There are many reasons for companies to thoroughly examine a merger or acquisition target’s intellectual property. A “combined patent portfolio should provide the merged entity with the ability to introduce new products, and afford them enhanced patent coverage.” In an acquisition, IP offers significant value, not only opening new business opportunities for the acquiring entity but maintaining day-to-day operations at the target as well.
For these reasons, patent due diligence is an integral part of mergers and acquisitions. Patent due diligence includes two elements: a patent audit, ensuring the intellectual property is valued appropriately based on “scope, validity, enforceability, ownership and transferability”; and a freedom to operate analysis.
A thorough patent audit consists of more than a review of existing and pending patent claims. When preparing for a merger or acquisition, prior art plays an important role in the valuation of an IP portfolio. An acquiring company should rely on a complete prior art database in multiple situations.
Evaluating Pending Patents
Prior art is an essential part of the patenting process. If an acquiring company is interested in a target’s pending patents, relevant prior art should be reviewed. The same is true of any ongoing research and development that has not yet reached the patenting stage of the innovation process.
Having a patent granted by the USPTO (or another patent office) does not guarantee that the patent is valid and enforceable. Determining the value of a patent depends on the breadth and strength of the claims, which can be undermined by undiscovered prior art. A review of relevant prior art before a merger or acquisition can help predict the future value of an IP portfolio and its individual elements.
It is not just relevant prior art from other entities that is of interest during the M&A process. At this point, a target’s pre-filing disclosures of their patented technologies should also be reviewed. Do the inventor’s disclosures correspond to the resulting patent’s claims? Were all disclosures within one year of filing a patent application?
If a patent faced litigation during its life, the case(s) may have brought additional prior art to light. This should also be considered for thorough patent due diligence.