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What You Should Ask About Intellectual Property Before Investing: An IP Due Diligence Primer

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  • In the typical investment scenario, a target’s intellectual property is a key bankable asset and questions about the strength and scope of the target’s intellectual property are critical.

Authored By:

Jeffer, Mangels, Butler and Mitchell

What You Should Ask About Intellectual Property Before Investing: In considering any acquisition or investment in a company, it is critical to ask – what important assets do these companies own or control that justify an investment or acquisition? In the typical investment scenario, a target’s intellectual property is a key bankable asset and questions about the strength and scope of the target’s intellectual property are critical. Does the company own any patented technology, and if so, are the patents valid and enforceable? How about company brands? Does the company own its brands? Is it taking appropriate steps to protect them? Where does the company stand in terms of the risk of being sued for infringement? What about employee-created intellectual property? Does the company own it? Does it matter if the deal is structured as an asset purchase or an equity transaction?

These and other intellectual property-related due diligence topics are discussed below.


A trademark is typically (though not always) a word, phrase, symbol, sound, smell or design that uniquely identifies and distinguishes the source of goods or services. Examples of word trademarks include SAPIEN M3®, RESILIA® or PERI®. A “service mark” is a mark that identifies services rather than goods, such as PATIENTCONNECT® and COMPASSION XT®. The distinction between trademarks and service marks, however, is one without a difference. They function in the same way and, from a legal stand point, are treated in the same way; the term “trademark” (or sometimes just “mark”) is often used to refer to both trademarks and service marks (as is the case in this article). Similarly, “trade dress” refers to a trademark that consists of the appearance – the “look and feel” – of a product and/or its packaging.

Trademarks are sometimes referred to as “brands” or “brand names.”

Under U.S. law, one acquires a trademark simply by using it in connection with the sale or rendering of goods or services. These are called common law trademark rights. Trademarks need not be registered, but federal and/or state registration are recommended as additional rights and benefits may be acquired through such registration.

In most international jurisdictions, including in the EU, China, and Mexico, and soon to be Canada, trademark rights are acquired through registration; in some cases use is not even required, allowing third parties to stockpile marks without commercial use. Additionally, in many such jurisdictions, a trademark registration acts as a defense to an infringement claim by a third party. So, it is good to obtain registrations of trademarks, both in the U.S. and in foreign jurisdictions.

When conducting due diligence of a target company’s trademarks, one should look at a variety of issues, including the following:

  • What are the key trademarks and for what goods and in what countries are they used or contemplated to be used?
  • What is the key trade dress (if any)?
  • Where, geographically, are the trademarks used?
  • Are the trademarks (and trade dress) covered by any state or federal registrations?
  • Are the trademarks (and trade dress) covered by any international registrations?
  • Is the chain of title in the registrations clear (e.g., were they filed in the correct name and are any transfers clearly documented)?
  • Are the registrations vulnerable to attack (e.g., for lack of lawful use)?
  • Are any registrations being properly maintained, and what maintenance costs are upcoming?
  • Have the trademarks been cleared for use through a formal trademark search (not just a quick Google® search)? If not, a formal search should be conducted.
  • Has the company been accused of infringement?
  • Are there co-existence or settlement agreements that restrict the company’s use of its marks?
  • Does the company have any sponsors in place, and are appropriate agreements in place?
  • Are any trademarks licensed in or licensed out? If out, is quality control being maintained? Is the license really a franchise agreement?
  • Are packaging and labeling compliant with applicable state and federal laws? Does the target company have advertising injury insurance coverage?
  • Are state required packaging and labeling requirements being monitored and complied with?
  • Has the company received any cease and desist letters? Are any of the relevant trademarks or trade dress involved in litigation and in what stage is the litigation?


Copyright law covers original works of authorship, such as advertisements, advertising and website copy, packaging content and copy, music, sound recording, brochures, graphics and illustrations, photographs, product descriptions, website content, and software. Journals, such as New England Journal of Medicine, rely primarily on copyright law to protect their content.

Copyright rights come into existence as soon as the work in question is created and copyright rights last a very long time. It is both easy and inexpensive to apply for a federal certificate of copyright registration, and doing so is a prerequisite to filing a lawsuit for infringement. A certificate of copyright registration is also a prerequisite for obtaining recovery of attorneys’ fees and certain types of damages in such a lawsuit.

In general, copyright rights originally vest in the creator of the work, except that the copyright rights in works created by an employee within the scope of their employment originally vest in the employer. Works created by contractors (e.g., non-employee graphic designers or consultants or advertising agencies), however, will originally vest in the creator of the work, not the company or individual that commissioned the work; absent a written assignment agreement the creator, not the company, will remain the owner of the copyright. For this reason, we recommend that all employment and contractor agreements provide for assignment to the company of all rights in intellectual property created by the employee or contractor in connection with or relating to their work with or for the company.

When conducting due diligence of a target company’s copyrights, one should look at a variety of issues, including the following:

  • What are the key works?
  • Who created those works?
  • Who owns the copyright in those works?
  • Is the chain of title to the company clean and clear?
  • Are logos, websites and other key advertising materials subject to copyright registrations?
  • Does the company have appropriate assignment agreements in place with employees, contractors, ad agencies, etc.?
  • Have the copyrights been registered in a timely manner?
  • Are copyright notices being properly used?
  • Is the company using third party materials, or do any of its works incorporate materials created by third parties (e.g., music, artwork, images, photographs, etc.)? If so, does the company have appropriate permission to use materials, or is it at risk for a copyright infringement claim?
  • Have any cease and desist letters or other demands been received, and has litigation been threatened?


The term “patent” is a government-granted right allowing the patent owner to prohibit others from making, using, selling, and/or importing an invention for a specific period of time, usually twenty years. A utility patentable invention is “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Patentable inventions could include: medical devices such as Edwards U.S. Patent No. 6,908,481, directed to valve prosthesis; methods for making medical devices such Edwards’ U.S. Patent No. 6,214,054, directed to method for fixing (e.g., tanning or crosslinking) and sterilizing biological tissue; medical procedures such as Edwards’ U.S. Patent No. 7,585,321, directed to methods of implanting a heart valve; and, software and methods of manufacture.

A plant patent covers a new variety of plant that can be duplicated through asexual reproduction and is not naturally occurring. These rights give the breeder the exclusive right to use, reproduce, sell, or offer for sale the plants or any of its parts, e.g., seeds, cuttings, divisions, etc.

The term patent can also refer to a “design patent,” which covers the ornamental features of an article of manufacture, such as the unique packaging features or the aesthetic design of a heart valve or other device, and lasts for 14 years.

Regardless of the type of patent – utility, plant, or design – to qualify for patent protection, the subject matter must be novel, non-obvious, and not cover naturally occurring substances or an invention based upon algorithms. Patents are territorial and applications must be filed within certain statutory deadlines.

When performing due diligence of a target company’s patents and technology, one should look at a variety of issues, including the following:

  • What technology is the company using?
  • Has the target company technology been timely protected under the patent laws, e.g., were patent applications filed in a timely manner?
  • Are company patents valid and enforceable?
  • What is the scope of the patent claims?
  • When will the patents expire?
  • Where are they enforceable?
  • Is the company marking products with the patent number to facilitate a claim for damages in the event of infringement?
  • Is the company infringing any third party patents?
  • Are there any threats of patent infringement, and what is the status of any pending patent infringement cases?

Trade Secrets

A trade secret is generally defined as any information, such as a customer list, formula, technique, or method of manufacture, that has value because it is unknown to and not readily ascertainable by the general public, and is the subject of reasonable efforts to maintain its secrecy. Classic trade secrets are proprietary formulations (e.g., the Coca-Cola recipe), customer and vendor lists, and methods of production and testing. If kept secret, a trade secret can last forever.

The owner of a trade secret can prohibit third parties from taking and making unauthorized use of the trade secret. Unlike patents, however, this protection is not absolute. For example, if a third party develops the same trade secret formula, method, or process on its own, the trade secret owner cannot stop that third party’s conduct.

To maintain information as an enforceable trade secret, a company must take reasonable steps to keep the information secret. The most common way to accomplish this is to ensure that before anyone has access, or even potential access, to the information, that they execute a written confidentiality agreement in which they acknowledge that they will have access to trade secret information and agree not to use or disclose that information. Companies should also consider prohibiting employees from using personal computers or devices for company work and taking steps to prevent employees from copying confidential company documents and files, such as limiting access to such documents or limiting the ability to copy or print them.

If a company suspects trade secret misappropriation it should act quickly. Not only is there usually a statute of limitations restricting the time period during which claims may be brought, but quick action is critical to preventing unauthorized use or dissemination of the trade secret information.

When conducting due diligence of a target company’s trade secrets, one should look at a variety of issues, including the following:

  • What practices does the company have in place to safeguard its confidential information?
  • Does it require employees to execute confidentiality agreements? What about contractors, vendors, officers, directors, consultants, etc.?
  • Does it control and limit access to the trade secret information – either physically or electronically?
  • Does it take steps to educate employees about the importance of maintaining the secrecy of confidential information?
  • When the company hires employees, does it remind the employees not to bring trade secrets of their former employers to the company?
  • Any threats of litigation, and the status of any pending litigation.

One should appreciate that these intellectual property laws can vary by country as well as by state. Thus, the foregoing is intended as a primer for U.S. law only, provided for informational purposes only, and is not legal advice.

About the Authors. Rod S. Berman is Chairperson of the Intellectual Property Department of Jeffer Mangels Butler & Mitchell LLP, and Jessica Bromall Sparkman is a partner in the practice. Their practices encompass all aspects of Intellectual Property including patent, trademark, trade secret, and copyright law, including litigation, prosecution, domain names, opinions, counseling, acquisition, licensing due diligence, and portfolio management. Rod Berman is also a registered patent attorney with an MS in chemistry. Greg S. Cordrey is a partner in the Patent Litigation and PTAB Trial Groups. His practice is focused on litigating patent infringement matters and other disputes involving complex technology, as well as representing patent owners and challengers in invalidity proceedings before the Patent Trial and Appeal Board (PTAB). They can be contacted through

©2019 Jeffer Mangels Butler & Mitchell LLP. All rights reserved.


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