Intellectual Property Due Diligence: A Must When Assets Are Transferred

Intellectual Property Due Diligence: A Must When Assets Are Transferred Unless the main motivation for the deal is acquisition of IP assets (such as proprietary software, a key patent portfolio or a valuable brand), buyers often underestimate the importance of IP due diligence. Intellectual property assessment is not considered mandatory in the sense that particular government filings might be required. Intellectual property might not be regarded as being as crucial as real estate, equipment and employee matters. Accordingly, intellectual property due diligence often is relegated to the end of the deal checklist and, as a result, is addressed inadequately or in a last-minute manner. Not surprisingly, there are numerous cases in which an oversight in intellectual property matters has caused the buyer's or the seller's position to be seriously compromised.

One high-profile example came in mid-1998 when Volkswagen was negotiating to acquire the automotive operations of Rolls Royce. VW paid £479 million for these operations, only to find that it had acquired no rights in the valuable Rolls Royce trademark. The mark went to BMW, which had separately negotiated to acquire the trademark rights. In the context of this highly publicized transaction, VW's response options were constrained: It had to get value for its purchase money, yet it did not want to appear to shareholders, the business press and to the public that it had carelessly failed to nail down a key deal term.