Intellectual property is a valuable asset for any small business, and performing due diligence on it can help ensure that your company has the legal rights to use the intellectual property as intended. A thorough due diligence process can also uncover potential risks or liabilities associated with the intellectual property, such as infringement issues or ownership disputes. This article outlines an essential due diligence checklist for small businesses using intellectual property, providing guidance on what should be included in a comprehensive review of existing IP assets and how to protect them going forward.
1. Assessing Intellectual Property Assets
Perform an inventory of all intellectual property assets owned or used by the company, including patents, trademarks, copyrights, trade secrets, and other IP forms. Identify any potential risks or liabilities associated with existing IP assets (e.g., infringements on others’ rights).
2. Reviewing Existing Loan Agreements
If the business has taken out loans, review any associated loan agreements to confirm that they do not place any restrictions on the use of intellectual property or transferability of IP assets.
3. Investigating IP Due Diligence
Conduct a due diligence investigation to confirm that the company has clear legal title to all intellectual property assets, including any IP owned by third parties. Review any existing licensing agreements and perform background checks on key employees to ensure they have not assigned their rights in any third-party IP.
4. Analyzing Insurance Coverage
Evaluate existing insurance coverage to ensure that intellectual property is properly insured and protected. If additional coverage is needed, consider purchasing specific IP insurance policies to protect against potential risks associated with ownership or misuse of the company’s intellectual property.
5. Determining Business Value
Assess the value of the company’s intellectual property assets to understand their role in the business’s overall success. Determine how IP assets are used, what strategies rely on them, and how they contribute to the business’s cash flow.
6. Confirming IP Assets Availability and Ownership
Confirm the company’s ownership of each IP asset, including any IP assets owned by third parties. Ensure that all intellectual property assets are available for use and review any material contracts to determine if they contain provisions limiting their usage or transferability.
7. Identifying Potential Legal Issues
Examine any existing legal issues that may affect the company’s ability to use IP assets, such as infringement claims or ownership disputes. Identify potential tax liabilities related to IP assets and review any joint venture agreements for restrictions on usage.
8. Evaluating Material Contracts and Joint Ventures
Review any material contracts, such as non-disclosure agreements and license agreements, to ensure that the company’s intellectual property is adequately protected. Also evaluate any joint venture agreements for restrictions on usage or transferability of IP assets.
9. Gathering Financial Information, Including Cash Flow Statements, Balance Sheets and Tax Returns
Gather financial information about the company, including cash flow statements, balance sheets and tax returns. Analyzing this data can provide insight into the value of IP assets and how they contribute to the business’s success.
10. Checking Backgrounds of Key Employees
Perform background checks on any key employees to ensure they have not assigned their rights in any third-party IP or entered into any agreements with competitors that could potentially limit the company’s ability to use its own intellectual property.
As a small business owner, it’s important to understand the value of your intellectual property assets and how they can contribute to your success. A comprehensive due diligence process is essential for protecting those assets from potential risks or liabilities associated with them. By following this checklist, you’ll be better equipped to identify any issues that may arise and take steps to protect your IP rights going forward. With proper assessment and protection in place, you’ll have peace of mind knowing that your company’s valuable intellectual property assets are safe and secure.