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Overview on Patent Due Diligence

Examining a patent or group of patents to support your business or company goals is the process of conducting patent due diligence. Depending on the circumstances that lead to the need for diligence, there are numerous ways in which due diligence for patents can be performed. Finding out, for instance, whether your patents are being violated by others or whether they can be made profitable through licensing or divestiture might be offensive. As a first step to enforcing your patents, such offensive diligence may entail investigating the products of other businesses to see if any of them infringe on your patents. Also, it can entail customising a licensing strategy to generate income in line with your company's goals.

The defensive aspect of patent due diligence includes determining if you have the freedom to operate in your upcoming business venture, as well as determining whether you are infringing on others' patents and what efforts need to be taken to minimise that risk. Because of the legal expertise needed to evaluate factors like the validity and ambit of a Patent and create a monetisation strategy to maximise the return on your IP investments, companies frequently turn to qualified IP Counsel, whether they are engaging in defensive or offensive diligence, to examine Patents and determine how they may factor into business objectives.

What is necessary for the patent due diligence process?

Depending on your needs, the scope and depth of the patent due diligence analysis can change significantly. These are some of the elements needed for the patent due diligence process:

  • Find out if the patent is enforceable or valid: This examination assesses one or more aspects of the patent's validity, including whether its claims are distinct from those of the Prior Art, whether it sufficiently describes the invention, and whether its claims are directed to patentable subject matter or non-figurative ideas that are not eligible for patent protection. Estimating any challenges to a patent's validity that a third party may have made in a prior patent process or legal dispute may also be a part of this analysis.
  • Determine whether a proposed product is covered by patent claims: This analysis might include looking at the specifications, claims, and records in the patent file, determining how certain claim wording should be interpreted in the patent proceeding, and applying the patent claim to a target product or a suggested product. Results of this study are typically used to determine the risk of patent infringement associated with an ongoing or upcoming commercial activity.
  • Check to see whether there are issues with capable ownership, chain title, or maintenance fees: This assessment includes evaluating ownership or proprietorship, a chain of title, and methods for early expiration. Patent ownership initially belongs to the identified inventors and can be transferred to others through patent assignment agreements. Errors in the title chain could significantly reduce the value of the Patent and make it more difficult to defend in court. Moreover, generally speaking & subject to clear exceptions. A patent will lose its validity twenty years after the Patent Office received the initial application for the patent. Over the course of a patent's term, periodic maintenance fees are payable to the Patent Office; if they are not timely paid, a patent may expire or expire earlier.

What purposes does patent due diligence serve?

Depending on the goal of the evaluation, due diligence may be performed at any moment during the patient's lifetime. The uses of patent due diligence are as follows:

  • Getting a letter of notice or a cease-and-desist letter: The first thing you must do after receiving this letter on infringement is to gather information. You and your attorney would need to conduct their due diligence in order to determine the validity of the claim and to develop strategies. The Cease & Desist Letter specifies a time period for you to halt the Infringement, making this the condition that responds to time the fastest.
  • Prior to submitting a patent application: Prior to submitting an application for patent registration at this stage, Due Diligence Reviews are performed to review and seek prior art references, sometimes even before the invention's initial creation.
  • Transactions: Due diligence is required for any transactions involving patents, whether they are for monetisation or otherwise (licensing, Acquisition, pledging, etc.). Merger and acquisition due diligence involves hiring experts from several fields, spending more time and money, and preparing for an IPO (Initial Public Offering). These tasks are both enticing and scary.

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Due Diligence Evaluation Procedure for Patents

The due diligence review procedure has four distinct stages, much like any other inspection method. However, depending on the goal and intended depth of the review, the issues and goods covered may range from just answering a few questions. Due Diligence review is a continuous process; occasionally, you'll need to go back and clarify something that was identified at a previous stage. The steps in the patent due diligence process are as follows:

Step 1: Get ready Before beginning, there are a few crucial factors to ascertain, including: -

  • Cost and scope.
  • Patent due diligence review's purpose.
  • Objectives.
  • professional group.

Step 2: Data Collection: Gathering & analysing the following information is one of the main challenges in this step.

  • Patent ownership is essential since some patents may be jointly owned and cause issues if they are managed improperly.
  • History of Litigation: Any history of Patent Litigation needs to be dug out and examined in order to uncover any unreported litigation issues and stop further cases.
  • The Subject Matters' Protection Status: Following the first targeting of the subjects, you must determine the extent of the protection.
  • Other paperwork Confidentiality agreements, licensing agreements, employee assignment agreements, publications, and any internal correspondence are among the patent-related papers that should be acquired for further scrutiny.

Step 3: Inspection

The longest and most tedious part of the due diligence process is this one. This step requires you to:

  • Analyse the Patents: You must look into each Patent's standing, legality, range of claims, and originality. To make sure you investigate the identical items in each patent, you might want to create a different due diligence checklist for this situation.
  • FTO Search: In order to ensure that the Patents-at-Issue allows for such development or improvement, an FTO Search is essential if you are getting ready to obtain a Patent Portfolio for a new firm.
  • A specific target that should have been patented may have gone unfiled, as you may have discovered. Or perhaps another patent family was discovered that needs more investigation. If there are unpaid maintenance costs on a genuine patent.
  • Draft Action Items: Such actions include requesting that the patent holder pay back-due maintenance costs or providing further details. Or maybe your team has already decided that the whole deal needs to be looked at again or that your business plan needs to be modified.

Step 4: Writing the report is the last part of the due diligence process. 

We advise that you utilise your actual process checklist as the outline for drafting a due diligence report, even though the format or form may differ for each review. Among the elements of a due diligence report are:

  • Data, graphs, interpretations, and statistics.
  • Goals and Background
  • A SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats).

What is the difficulty in conducting due diligence?

Due diligence on patents is a laborious and time-consuming process. There is enough information to cover any patent professional or specialist. In one transaction, a patent portfolio could contain hundreds of patents.

This simply means that it would be impossible to take a comprehensive look at the entire Patent Portfolio, and the best that could be done would be to create a report based on the Patents that could be examined, which would only include the most basic information, such as the Patent owner and status.

The following essential factors are necessary for a better due diligence process:

  • Hidden Issues: It's possible that there are relevant Patents or Prior Art that was not really discovered or provided and that could have underlying concerns or problems. When a patent is carefully examined as a whole, hidden issues are typically discovered.
  • A Short and Simple Evaluation of the Situation: The scope (number of associated Patents, file wrappers, Prior Art), the full strength of the portfolio, connected technologies, etc., must initially be swiftly understood.
  • Main Points: You must rapidly identify the essential point by analysing the important Patents and looking into any potential issues, such as Patents with shared ownership or Patents that have been contested.

Frequently Asked Questions

Examining a patent or group of patents to support your business or company goals is the process of conducting patent due diligence.

The main goal of due diligence, which is typically completed by a capable buyer, is for the buyer to investigate and gather sufficient information about the target asset, organisation, or business in order to make an opinion on such topics prior to making a purchase.

Always conduct due diligence with the assistance of your lawyer, business advisor, or accountant.

An organised manner to show the examiner a company you are acquiring through a merger, sale, or other method is through a due diligence checklist.

Freedom to Operate (FTO) searches give the patentee or its licensee the assurance that they can commercialise the patented invention.

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