depending on the aim of the due diligence examination, it can be done at any point during the lifespan of a patent. The following are some of the most typical uses for patent due diligence:
- Prior to submitting a patent application: Before filing a patent application, due diligence studies are performed to identify and assess prior art references, sometimes even before the actual design of an invention.
- After receiving a stop and desist letter or a notification letter: When you get a notice of infringement or a stop and desist letter, the first thing you should do is gather as much information as possible. You and your attorney will need to do due diligence to determine whether the charge is true and to formulate strategies. This is the most time-sensitive case, because cease and desist letters give you a specific amount of time (typically 10 to 15 days) to end the infringement.
- Transactions: Any patent-related transaction, whether for monetization (purchase, licencing, pledging, etc. ), M&A, obtaining external investment funds, or preparing for an initial public offering, requires thorough due diligence. Due diligence for transactions is a time-consuming and difficult process that requires personnel from many disciplines of knowledge, as well as a significant amount of time and money.
- Backup plan: Due diligence on patents might also be done as a precaution or for strategic purposes. Perhaps you’re concerned about getting sued for infringement and want to learn more about your patent portfolio’s position in the market. Alternatively, your firm may be preparing a strategic strategy to sue another corporation for infringement. In any case, a comprehensive examination will reveal the best course of action.
The process of patent due diligence: review
Preparation, Data Collection, Analysis, and Report are the four steps of a due diligence examination, which are similar to those of any other inquiry. Depending on the purpose and desired complexity of the review, the topics and objects covered may range from answering a few basic questions to hundreds of questions. Furthermore, because due diligence is a continuous process, you may need to go back to a prior step if anything confusing or new is discovered in stages two or three.
Step 1: Preparation
- The purpose of this due diligence review
- Cost and scope
- Team members
Step 2: Data collection
- The protection status of the target matters
- Litigation history
- Other documents
Step 3: Analysis
- Analyze the patents
- Conduct an FTO search
- Pinpoint problems or holes in your findings
- Draft action items
The problem with due diligence is that there is too much data.
Patent due diligence is a labor-intensive and time-consuming procedure. Any patent professional would be buried by the onslaught of data. In a single transaction, a portfolio of patents-at-issue might number in the hundreds. The Apple Consortium sold 4,000 patents to RPX in 2012, and Microsoft sold 1,500 to Xiaomi in 2016. Consider how many persons were involved in analysing and reviewing all of the patents in each case!
All of this implies that a comprehensive examination of the whole portfolio would be difficult, and the most that could be hoped for was a summary report based on the patents that could be reviewed, with just basic information such as patent status and owners included.
- Following are some essential topics to consider for effective due diligence:
An overview of the issue in a few words.
- Identifying the centre of attention
- Resolving issues that aren’t immediately evident
The due diligence process used to be done manually, with patent specialists having to look through patents one by one, sometimes utilizing huge files and mammoth Excel spreadsheets. However, these time-consuming attempts sometimes produce just the most basic information, leaving potential purchasers or licensees unable to obtain the information they need.
Fortunately, owing to advancements in artificial intelligence and big data analytics, the process has changed. Patent data can now be maintained more efficiently, and completing due diligence is much easier, thanks to the advent of new software and patent search tools.
IP due diligence is a tool that allows entrepreneurs to responsibly plan and run their business. We aim to provide you with the best services possible. Multiple teams of committed experts from diverse backgrounds, technical capabilities, industries, and responsibilities work under PatentsKart to provide customers with a wide range of patent support services.