This is a reprint of an ar­ti­cle that orig­i­nal­ly ap­peared on the Ler­man & Szlak web­site.

As com­pa­nies grow, in­tel­lec­tu­al prop­er­ty port­fo­lios al­so grow. The set of all in­tan­gi­ble rights may in­clude trade­marks, patents, copy­rights, do­main names, da­ta pro­tec­tion, and oth­er re­lat­ed rights.

When the com­pa­ny is faced with a spe­cial event, such as an in­vest­ment process, a pur­chase by an­oth­er com­pa­ny, a large con­tract or a change of con­trol or man­age­ment, due dili­gence is per­formed: that is, a “due dili­gence” process to re­view the sta­tus of the dif­fer­ent le­gal as­pects, and quan­ti­fy the re­lat­ed risks.

IP due dili­gence is a fun­da­men­tal part of this process, es­pe­cial­ly in tech­nol­o­gy or fran­chise busi­ness­es, in which in­tan­gi­bles are the heart of the com­mer­cial val­ue of the en­ter­prise.

In this ar­ti­cle, we com­piled the 5 Ba­sic Ques­tions for an IP Due Dili­gence, which are use­ful both for the Com­pa­ny, to pre­pare its port­fo­lio for re­view; as for the coun­ter­part that will in­vest, buy or con­trol these as­sets.

Let’s go through these 5 ques­tions in de­tail:

(1) Who owns the IP?

That is, un­der whose name has the IP been reg­is­tered? There are dif­fer­ent kinds of rights: rights that do not to be reg­is­tered, like con­trac­tu­al rights or hu­man rights; and rights that on­ly ex­ist­ed as a re­sult of ap­proval from the ap­pro­pri­ate au­thor­i­ty. IP rights are in the sec­ond cat­e­go­ry: you gen­er­al­ly have to reg­is­ter your IP in or­der to have a right over it. Legal­ly, the val­ue be­longs to the per­son who has own­er­ship in his name. Are the goods in the name of the com­pa­ny that us­es them, or that li­cens­es them? Or are they in the name of the founders (nat­ur­al per­sons), or on be­half of some em­ploy­ee, or of an un­re­lat­ed com­pa­ny, or of a founder who is no longer there, or of a com­pa­ny that no longer ex­ists?

All this must be put in or­der through the nec­es­sary trans­fers, to en­sure that the com­pa­ny who has 100% in their name the IP rights.

If there are sev­er­al own­ers, or in­sti­tu­tion­al own­ers (e.g. uni­ver­si­ties or re­search and de­vel­op­ment agen­cies), or in­di­vid­ual own­ers who are mar­ried (and whose spouse even­tu­al­ly has rights over the good and the prof­its that are paid for by roy­al­ties), then there are risks that may jeop­ar­dize the planned mar­ket­ing of the IP in ques­tion.

(2) What IP do we al­ready have reg­is­tered?

To be­gin with, we will have to do a sur­vey of the records: eval­u­ate what is pro­tect­ed, which records are cur­rent and which are not, if all the main­te­nance fees have been paid, if the cor­re­spond­ing de­c­la­ra­tions of use have been pre­sent­ed and all the reg­is­tered trade­marks in the le­gal term (e.g. in Ar­genti­na, in the last 5 years).

The same ap­plies to the reg­is­tra­tion of data­bas­es, which in Ar­genti­na is a re­quire­ment, and which in­di­cates com­pli­ance with da­ta pro­tec­tion reg­u­la­tions.

And with this ques­tion, more in­quiries arise.

(3) Was all the rel­e­vant IP of the com­pa­ny reg­is­tered?

Some­times the due dili­gence process iden­ti­fies risks not on­ly for what the com­pa­ny did but al­so for what it nev­er reg­is­tered! It is com­mon to see that com­pa­nies do not have their main names pro­tect­ed, or their do­mains un­der the rel­e­vant ex­ten­sions (e.g. they may have “.com.ar” but not “.com”), or their main tech­nol­o­gy nev­er re­ceived reg­is­tra­tion un­der copy­right.

All this is es­pe­cial­ly rel­e­vant when there are li­cense agree­ments in which the com­pa­ny is a li­cen­sor; since it is the most con­ve­nient that the IP is reg­is­tered to in­ter­pret and de­fine what is li­censed.

For this ex­er­cise, we have to un­der­stand the ac­tiv­i­ty and busi­ness of the com­pa­ny, to iden­ti­fy every­thing that should be reg­is­tered as soon as pos­si­ble.

As an ex­am­ple: it is com­mon to see that the com­pa­ny reg­is­ters the brand in a class in the be­gin­ning, but does not reg­is­ter it in an­oth­er very rel­e­vant class that re­flects the evo­lu­tion of its busi­ness. It is al­so com­mon to see that an old lo­go is reg­is­tered, and the new one has not yet been reg­is­tered. Or a lo­go is reg­is­tered of which on­ly a part is used (e.g. with­out the down­load or slo­gan). In all these sit­u­a­tions, it is con­ve­nient to present new records.

(4) What has the com­pa­ny done to use and de­fend its IP?

On the one hand, we re­view the ju­di­cial and ex­tra­ju­di­cial ac­tions. Are there law­suits pend­ing? In what state are they? What are the as­so­ci­at­ed le­gal risks — can we lose records? Have oth­ers’ IPs been vi­o­lat­ed at any time? What agree­ments have been signed so far, if any? To re­spond, a com­bi­na­tion of pub­lic records queries and the same com­pa­ny will be re­quired.

It is fa­mous the case of the trans­ac­tion be­tween Volk­swa­gen and BMW, in which Volk­swa­gen thought that, among oth­er goods, was ac­quir­ing the Rolls Royce brand. In the due dili­gence, the lawyers failed to re­view a con­tract grant­i­ng an ex­clu­sive li­cense to an­oth­er com­pa­ny in the BMW group (that is, it would not al­low Volk­swa­gen to use it!) Volk­swa­gen paid $795 mil­lion for a trans­ac­tion around Rolls Royce that fi­nal­ly did not al­low him to use the brand!

On the oth­er hand, it is con­ve­nient to see which op­po­si­tions were pre­sent­ed, and in gen­er­al what de­fense strat­e­gy was used, to al­so as­sess how strong are the cur­rent brands and to what ex­tent the ac­tiv­i­ty in the past will af­fect the fu­ture de­fense (e.g. in re­spect of sim­i­lar brands of which has tol­er­at­ed co­ex­is­tence for more than 1 year, and to­day we can not ask for a ces­sa­tion of use even if they both­er us).

(5) IP In­ter­na­tion­al: And what has been done with the IP in oth­er coun­tries?

For com­pa­nies that have ac­tiv­i­ty or in­ter­na­tion­al pro­jec­tion, it is equal­ly im­por­tant to ask the same ques­tions above but for the coun­tries of in­ter­est. The IP rights are ter­ri­to­r­i­al, and al­though the records in one coun­try of­ten serve as a pos­i­tive prece­dent in an­oth­er, the truth is that each coun­try has its leg­is­la­tion with dif­fer­ent rules and reg­is­ters.

It is usu­al for port­fo­lios to be broad­er in the coun­try of ori­gin of the com­pa­ny and that few­er goods are reg­is­tered abroad, ei­ther be­cause of a cost is­sue (nor­mal­ly for­eign records are more ex­pen­sive than lo­cal ones) or sim­ply be­cause of in­ac­tion. We must re­view this with pre­ci­sion, es­pe­cial­ly to be able to con­firm that the sta­tus of the reg­is­tra­tions abroad is not an ob­sta­cle to im­ple­ment fu­ture busi­ness plans.

More­over, if there are in­ter­na­tion­al clients and/or users, es­pe­cial­ly in Eu­rope, it is al­so very im­por­tant to re­view com­pli­ance with per­son­al da­ta reg­u­la­tions, re­view­ing the com­pa­ny’s Pri­va­cy Poli­cies, both in­ter­nal­ly and with customers/users, se­cu­ri­ty of the bases, among oth­er as­pects, to en­sure com­pli­ance with ap­plic­a­ble in­ter­na­tion­al reg­u­la­tions such as the GDPR (Gen­er­al Da­ta Pro­tec­tion Reg­u­la­tion) of Eu­rope.

In our ex­pe­ri­ence, these are the five fun­da­men­tal ques­tions of all IP due dili­gence. While it is very valu­able to have the help of the trust­ed lawyer to car­ry out the process, the truth is that it is al­so fun­da­men­tal that the busi­ness peo­ple in charge of the deal al­so have these is­sues in mind. This way, they can in­ves­ti­gate the dif­fer­ent as­pects to iden­ti­fy rel­e­vant risks through­out the ne­go­ti­a­tion. As a con­se­quence, they are able to re­fine the most valu­able ne­go­ti­a­tions, avoid un­nec­es­sary costs and en­sure that you pay the fair price for what you buy.