Intellectual Property Due Diligence Audits

INTELLECTUALPROPERTYDUEDILIGENCEAUDITS

ACHECKLIST

FrançoisPainchaud*
LEGERROBICRICHARD,Lawyers,
ROBIC,Patent&TrademarkAgents
CentreCDPCapital
1001Square-Victoria-BlocE–8
thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.(514)9876242-Fax(514)8457874
www.robic.ca-info@robic.com

IEVALUATIONOFTHELENGTHANDSCOPEOFTHEAUDIT
1.DeterminetherelativeimportanceoftheIntellectualProperty(the”IP”)in
theoveralltransactionandtogoalstobeachievedbytheaudit;
2.IdentifyandlocatealltherelevantIPassetsthatarematerialtothe
transaction;
3.Strengthenthe”harvesting”baseforIPassets;
4.Hasthebusinessobtainedorsecuredallrightsandauthorizationto
manufactureandsellcertainproductswithoutinfringing?
5.Istheauditonlythe”CanadianPortion”ofaninternationaltransaction?
6.Willtherebeonsiteinterviews,withbusinessand/ortechnicalpeopleor
simplyquestionnaires?
7.Willtheauditbemulti-site?
8.Youwillneedtohighlightthedifferences,realandpotential,whetherthe
proposedtransactionisanassetorasharetransaction,amergerorajoint
venture,etc.



















































©LEGERROBICRICHARD,1998*Lawyer,FrançoisPainchaudisaseniorpartnerinthelawfirmLEGERROBICRICHARD,g.p.andin
thepatentandtrademarkagencyfirmROBIC,g.p.Thismaterialwasoriginallydesignedforthe
purposeofaseminargivenduringtheIntellectualpropertyLawinadaysponsoredbythe
PatentandTrademarkInstituteofCanadaatSt-John’s–Newfoundlandon1998-10-01.
Publication231



IIGATHERINGOFINFORMATIONFROMTHETARGET
1.TheOnsiteInterviews
Thiswillservetoidentifytheproducts,categoriesofproducts,services,
technologiesandotherelementsofIPtobeaudited(the”Elements”)with
therelevantpeopleofthetargetbusiness.Thisstageshouldseemnatural
fortheindividualsofthetargetandshouldavoidlegalissuesor
questionnairesthataretoolegalistic;questionswhetherwrittenorverbal
shouldappearandfeelverybusinesslike.Itisduringthisstagethatthe
auditorgainsaglobalviewoftheworkaheadandcanreconcileitslegal
workwiththereal-lifebusinessofthetarget.
1.1AtR&DLevelObtainasummaryforeachresearchedElementcarried
out,thedevelopmentprocess,namesofalltheindividualsthathave
workedontheR&Dandtheirbasicinformationsuchasnames,statusof
employment,ifapersonisaconsultant,itsfunctionsandstatusof
employmentbyanotherbusinessthanthetarget.
Whatkindofdocumentationisproducedbythesepeople?
1.2AttheProductManagerLevelObtaininformationonpastandpresent
managersforeachElementaudited,specifythefunctionsofsuchproduct
managerasmuchaspossible.
1.3AttheMarketingLevelObtaininformationoneveryindividualassociated
witheachElementaudited,whetherornottheywereemployed,
independentcontractororemployedbyconsultantswithaddresses,
includingallconsultantcorporationsassociatedwitheachElements.
Obtainalistingandcopiesofadvertisingmaterial,includingwork-in-
progress,videoandaudiotapes,printedmaterial,etc.
1.4Trytoplanatourofthesiteorsitesthatarematerialtothetargeted
Elementsifatallwithinthebudgetofyourclient.
2.TheContractsReview
Thisisthefirstoftheformalandlegalistportionoftheaudit.Hopefully,step
1willhavegivenyouahead-startonwhattoexpect;theanalysiswillalso
varyinlightofthestructureofthetransaction.Atthispoint,aformal
writtenrequestofthefollowingshouldbemade(thegoalistoobtainall
contractsrelevant,directlyorindirectly,toIPissuesandIPassets,workfrom
thebottomup:


2.1R&D
2.1.1Employmentagreements;
2.1.2Independentcontractor/consultantagreements;
2.1.3Researchagreements(university/privateresearch,etc.);
2.1.4Jointdevelopmentagreements;
2.1.5Rawdataagreements(also2.2.4);
2.1.6Pharmaceutical:”Biological”materialagreements;
2.2AgreementsthatbringtheElementsTogether
2.2.1Outrightpurchases,i.e.:assignmentofElements,IPrightsofthird
partiesortransferofknowledgeagreements;
2.2.2″In”licences;
2.2.3Jointventures;
2.2.4Dataagreements(also2.1.5);
2.2.5″Pooling”agreements;
2.3Agreementsenablingthetargettosell(or
moregenerally”move”)itsproductsorservices
2.3.1Distributionagreements;
2.3.2Marketingorco-marketingagreements;
2.3.3Co-promotionagreements;
2.3.4Franchiseagreements;
2.3.5Software:VAR/OEMagreements;
2.3.6Software:end-user,siteorbusinesslicenceagreements;
2.3.7Dataagreements(marketsdata,surveydata,etc.);
2.4Othergeneralagreementsaffectingthetarget
Affectingthetargetnegatively:


2.4.1Non-competitionagreements/covenantsofthetarget;
2.4.2Confidentialityagreements;
2.4.3″Out”licences;
Affectingthetargetpositively:
2.4.4Non-competitionagreements/covenantsofthirdparties;
2.4.5Confidentialityagreements;
Corporate:

2.4.6Shareholderspartnershipagreementsandotherconstating
agreements;
2.4.7Hardwareandsoftwareagreements;
2.4.8Collectivebargainingagreements,technologydevelopment
policies(seeuniversitypoliciesforteachers);
2.4.9Settlementagreements(tocrossreferencewiththelitigationaudits).
3.CorporateDocumentsoftheTarget
Againasforsection2,thegoalistoobtaininformationastotheIPassets,
heredocumentationsuchasinternalproceduresaswellaspossible
disclosuresofthecorporationshouldbeincluded.
3.1R&Dprocedurespolicy
3.1.1Logbooksofresearchersandtechnicians;
3.1.2Researchpolicypersay;
3.1.3ProceduresensuringconfidentialityinlaboratoriesandR&Dfacilities.
3.2Others
3.2.1Prospectusesandannualinformationcirculars(veryimportantin
smallerhighlytechnicalbusinesswheresuchdocumentationmay
oftendiscloseinformationthatcouldotherwisehavebeenthought
tobeconfidentialandsometimesevenpatentable);
3.2.2Hiringpolicies;


3.2.3Trade-markslistsandfiles(registeredornot);
3.2.4Patentlistsandfiles(registeredornot);
3.2.5Tradesecrets(includingformulas);
3.2.6Copyrights(registeredornot);
3.2.7OtherIPlists,ifany,suchasindustrialdesigns,plantvarieties,
topographies,etc.
IIIOUTSIDEGATHERINGOFINFORMATION
ONEACHSPECIFICIPANDSEARCHES
1.InformationavailableattheCanadianIntellectual
PropertyOffice(“CIPO”)andtheotherofficesworldwide
1.1Patents*
1.1.1ComparethetargetslistsoftheCIPOandtheotheroffices,
obtainedthroughindexsearchesor,now,throughthenetorother
databases;
1.1.2Copiesofpatentsandfilewrappers,i.e.:thefileoftheexaminerto
reviewthevalueofthepatentsofthetarget;
1.1.3Copiesofpublishedpatentapplications;
1.1.4Patentabilitysearchesorreviewofpastpatentabilitysearchesand
updates;
1.1.5Non-infringementsearchesorreviewofpastornon-infringement
searchesandupdates;
1.1.6Stateoftheartsearchesandother;
1.1.7Reviewtheregisterforlicencesandsecurityinterests.
*Patentsearcheswillnotnecessarilyrevealallinformationsuchas
unpublishedapplication(upto18monthsfromfiling),andinthe
UnitedStates,applicationsarenotpublished,ifthecountryof
CanadaisincludedinaPCTapplication,itwillnotbeknownuntil
theapplicationentersintothenationalphase(i.e.:inCanada).


1.2Trade-marks*
1.2.1ComparethetargetslistswithpubliclistsoftheCIPOandothers,
obtainedthroughindexsearchesor,now,throughthenetorCD-
ROM;
1.2.2ReviewattheTMOoffilewrapperofthetrade-marksthatare
materialtothebusiness;
1.2.3ReviewattheTMOofpastandcurrentoppositions;
1.2.4Consider,whetherornot,toreviewtheformerregistereduser
registerofthetargettrade-marks;
1.2.5Considerreviewingothersources,suchastradepublications,
telephonedirectories,corporatenames,etc.;
1.2.6Reviewtheregisterforsecurityinterests;
*Trade-marksearcheswillnotnecessarilyrevealallinformationsuch
asrecentapplications(thereis,generally,adelaybetweenthefiling
oftheapplicationandthetimewheretheapplicationnumberis
assigned).Abandonedapplicationsandexpungedregistrations
shouldbeincludedspecifically.
1.3Copyrights*
1.3.1Reviewoftheregisterthroughanindexsearchandcomparewith
thetargetslists;
1.3.2Reviewtheregistrationoflicencesandsecurityinterests;
1.3.3Considerresearchingviaanauthorsearchtolocatevariousauthors;
*Itmustbekeptinmindthatmany(theword”many”shouldbe
emphasised)copyrightsareneverregistered.
1.4IndustrialDesign*
1.4.1Reviewoftheregisterthroughanindexsearchandcomparewith
thetargetslistsifany;
1.4.2Reviewtheregistrationoflicencesandsecurityinterests;
1.4.3Othersearchessimilartopatentsearchesmaybecarriedoutwhen
deemedappropriate;


*Seeourcommentsforpatentsabove.
1.5TopographiesandPlantBreeders
Specificsearchesmaybecarriedoutontheseregisterswhenever
appropriate;theywillusuallyoccurwhenthetargetisinsuchaspecific
trade;
P.S.:ThePlantvarietyregisteriskeptbyAgricultureCanada.
2.InformationConcerningSecurityInterestsandHypothecs*
ThesecurityinterestsandhypothecsgrantedonIPwillnotalwaysappear
ontheIPregistersalthoughforsomeIPassetsitisrequiredbylaw.A
reviewoftheproperadministratorsofPersonalPropertySecurityLegislation
shouldalsobecarriedout(suchasinOntario,thePersonalProperty
SecurityActor,inQuebec,theRegistryOfficeofPersonalandMovable
RealRights).Thefollowingareissuestokeepinmindwhenlookingfor
securityinterestsandhypothecs.
2.1Apriorassignmentofacopyrightisvoidagainstsubsequentassigneefor
valuableconsiderationorlicenseeunlessnoticeisgivenorregistrationis
madeinaccordancewiththeact(sec.57(3)CopyrightAct).
2.2Apriorassignmentofapatentisvoidagainstsubsequentassigneefor
valuableconsiderationunlessregisteredinaccordancewiththeact(sec.
51PatentAct).
2.3Apriorassignmentofaplantvarietyisvoidagainstsubsequentassignee
forvaluableconsiderationwithoutnoticewhobecomestheregistered
holderunlessthepriorassigneeisregisteredpriortothissubsequent
assignee(sec.31(3)PlantBreeder’sRightsAct).
2.4TheTrade-MarksAct,IndustrialDesignActandIntegratedCircuits
TopographyActdonotmakereferencetopriorities,althoughitisregular
toseetherecordalofsecurityinterestsorhypothecsonsuchregisters.
*Althoughanacademicdiscussionisstillgoingonastowhichofthe
FederalorProvinciallegislationhasjurisdictionoverthefaithofa
securityinterestorhypotheconthevariousIPassets,inadue
diligenceexercise,theyshouldallbeverified.ThePatentOffice
(whichincludesIndustrialDesigns)andCopyrightOfficedoregister
securityinterestsorhypothecsagainstaregistrationofaspecificIP
assets.InthecaseoftheTrade-MarksOffice,itdoesnotdoso,
howeveritplacesonfileacopyofsuchsecurityinterestor
hypothec.

IVCONCLUSION
Othersourcesofinformationspecifictoeachcasemayorshouldbe
consideredsuchas,justtonameafew,inthecaseofapharmaceutical
company,informationavailableatthePatentedMedicinePriceReview
Board(“PMPRB”),andattheHealthProtectionBranch(“HPB”)ofHealth
Canadaandinthecaseofinformationtechnologymakinguseof
restrictedinscriptiontechnologyareviewoftheimportandexportcontrol
lawsinCanadaandmostlyintheUnitedStatesshouldbeconsidered.

ROBIC,ungroupedavocatsetdagentsdebrevetsetdemarquesdecommercevoué
depuis1892àlaprotectionetàlavalorisationdelapropriétéintellectuelledanstousles
domaines:brevets,dessinsindustrielsetmodèlesutilitaires;marquesdecommerce,marques
decertificationetappellationsdorigine;droitsdauteur,propriétélittéraireetartistique,droits
voisinsetdelartisteinterprète;informatique,logicielsetcircuitsintégrés;biotechnologies,
pharmaceutiquesetobtentionsvégétales;secretsdecommerce,know-howetconcurrence;
licences,franchisesettransfertsdetechnologies;commerceélectronique,distributionetdroit
desaffaires;marquage,publicitéetétiquetage;poursuite,litigeetarbitrage;vérification
diligenteetaudit;etce,tantauCanadaquailleursdanslemonde.Lamaîtrisedes
intangibles.
ROBIC,agroupoflawyersandofpatentandtrademarkagentsdedicatedsince1892tothe
protectionandthevalorizationofallfieldsofintellectualproperty:patents,industrialdesigns
andutilitypatents;trademarks,certificationmarksandindicationsoforigin;copyrightand
entertainmentlaw,artistsandperformers,neighbouringrights;computer,softwareand
integratedcircuits;biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,
know-how,competitionandanti-trust;licensing,franchisingandtechnologytransfers;e-
commerce,distributionandbusinesslaw;marketing,publicityandlabelling;prosecution
litigationandarbitration;duediligence;inCanadaandthroughouttheworld.Ideaslivehere.
COPYRIGHTER
IDEASLIVEHERE
ILATOUTDEMÊMEFALLULINVENTER!
LAMAÎTRISEDESINTANGIBLES
LEGERROBICRICHARD
NOSFENÊTRESGRANDESOUVERTESSURLEMONDEDESAFFAIRES
PATENTER
R
ROBIC
ROBIC+DROIT+AFFAIRES+SCIENCES+ARTS
ROBIC++++
ROBIC+LAW+BUSINESS+SCIENCE+ART
THETRADEMARKERGROUP
TRADEMARKER
VOSIDÉESÀLAPORTÉEDUMONDE,DESAFFAIRESÀLAGRANDEURDELAPLANÈTE
YOURBUSINESSISTHEWORLDOFIDEAS;OURBUSINESSBRINGSYOURIDEASTOTHEWORLD