Intellectual property (IP) due diligence is the process by which the IP of a target company is analyzed for accuracy and completeness. Healthcare M&A transactions require extensive intellectual property validation and verification. Healthcare intellectual property concerns consist of 1) patents on chemical compounds for pharmaceuticals, 2) trademarks on brand name drugs, and 3) trade secret protected and privacy rights in the patient list.
Healthcare sector participants such as pharmaceutical companies and biotechnologies are driven primarily on the value of their IP. The purpose of IP due diligence is to uncover fraud, copyright infringements, and verify proper filing of ownership rights in IP. If any issues with the target company’s IP are uncovered, then the deal may be terminated.
When engaged in Healthcare transactions, considerations must be given to how the rights of IP transfer. The structure of a deal may dictate how IP rights are transferred post-transaction. In asset deals, it may not be required to indicate the transfer of the IP in the purchase agreement. The transfer of rights is presumed when the business is sold.
In a Stock sale, the IP ownership rights remain with the acquired company. However, All IP rights must be recorded when there is a change in ownership. Any delay in recording may result in the loss of royalties.