This is a guest post from David A. Kalow, Counselor and Attorney at Law: IP Strategy.You can find him on LinkedIn here.
Good IP diligence should be expensive and is incredibly valuable in helping business avoid bad deals, generate better valuations, higher profits, better collaborations, more productive R&D, beneficial financings and useful acquisitions.
But full IP diligence comes at a price: it is serious hard work that takes substantial time and can generate large legal bills.
While there are no shortcuts to IP fitness (as with personal fitness or for military readiness) there are some common mistakes to avoid, creating "pressure points" to achieve big results with relatively little force in just the right places.
Once you are on an M&A acquisition team, full diligence of the final target is well justified. But in the initial stages of selecting targets, as well as in any lesserdiligence situations (the usual VC/angel deal and even smaller PE investments), what are a handful of questions that can reveal a great deal, and have built-in truth-tests, i.e. very hard to lie about?
Plus, on the company or sell-side, these are top issues that the CEO, Board and upper management should always seek better answers and analysis for their own success, even if a deal or financing is not currently imminent. Consider asking the Target Company for their answer and analysis of:
- What are the top (4-10) Freedom-to-Operate (Right-to-Use) threats or attacks you face? What are your most important Defendant-side issues, and what are your planned responses or current actions for each (eg existing alternatives, creating design-around, license, merger, joint venture, invalidity or non-infringement etc.)? Bonus points: if you are really disruptive, the incumbents are highly motivated to destroy or delay you; can you instead encourage alliances or industry standards that deflect or invert these attacks?
- What are your top copying or infringement threats/attacks? What are your most important Plaintiff-side issues and what are your current plans and actions? Bonus points: how are you using or planning to use your IP to help leverage alliances, deals, customer and supplier relationships, joint ventures and crosslicenses?
- What are the current Next Best Alternatives to your product or services? What else could or do prospects choose or do instead? What are the benefits and features of your products as compared to top competitors? Bonus points: what new great alternatives are coming from others, globally, including from universities, startups, suppliers and customers, not just big competitors? What are your Next-generation plans to cope and thrive with those?
- What gives you a sustainable competitive advantage? Besides your great team, first-mover advantage and network effects, what are your most important, best, valuable "top" IP? Why don't your competitors copy you; why don't you copy them? Which trademarks, trade secrets, copyrights, contracts/licenses and patents matter most and in what way? What is the value of these top assets and how do you analyze and justify those valuations? What might destroy, reduce, enhance or prolong those values? Bonus points: What is your budget for IP protection, and why: how is that budget set? What more would you do if the IP budget increased; what would you cut if it decreased?
- What are your plans for the future, to create new products/services, improve existing ones; create new products and new "Top" IP, deal with erosion of competitive advantage; perhaps enhance Network Effects; to best combine IP and technology/R+D strategy into your business strategy? due diligence intellectual property patents
- What is the best prior art or other validity/scope threats to your Top IP? How close were others in the past, and what would be the best arguments that your differences were obvious or trivial? What are your counter-arguments, analysis, experts, proofs?
By skipping the usual first stage of compiling of long lists of all IP and expensive analysis of all issues, and focusing on this handful of deadly "Pressure Point IP" value questions (Defendant, Plaintiff, Alternatives, Triage, Future, Past), you can have an excellent toolbox to quickly and inexpensively screen multiple candidates for M&A, plus avoid weak VC/PE investments or improve performance of existing portfolio companies.
While the six answers need to be checked in full diligence, and will never be the whole truth, the quality of management thinking will still become quickly apparent, and even wrong answers will greatly speed your own independent research and analysis. Best of all, if you are the potential target, or company in need of financing, you can just grab the same toolbox and greatly improve your chances for enhanced profits, larger valuation and successful financial dealsClick to edit your new post...