Exploiting Intellectual Property

Navigating Commerce and Technology: An Interview with Armand J. Zottola of Venable LLP

Armand J. Zottola, a prominent legal expert at Venable LLP, shares insights into the vital role of intellectual property (IP) in today’s business landscape. As a co-chair of Venable’s esteemed Intellectual Property Transactions team, Armand offers valuable perspectives on IP due diligence, effective IP management, and critical transaction preparation elements, shedding light on the intersection of commerce and technology.

Intellectual property has become one of the most important assets a business has, and this is especially true for technology and life sciences businesses in Washington, across the United States, and internationally. What is IP due diligence, and why conduct IP due diligence?

IP due diligence entails the review, audit, and reporting of intangible assets to assess the scope and validity of intellectual property rights owned, claimed by, or licensed to an organization, business, or individual. This kind of due diligence review is commonly conducted in connection with the acquisition of a company or business or as a part of a licensing arrangement. But this type of review can and should also be conducted by each intellectual property owner to review and assess the quality and value of its own rights.

IP typically entails the patents, trademarks, copyrights, and domain names of an organization, business, or individual but can also include other types of intangible assets, such as data, know-how, domain names, and software. IP can sometimes be the most important asset that an organization, company, or individual has. To claim or assert the full value of such assets, it is necessary to determine the quantity and validity of the intellectual rights. Full ownership of an IP asset permits the full claim of associated IP rights, the right to seek registration, and the ability to enforce or assert legal claims in the IP against third parties.

What are the key objectives for good IP management and effective IP due diligence?

It starts with identification and ends with a value assessment. Processes and policies need to be implemented to identify claimable intellectual property rights to creative efforts, developments, or new work products. Furthermore, a review needs to be conducted to assess the quality of what is claimable and the ability to assert rights or protect interests under applicable laws. Claims of ownership in IP must be confirmed by assessing the chain of title to any individual asset, from creation or development through exploitation.

Often, legal documentation (i.e., written assignment) is necessary to help show chain of title and especially with respect to non-employee personnel retained to create or develop (in whole or in part) the IP. The processes of applying for registration of any IP asset will typically require a written claim or assertion supportable by documentary evidence showing ownership.

Moreover, upon confirmation of ownership, it is worthwhile to consider the strength and scope of the IP asset and the ability of related IP laws to protect or enforce associated rights. Does the IP prevent, limit, or hinder a third party from exploiting related technology or conducting related business? The scope of protection will assist in determining the monetary value of the IP, as the exclusivity of the rights is often tied to the ability of the IP to prohibit others from exploiting related technology without permission. 

From the point of view of a prospective purchaser or licensee, what are the key elements of good IP management and transaction preparation for a prospective vendor or licensor?

Every transaction is different. But like the acquisition of any other property interest or right, it is important in every deal to avoid the potential cost and risks of purchase or license by first reviewing and assessing the value and adequacy of the target IP. You cannot manage or exploit without first knowing what IP rights exist or are claimable. Start the due diligence review immediately and always in furtherance of the goals of the transaction.

Context matters. The type and purpose of the transaction, the amount of investment or compensation, the perceived importance of the IP, the goals of the purchaser or licensor conducting the review, and the nature and commercial value of the associated business or assets are key considerations. Review related and relevant documentation supporting ownership, rights, or assertions. Review related development or creative processes and associated documentation evidencing innovation and originality. Interview appropriate individuals involved in the creative or development process. Identify, audit, and report all relevant IP rights. Assess the third-party landscape to determine past, present, or potential claims, litigation, or proceedings involving the IP. No transaction seeks to acquire or license a liability. Support the due diligence review with appropriate representations or warranties to back the claims of a seller or licensor. Consider a similar approach to reviewing and auditing one’s own in-house IP assets.  

Failure to promptly identify, assess, and mitigate specific issues during diligence can undermine the initial rationale for valuation of the transaction. What is an M&A due diligence checklist, and what are the critical IP areas of inquiry?

IP due diligence can range from a bare minimum of review to comprehensive reviews of the associated business operations, processes, and personnel. The main goal in each situation is to ensure ownership or claimable rights and avoid credible third-party IP claims. But regardless of the nature of the transaction, effective IP due diligence generally includes the following:

• Identify and inventory all of the technology and intangible assets, whether registered or merely claimed
• Review the scope and existence of related IP rights claimed, held, or owned in connection with such assets
• Assess the legal right, validity, and status of the associated IP rights
• Review the related exploitation of the rights under the IP through the examination of related contracts involving the licensing, acquisition, or disposition of the associated IP rights
• Review any associated legal claims, proceedings, or settlements involving the IP (or associated business) in all applicable jurisdictions where creation or development occurred, related business was operated or undertaken, and future business may be operated or undertaken. As a part of this exercise, scrutinize whether any of the target IP is subject to threatened third-party infringement claims and develop a risk assessment for continued use of the IP (or technology) or operation of the associated business
• Consult with a financial professional regarding the related financial value of the claimable IP assets

If your readers are interested in talking more about the intersection of intellectual property and technology and related due diligence matters, they can get in touch with me at ajzottola@venable.com.

ABOUT:

I work at the intersection of commerce and technology, focusing my practice on the exploitation of intellectual property, intangible, and technology assets in business and strategic relationships. I co-chair Venable’s nationally recognized Intellectual Property (IP) Transactions team, which handles some of the most complex deals around the world. For three decades, our IP Transactions group has counseled well-known Fortune 500 companies, nonprofit and trade organizations, start-ups, and everyone in between on various IP and technology transactions.  

600 Massachusetts Avenue, NW, Washington, DC 20001

Tel: 202 344 8546

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Email: AJZottola@venable.com

www.venable.com

Published by: www.lawyer-monthly.com