Investing in a company (Company) inevitably requires looking at its assets to determine the Company’s value and potential, and to ensure a return on investment. This will include looking at the Company’s intangible assets such as intellectual property (IP). To assist with this exercise, an investor (or the Company) can commission an IP report.
A key feature of an IP report will be to identify IP (1) owned by the Company or (2) used by the Company but owned by third parties. This will be relevant to most businesses, and especially companies with large IP portfolios (such as in the Technology and Media sectors). This step acts as a springboard to then consider:
- The quality of IP – More specifically whether the Company’s IP rights are enforceable against others (especially competitors) and is sufficiently protected. For example, in the context of registered IP rights (such as registered trade marks), a large portfolio of registered marks may act as a deterrent for potential infringement, but does not necessarily guarantee the enforceability of such marks.
- Potential risks – A review of the Company’s IP can identify potential areas of risk, especially with respect to third party challenges of Company IP or risks in connection with the Company’s existing licensing arrangements.
- Opportunities – The review may reveal potential opportunities for utilising the Company’s existing IP portfolio to maximum effect, such as:
- further protection of the Company’s rights e.g. the registration of unregistered IP;
- licensing of Company IP to generate revenue; and
- revealing assets that could be used by the Company as security to obtain finance.
Making the necessary changes to take advantage of these opportunities can then be implemented either prior (as a condition) to investing or subsequently.
Before commissioning an IP report, an investor and Company may also consider the following:
- Who will commission the report – A Company may consider commissioning the IP report, which can benefit both parties; for the investor it receives an IP report at no cost, and for the Company it shows IP readiness and a willingness to be transparent.
- Data Protection compliance – A review of a Company’s IP can be coupled with a review of its data protection compliance. Please see our article for a discussion on the potential consequences (ICO enforcement action) of non-compliance with data protection legislation.
It is crucial to bear in mind that all costs associated with investment due diligence should be proportionate to the proposed investment. We at Stephens Scown LLP recognise the need to manage this concern, and if you would like to know more about IP reports, please do contact us via email at enquiries@stephens-scown.co.uk or by phone at 0345 450 5558.