If you are anything like most of my buy-side clients, you typically handle IP diligence internally. This is partially because the middle market companies I work with often acquire businesses with minimal patented IP (though there are always other types of IP in a deal), but it is also due to the potentially high cost of outsourced legal diligence.
Several weeks ago I had lunch with Michael Dvoren, an attorney with Weiss & Moy, P.C., who piqued my interest in the topic of protecting acquired intellectual property. Michael specializes in IP law, which includes patents, copyrights, trademarks, and trade secrets. I was intrigued by his anecdotes about companies embroiled in IP lawsuits, many at a significant disadvantage because they failed to take simple but critical steps to protect their IP. Michael mentioned that Weiss & Moy offers prospective clients a complimentary IP consultation, typically done in person or by phone. As part of the consultation, prospective clients are provided feedback including some specific steps that can be taken to protect IP. This consultation and the corresponding recommendations, can help with the following key areas:
- Evaluating infringement risk. Given the complexities of IP law, the risk of infringing someone else’s IP is ever-present. Discussing a target company’s and its competitors’ IP with an IP attorney can help identify certain infringement risks. For example, the target company’s use of a particular product name in commerce may be similar to a product name used by a competitor. Discussing the facts and context surrounding these similarities (and differences) can help evaluate the risks of the target company continuing the use that name versus the cost of a possible re-branding.
- Determining scope of protection. There are many misconceptions about patents, trademarks, copyrights, and trade secrets, such as which type of IP covers what subject matter, how, and to what extent. Discussing these with an IP attorney can educate a company about certain limitations of already protected IP and the need to timely file to protect currently unprotected subject matter. For example, a company may have a computer database that is entitled to copyright protection. However, unless the database is registered with the U.S. Copyright Office within three months of “first publication” (classically, the date on which copies of a work are first distributed to the public), the company may not be able to recover statutory damages or attorney’s fees in a lawsuit against infringers of the database.
- Reviewing past IP filings. This is one area where companies can easily make a mistake. For instance, a target company could have a federally registered trademark for the name of its flagship line of products but, unless that name was registered in every class of goods in which the company wants that name protected, another person or entity could already be using (and have superior rights to) the same name in a class of goods in which the company failed to register a trademark.
In my discussion with Michael, I mentioned that many of my clients (middle-market companies seeking targets in the range of $5-$40 million) take a do-it-yourself approach to legal due diligence. In response, Michael said that Weiss & Moy could offer the following additional complimentary service to any Third Coast Capital clients: a compilation of publicly available patents, trademarks, and copyrights filed (or able to be located) in the target company’s name. While an evaluation of the compiled contents would need to be part of a paid engagement with Weiss & Moy, knowing what’s been filed with U.S. Patent & Trademark Office and U.S. Copyright Office is very useful if this information is not already in hand.
While IP may not be the highest priority on your due diligence checklist, the relatively small time investment in these complimentary services may at least get you thinking differently about the company or assets you are about to acquire. In my past experience as a Corporate Development Director, this added insight, while not “free” from a time investment perspective, tends to be well worth the investment.