IP DUE DILIGENCE IN CORPORATE TRANSACTIONS

ABSTRACT

The emoluments of this research pertain to the veracity construed by the intellectual property resources in a lucrative perspective for a respective business in terms of economic cogence and fiscal gains. The utility of due diligence is to extradite the flaws and inadequacies of the business transaction to be undertaken. Apart from identification of intellectual property protection aspects, it is essential to adhere the tenets of IP laws of such aspects which shall be applicable.

Keywords: Business efficacy, IP resources, Transaction objective, Proficiency, Analysis

INTRODUCTION

The essential and exquisite scrutiny of intellectual properties of an entity, both in qualitative and in quantitative terms is considered as Intellectual Property due diligence. The trend of identification of IP resources as a gateway to flourish in the economic scenario is quite popular amongst the organization, specifically when it comes to raise of capital and insurgence of profits. In order to procure maximum benefit from utilization of their IP resources, the organizations conduct regular reviews of such resources. Professionals in charge must vividly identify and scrutinize the procedures directing to accomplish the desired benefits, manage the hindrances in order to succumb discrepancies and make radical changes as required to enhance the efficacy of business. In this regard, IP resources are effective on the basis of practical scrutiny approach as an apprehension for attainment of economic benevolence out of it by the appropriate professionals.[i]

It is obsolete to undergo the contention that portrayal of requisites of IP due diligence is a burden for the target sought to be achieved or the deal that is ought to commensurate. Rather the perquisites of IP due diligence serve as a potential appraisal in the apprehending transaction. The discrete analysis of IP due diligence enables the purchaser to maneuver his strategies so as to eradicate the possible lacunain the IP resources in regard to possession and access. The significance of this approach is to regulate the obscure mandates of the resources, thereby, providing an opportunity for the dealer to emancipate the appropriate business model. The knowledge to be rendered is important for the selection of the correct plan. The outcome of the information derived from the speculation of the IP due diligence is certainly variable to the environment of the business and the nature of the transaction to which it entails.[ii]

NECESSITY OF IMPLEMENTATION OF IP DUE DILIGENCE

Ignorance of the conduct of IP due diligence is something which an organization should try to avoid because of the adverse speculations, that reprimands an organization from potential business oriented decisions. The procedure of IP due diligence can prove to be very much flourishing if the proper procedures are maintained and correct analysis is executed. Even a degrading business from the general perspective can be derived to be productive with an effective embrace of appropriate due diligence. So every personnel, speculating a prospective outcome from the desired transaction must have a vivid proficiency. From the perspective of a seller, IP due diligence seeks to enlist the competent resources that entail the business and from the perspective of the buyer it serves to highlight the same, the failure to which could generate inadequate results not to the worth of the investment. Definitely, to embrace a non-skeptical fallacy from the transaction and make investors attract to the speculation, it is suitable to resort to the desired action plan of the proposed procedures.[iii]Moreover, the creation of a guide would escort the organization in making discrete decisions at the time of transaction, also, to assist the professionals in charge of due diligence analysis, to find a better position in hypothecate the situation. It’s a complete overview of the background of the business at the desk in a glance with a lucrative decision in progress to be conducted.

CONDUCT OF PROPER DUE DILIGENCE IN TRANSACTIONS

The targets and goals of the distinct businesses are respective and accordingly, their due diligence procedure would be variable for ascertainment of the rights and obligations. Nevertheless, following are the requisites which are required to be verified in the conduct of IP due diligence in usually most of the corporate transactions:

  • Intellectual Property Identification:Recognition of goals to be attained and the corresponding resources to its accordance sought to be achieved, is of paramount importance. The subjects of concern should be “marked”, i.e either by the method of registration or enlistment or any another acknowledged procedure.[iv]
  • Verification of the Property in Existence:Once the pertinent subjects of the the transaction are ascertained, the subsequent procedure is to evaluate the specific rights and obligations of the Intellectual properties which have been enlisted for the attainment of the transaction objective. Not only the conduct of this procedure ensures the veracity of compliance of the resources to the subjects but also to check whether the such compliance is within the regulation of IP laws.
  • Ownership Verification: Another important procedure down the line of IP due diligence is the verification of the ownership of the property or resource sought to be acquired. The absence of valid ownership to the target cannot fulfill the desired transfer of rights and liabilities of such property to another owner is any sort.
  • Verification of the Encumbrances in the Property/Resources:When a third party who is not a part of either the buyer or seller encroaches upon the rights of the organization for instance, any previous contract of specific performance of any intellectual property which is likely to create a controversy, such situation must be clearly evaluated before the transaction is commenced.

JUDICIAL CONNOTATIONS IN INDIA

The Insolvency and Bankruptcy Board of India in a recent case of Re: Bhupesh Gupta[v], contented that wherein, the Information Memorandum of the corporate transfer was incorrectly mentioned or inconsistent with the actual. The Board had prudently observed that IP due diligence was lacking in preparation of the information memorandum. It is of utmost importance that before a corporate transaction is finally ascertained the resolution professional must submit a correct and accurate financial position of the Corporate Debtor because this information is vital for the prospective resolution applicants who shall choose to make the decision of the transaction based upon the information disseminated vide the resolution plan.

In regard to corporate transactions between two organizationsthe Delhi High Court in General Electric Company v. Jebasingh Nelson[vi], construed that while in duration of the transaction, the confidential information and trade secrets being exchanged between the two companies as a necessary procedure of the due diligence conduct, should be restricted to its classification and under no circumstances be disseminated. Moreover, any employee or member of the organization who is no more a part of it is also having the obligation upon them to not disclose it to any other individuals.

CONCLUSION

Comparing in today’s date the necessity of conduct of IP due diligence is much important to its standards of corporate transactions. The information which is derived as a result of proper due diligence might be a new discovery which was never derived previously. Such information can enhance the levels of speculation of this review and try to seek the probable adversities. It is the corporate transactions which essentially proposes the requirement for such due diligence as a prospective and eminent source to most of the decisions that are subsequently undertaken. Hence, in this regard the perseverance of appropriate decisions of the professionals is notable.


[i] Suneeth Katarki and Aditi Verma Thakur,Intellectual Property Due Diligence, Indus Law Blogs, (Jun. 30, 2020, 8:51 PM),  https://www.mondaq.com/india/trademark/448686/intellectual-property-due-diligence

[ii]PrathikSharavi, How to conduct an Intellectual Property due diligence check, IPleaders Blog, (Jul 01, 2020, 5:20 PM), https://blog.ipleaders.in/intellectual-property-due-diligence/

[iii]Frank A. Ciatto Diligence in business transactions: a brief primer, Venable LLP, (Jul.01, 2020, 6:10 PM),https://www.lexology.com/library/detail.aspx?g=7cec28e7-983d-42f0-876a-d8b2ce17b3d0

[iv] Colin McCal,The importance of IP due diligence, Taylor Wessing,(Jul. 01, 2020, 6:56 PM), https://www.taylorwessing.com/synapse/ip_duediligence.html#:~:text=IP%20due%20diligence%20is%20essentially,the%20relevant%20company%20or%20business

[v] Re: Bhupesh Gupta, MANU/BB/0020/2020 (India).

[vi]General Electric Company v Jebasingh Nelson, CS (OS) 3601 of 2012, Delhi High Court (India).

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