Due Diligence from an Intellectual Property point of view

• Overview
• Formal Issues
• Validity Issues
• Enforceability Issues
• Infringement Issues
• Value Issues

This discussion concentrates on patent issues. Similar issues arise in connection with :-

• Trade Marks,
• Industrial Designs
• Copyright
• Circuit Layouts and
• Plant Variety Rights.

A patent grants to :-

• an inventor, or a person deriving title from the inventor, an exclusive right, i.e. a monopoly, to exploit the subject matter of a new and non-obvious invention.

Society grants monopolies for new inventions in consideration of the inventor disclosing the invention to the public. This is seen as a mechanism for encouraging innovation. The value of the monopoly is directly related to its capacity to return a monopoly profit.

Registration or Application details

• Determined by the register in the patent office if patent granted or from the patent office file if still a pending patent application. Get a copy of the register or look at Patent Office file if available.
• Determine if application has some special characteristics, such as:-
• A divisional application
• An application for a patent of addition
• A continuation or continuation-in-part application
• If so determine status of associated application.
• Determine nominated inventor details.
• Search Patent Office files and verify.
• Check for any other IP in the name of the transferring party or the inventor.
• Search in patent data bases in name of the parties.
• What countries or regions are covered.
• Search international data bases if published.

Status

• Applications are usually examined before registration.
• View prosecution file, either in Patent Office or in Transferee's file.
• Renewal fees must be paid, typically annually.
• View latest renewal receipts.

Ownership

• Title must be derived from the inventor.
• Inspect assignment documents or employment records.
• Check for any prior transfers by the transferring party.
• Review their files.
• Seek warranties.
• Record your transfer promptly.

Priority Date

• Review claims of patent to determine their scope.
• Test is whether claims are fairly based on the disclosure contained in a specification? (A real and reasonably clear disclosure)
• Look at disclosure in basic application.
• Look at disclosure in patent specification.
• US applicant may be able to swear back to an earlier date of invention

Novelty

• Novelty relative to third parties.
• The test is does the prior art show a product or process that would, if used after the date of the patent, infringe?
• Conduct an international search.
• Novelty relative to transferring party.
• Any disclosure to another person who is not under a duty of confidence before the priority date of the patent would invalidate the patent at least in some countries.
• Review the transferring party's files.

Obviousness

• Test is would the invention have been obvious to a non-inventive person skilled in the art in view of the common general knowledge in the field, either alone or when combined with a single prior art reference?
• Discuss the invention with persons skilled in the art to determine the common general knowledge and apply to individual prior art documents found in the novelty search.

Prior patent grant to another

• Particularly a problem in the US. This may not come to light until after your deal is done.

Scope

• The claims of the patent define the monopoly that is granted to the owner of the patent.
• What is not claimed is available for use by competitors.
• Can you detect when infringement is happening?
• Do the patent claims include a feature that the competitor will not itself sell?
• Due diligence involves ensuring that the scope of the patent is sufficient to give a competitive advantage.

Territory

• A patent is only infringed by the exploitation of the invention in a country where the patent is in force.
• Compare the market countries with the countries in which the invention is patented.

Inequitable conduct

• A patent in the US may be declared invalid if the applicant has engaged in inequitable conduct.
• The most common form of inequitable conduct is the failure to notify the US Patent Office of relevant prior art.
• Review the applicants files to see that all prior art known to the applicant was conveyed to the US Patent Office.

Patentable subject matter in particular countries

• The type of inventions that are patentable varies from country to country.
• In Europe there are substantial limitations on the patentability of processes for the treatment of humans and for inventions in the field of biotechnology.
• Check that in the major market countries the subject matter of interest is patentable.

Avoidance of the infringement of the patents of others

• Ownership of a patent does not absolve the patent owner from infringement of patents owned by others.
• Patents are granted on a country by country basis.
• It is necessary to conduct searches in each of the countries in which the patent is to be exploited to ensure that a third party patent is not infringed.

Does the scope eliminate direct competition?

Is the patent enforceable in the important markets?

How much more life does the patent have?

• Patents normally last for 20 years from the application date if all renewal fees are paid.
• Patents for pharmaceuticals delayed in the regulatory process can be extended in some countries.