Why is patent due diligence important for your organization?

Hewlett-Packard (HP), the information technology giant, bought Autonomy for $11.1 billion, in 2012. They wanted to move away from computer hardware to computer software and buying Autonomy seemed like the smartest move to make. Inaccurate income statements, balance sheets, cash flows, and footnotes were a part of the due diligence oversight. Within 14 months after the deal, HP sold Autonomy by writing down more than 80% of the purchase price. 

 

If HP had followed the due diligence practices that they regularly did, they shouldn’t have had to write down the value of their purchase. Organizations should be mindful of following due diligence if they don’t want a botched deal. 

 

What is patent due diligence?

The process of carefully analyzing a company’s patent portfolio is called patent due diligence. It audits the quantity and the quality of IP assets owned by or licensed to a company, business, or individual. The assessment also includes how intellectual property is captured and protected by the business. 

IP due diligence is usually performed by a prospective buyer in relation to the IP assets of the target company. It can also be carried out by a company on its own assets in preparation for a business sale or to close a licensing deal. It tells you whether you can monetize your patents through licensing, enforcement or divestment. 

It also helps you assess the infringement risks posed by competitors’ patents or the patents of another business. 

 

Why conduct IP due diligence?

IP assets have become one of the most important assets that businesses could own. Therefore, it is imperative for businesses to understand the following: 

  • The quantity and quality of the IPs with them so that 3rd parties can put a value on them 
  • To identify IP assets that are not being used currently and whose maintenance costs are being unnecessarily paid
  • To assess whether all the IP assets are adequately protected 
  • To ensure that you have all the necessary rights to your IP assets in order
  • To check whether a third party is infringing on your IP rights 

 

When should a patent due diligence be performed? 

 

  • After you receive a Cease and Desist Letter, or a Notice Letter:

A cease and desist letter or notice is usually sent as a warning to infringers about the existence of the patent rights to initiate licensing discussions, enforce their patent rights, or secure the opportunity to collect damages. 

Such letters claim that the accused infringer stop their infringing conduct immediately. If a company receives such letters, it should ensure that they have a strategy in place to respond properly and reduce its risks. 

They should note the depth of the infringement analysis (usually provided by the patent holder). It will have details about the patent expiry date, and applicable state statutes which talk about the consequences of acting in bad faith. 

 

  • During Mergers & Acquisitions:

During an M&A transaction, the following things are assessed, whether the seller’s patent portfolios include critical company technology to confirm if all fees have been paid and no ownership issues or chain of title defects exist. Following these steps will permit the parties to assign a monetary value to the portfolio. The analysis at this stage can also include assessing the patent infringement risks posed by third-party patents on the technology that is going to be acquired. 

 

  • During divestment, or licensing

Divestment and licensing strategies allow the patent owners to determine how their patents will be utilized. If their portfolio affords broad patent protection, then the value of the technology is high. Valuing patents can be performed in a number of techniques, both quantitative and qualitative. Qualitative analysis helps in determining the scope and strength of the patent rights. On the other hand, a quantitative analysis leverages these findings to assign a monetary value to those rights.

 

  • For contingency reasons:

Patent due diligence can also be done for contingency reasons. If you believe that you might be sued for infringement, and would like to have a deeper understanding of your patent portfolio and how it fares against your competitor’s, then it is wise to conduct patent due diligence. Let’s say you are planning to sue a company that is infringing on your patents, then it is wise to invest in conducting patent due diligence.

 

  • Before filing a patent application:

Patent due diligence is also performed before filing a patent application. They are performed to identify and assess prior art references.

 

How to Conduct IP due diligence. 

Conducting IP due diligence requires professional skills and has to be done thoroughly. IP due diligence should be performed during the initial stages of negotiations itself. By doing so, you will identify if there are any legal issues that affect the value of the IP. While every business transaction is different, there are a set of requirements that should be met when conducting IP due diligence. Here are a few of them. 

 

  • Identify IP assets: 

You need to find the patents, trademarks, brand names, domain names, and any other tangible and intangible assets of the company that you are investigating. 

 

  • Verify ownership and existence of IP: 

One of the first things that are usually investigated during an IP due diligence process is IP ownership. To establish and recognize the seller’s rights, a series of questions are asked about each of the IP assets that are being considered. The IP assets should be easily transferable and there should not be any disputes. If there are disputes, it becomes difficult for the seller to transfer the title and rights of the IP asset to other parties. 

 

  • Check for areas covered in the IP

When you’re validating each IP asset, it is imperative that you check for the countries where IP rights are covered. Therefore, you need to identify which of the territories are protected. If the business operates in multiple countries and has not secured their rights in all the areas where they operate, you might not be able to leverage the IP in those areas. Do remember that IP assets like copyrights and patents are only valid for a certain period of time. You need to study the local IP laws of each directory to check the validity.

 

  • Checking for third party claims:

Apart from identifying IP ownership, it is also wise to check if there are any third-party claims with respect to the seller’s IP assets. There are times when a third-party might have got rights to an IP asset unknowingly. You need to check all the license agreements, franchisee agreements, joint venture agreements, MOUs, and other contracts to ascertain that you will be receiving exclusive rights once you buy the IP assets from the seller. 

 

  • Evaluate potential IP infringements:  

You also need to ascertain whether a third party is infringing on the seller’s IP rights or if the seller’s IP rights are infringing on another company’s assets. In either of these cases, the disputes that arise from it will negatively affect your business. You have to mandatorily conduct a freedom-to-operate search to check whether the investor can make use or sell their IP assets without infringing on any third-party rights. 

 

An FTO search will give you deeper insights into patent rights and tell you if there are any other roadblocks that you need to be careful about. It’s the FTO searches that show any roadblocks. You need to take the necessary steps to overcome them.

 

Steps to conduct due diligence properly:

  1. Ensure that you have a proper IP due diligence team in place. Discuss with IP professionals to see what can be expected from the transactions.
  2. Come up with an IP due diligence checklist based on what is necessary. 
  3. Segment the IP assets of the target that is relevant for the transaction. Segregate IP rights or protectable intangible insights from those that are not relevant. The IP due diligence should show the importance of connecting such additional IP rights with the main IP rights for the transaction. 
  4. Find out the nitty-gritty when it comes to IP ownership. Ensure that you collect information on other IP rights that might pose an issue in the future. 
  5. It is important that the facts collected are also double-checked so that there is no discrepancy. 
  6. Analyze the protected and protectable IP rights. Check for the IP’s status, validity, ownership, claim, and conflict. 
  7. After conducting all the above, prepare the final due diligence report. It should highlight the risks that are a part of the strategies and ways to reduce the risks and the liabilities. 
  8. Document, execute, and record the IP agreements. 

 

Conclusion:

Conducting due diligence is a non-negotiable activity for businesses to mitigate the risks involved. It should be done no matter what your IP portfolio composition looks like. Having a proper due diligence strategy and following it rightly provides a world of benefits for all the stakeholders involved. 

If you are looking for an end-to-end IP services firm to help with patent due diligence, ResearchWire will be glad to help you with it. Get on a call with us to understand how we can assist with your IP needs.  

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Everything you wanted to know about Freedom To Operate search

Also known as infringement analysis or clearance search, the objective of freedom to operate search is to check if any product or process utilised is infringing on a live patent’s claim. If there is no due diligence, the chances of infringing on someone’s intellectual property is high. An effective FTO search is what you need to do to stay safe from the dangers of litigation. 

 

What is Freedom to Operate Search?

It is used to find out if there is the freedom to operate and invent in a particular jurisdiction from a legal view.  If an FTO is found to be negative, then the entity aiming to operate the invention should not proceed to go ahead with the invention. 

An FTO search is part of the due diligence that organizations should carry out before they apply for a patent. A patent clearance search is also conducted during various places in the innovation process so that there is a proper allocation of R&D resources. When you conduct a thorough FTO search, it demonstrates due diligence on your part if you were to be ever accused of IP infringement. 

 

When should an FTO search be conducted? 

It should be conducted as early in the product development cycle as possible. Doing so will help avoid unnecessary costs, reduce the allocation of wasted resources, show opportunities to license existing technology,  save time, and mitigate the risk of litigation. A good FTO patent search can also enable the inventor an opportunity to develop a design ground early. 

 

Questions to consider before an FTO search?

Here are some of the questions that you should ask to determine your FTO search strategy. 

 

  1. Which stage of the innovation process are you in?

During the R&D process, you should have completed the FTO search a number of times. Depending on which stage of the innovation you are in, the way you approach the search will be different. Why? Because the claims in the potentially risky patent might change by the time you are ready to launch your product in the market.

      2. What is the investment for your invention?

If there is a lot of money involved, you should be sure about your freedom to operate. Ensure that you conduct extensive searches. For technologies (read inventions) that will only give a modest ROI, your FTO search need not be intensive. 

      3. What is your risk tolerance?

If you do not have much idea about your freedom to operate, then you have to be tolerant of the risk associated. Even risk-tolerant organizations might not want the threat of an infringement suit hanging against their heads. You might want to invest in a thorough FTO search at multiple points during the product development phase. 

      4. Does your industry patent often? 

There are some industries that are a lot more crowded with prior arts than others. If yours is an industry that creates patents often, then it is imperative that you conduct in-depth FTO searches. You can start by searching your direct competitor’s patents, industry-wide patent searches and utilize a search tool that has semantic and Boolean search capabilities. 

      5. Does litigation happen often in your industry?

Industries such as electrical equipment, biotech, electronics, consumers, telecommunication, will see a lot of patent infringement cases. If your product belongs to any of the industries mentioned above, then you need to protect yourself from infringement suits by conducting patent clearance searches. 

     6. Where will you operate?

The type of search strategy that you should use will depend on where you want to launch your product. 

 

Best Practices for Conducting Effective FTO Searches:

 

  • Jurisdiction Coverage:

FTO search is performed based on the jurisdiction where the inventor or company is likely to launch the products. It is necessary to consider and cover all the channels related to a particular jurisdiction. Otherwise, the searcher might miss important patents. 

 

  • Date restriction: 

While performing an FTO search, date restriction is an important aspect. Usually, all the alive patents are considered. Some alive patents might fall outside the 20-year criteria, even if they are not from the below-mentioned industries. One more thing to keep in mind is the domain in which the search has been conducted. There are domains like veterinary, pharmaceuticals, food additives, medical devices, etc., where there is the concept of patent term extension. 

The patent term extension cannot exceed five years. The aim is to offer an extension for the time period when the patent holder is waiting for regulatory approvals. Therefore, it’s pivotal to vary the date restriction based on the domain you are searching.

 

  • Targeting important domain players: 

There are important players who have a huge portfolio of patents in each domain. You should concentrate your searching efforts carefully to evaluate their updated portfolio. It is important that a searcher evaluate the portfolio of their company’s competitors and ensure that all-important patents owned by the competitors are being searched thoroughly. 

 

  • Citation search:

The backward and forward citations of a patent are usually the closest results to that particular patent in the domain. After the analysis is done, it is considered a best practice to do the citation search of the shortlisted patents. It will help the searcher to identify patents that could have been missed during the FTO search. It could be missed because of factors such as missing classification, translation mistakes or a missing keyword.

 

  • Similarity Search: 

Many databases provide you with a feature called the similarity search and it is crucial for FTO searching. This feature helps searchers identify close prior arts which might have been missed otherwise. Since each relevant patent has a huge significance with respect to FTO, we advise not to miss standard searching steps so that you can capture all the patents that disclose similar inventions. 

 

  • Patent Segregation to prioritize efforts:

Dividing the patents into different sets based on their claim length and legal status can help with effective searching and analysis. 

Claim Length: Comprehensive claim analysis of the patent is required during FTO searches. The scope of the invention is defined by the length of the main independent claim. As a rule, the shorter claim length of the main independent claim, it has a broader coverage of the domain. There are many searching databases, which provide the main independent claim length as a feature. 

Legal Status: It is also possible to divide the patent result as per the family legal status.

of the patent family. When you’re launching a product, only active and granted patents can pose obstacles. Therefore, these patents need to be carefully searched. 

 

  • Keywords and Classifications:

By searching the patents and products in the domain, it is possible to identify the keywords and classifications. Observe the diversified keywords that are used to disclose the same invention. You also need to track classifications throughout the search process as it’ll help you gain insights as to which class includes most of the patents of interest. Iterate the old strings with the help of updated keywords so that no obvious buttons are missed while reporting the FTO search.

 

  • Report the findings:  

The findings need to be put in an easy-to-understand manner. Ensure that there are no communication gaps by structuring the findings in the report properly. 

 

Categorizing the results:

The results should be categorized to define different sets of results in an easy way. At ResearchWire, we use the following labels- High, Medium and Low Risk. The claims of the ‘Relevant’ patents can be quite broad and the product could appear to infringe the protected subject matter of these patents. The ‘Potentially relevant’ and the ‘Related’ categories are patents whose claims might include a few restrictive features. The product may or may not be infringing on the claims.

 

Report the patents in the decreasing order:

For FTO searches, it is best to report the patents in the decreasing order of their risk level. It reduces the time taken by the client to check the results quickly. 

 

Legal Status:

The legal status is dynamic in nature as it gets updated regularly by the patent office. The update is based on factors such as patent life, the status of the maintenance fee payment, disputes, etc. While preparing the reports, make sure that you check the legal status of all the relevant patents. 

 

Latest claims:

Since the FTO patent search is a claim-oriented search, the latest claims and pending applications are considered for analysis. To ensure the best quality, each claim of all the active and granted patents should be ratified with the National patent office websites. 

 

Conclusion:

There is immense potential to calculate the chances of infringement in advance through FTO analysis. A correct FTO analysis can not only measure the probability of avoiding patent infringement litigation, but can also provide you with new business opportunities by showing what is available in the technology that you’ve chosen. It also minimizes the risks of infringement of the rights of third parties. 

Are you looking for a partner to take care of your Intellectual Property needs? The team at ResearchWire is capable of handling any type of IP issue that your company might be facing. We are experienced at building custom solutions for your specific intellectual property needs.

Get in touch with us to understand how we can help you. 

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Everything You Wanted To Know About Invalidity Search

What is a patent invalidity search?

 

Also called an opposition search, the objective of a patent invalidity search is to identify patent and non-patent documents that may impact the claims that are present in a specific patent. When a competitor attacks you with patent infringement claims, your best resort is to prove the patent invalid. A patent validity/invalidity search is also done to calculate the strength of a patent to see how much it can guard itself against claims of validity. 

 

Using the results from this search, you can block patents and validate the claims of a patent portfolio which can be useful during a licensing or a company acquisition process. An invalidity search is conducted by a defendant to invalidate a patent by conducting a prior art search. 

 

A patent invalidity search is performed for three important reasons:

 

  • To check whether someone holds an authentic claim to the patent
  • To invalidate claims of patent infringement
  • To search for patents before any new patent enforcement

 

How do you perform a patent invalidity search?

 

The first step towards performing a patent invalidity search is to establish the priority date of the patent claims. Disclosures that are publicly available before the date of the filing of the patent is considered to be prior art. Also, if a patent application has been published by you after the patent’s filing date, it will receive a prior art rank. 

 

You might not always get enough material to stab at your patent’s novelty, but patent validity search will give you an idea as to where to look for if there is an anomaly. Below are the steps that you should take while performing a patent invalidity search. 

 

  • Understand the subject:

 

You need to know which are the technical and patent issues so that you can fully interpret the claim during the validity search. Since validity searches are usually performed on patents that have already been allowed, you need to have a broad sense of the claims to find further relevant art. Read in detail about the prosecution history at the beginning of the search, including the file wrapper to interpret the claim which needs to be invalidated. 

 

  • Do not leave out even a small detail:

 

To conduct an invalidity search successfully, you need to pore through innumerable patents and literature documents. A thorough examination will include an evaluation of the specification text, figures, chemical formulas, tables, etc. The searcher should focus on a variety of matters that will be of relevance to cover most grounds, if not all. 

 

  • Conduct a broad search:

 

When thorough invalidity searches are conducted, the findings will help you make the right business decisions. Missing prior art could cost you millions in patent infringement suits or having to re-work the product. You need to gather all your resources and search to the broadest extent possible. Start with works such as patent office search reports, history of the prosecution, opposition proceedings, litigation proceedings, etc. 

 

  • Do not ignore non-English literature:

 

Even though the volume of non-English literature is not much, you should not neglect or underestimate its importance during your searches. 

 

  • Know when to halt the search:

 

The problem with invalidity searches is that there is so much information to gather and so many places to seek them from. What happens if you don’t know when to stop? You will end up extinguishing your resources and burn a lot of money, not to forget the amount of time you will end up wasting. Your search strategies should also mention clearly when exactly you will stop so that it doesn’t go on for a long time. 

 

  • Do reporting properly:

 

The final report should be submitted in an easy-to-understand manner. While it is tempting to cite all the resources, all these references might not be relevant to the client. Offer a brief interpretation of the results and add any other supporting information if necessary. Report the findings in a matter of fact manner instead of offering opinions as they can be used against your client. 

The final report for the search should include relevant prior arts, key features, search strategy, keywords, classes, key assignees, key inventors, and claim charts that map relevant prior arts with the features of claims. A detailed report will help you understand the validity or invalidity of the claims in the patent. 

 

Factors involved in a patent invalidity search:

 

It is different from a prior art search because of a few factors that are involved in a patent invalidity search. Let us look at them.

 

File wrapper information:

 

File wrapper, or the dossier content, provides the most updated information regarding a patent application’s progress. It includes information on the examination process, search reports, office actions, correspondence with the patent office, and so on. When you read the file wrapper, it will give you an idea about the aspects on which the patent has been granted or if there is any novelty feature for the patent. The searcher will be able to identify if a claim has not been identified by the examiner. 

 

A file wrapper will also tell you about the kind of search strategy that was utilized by the examiner. Based on this, the searcher can find references to invalidate the claims of the patent. 

 

Cited references:

 

Both patent and non-patent literature which have been cited for the targeted patent are called cited references. You can gather the cited references from the file wrapper. When the analyst goes through the cited references, they can see the ones that have already been used against the targeted patent. By doing this, it becomes easy to get an idea of the missing part to invalidate the claims of the targeted patent. 

 

Date Restriction:

 

To find out prior arts and prior right cases, Date Restriction plays a big part in the invalidity search. A prior art case is published before the priority date of the patent that is to be invalidated. Prior right cases are those which are published after the priority date of the targeted patent, even though their priority date is before that of the targeted patent. 

 

Conclusion:

 

With all that said, the first thing you need to do before conducting a patent invalidity search is to consider the patent’s filing date. With patent invalidity search, you might be able to find prior art which the previous examiner might have missed out on. If a business is challenging the patent of a competitor or is preparing for a defense against an infringement charge, then the ideal retort is this. 

 

If you want to find out the validity of a patent, reach out to ResearchWire, our expert analysts will be more than happy to take care of it. Our in-house experts understand the patent laws for different countries, and are adept at conducting an expert search. 

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