Teresa Lovoie and Chad Shear, Fish & Richardson.

If buying and selling patent assets were a team sport and you were the coach, you would think strategically about who to pull from the bench to fill a particular position. Choosing a due diligence team should be done with the same thought and care you would give in creating a championship game roster. The stakes are high, so you need to create a team that includes the right business, technical, legal and financial expertise—and, sometimes, you need to do so quickly.

When it comes to patent due diligence, how do you know which experts to pull from the bench and who to leave on the sidelines?

During patent or royalty stream acquisitions, business sales, mergers and acquisitions, and financing transactions, you often need to perform patent due diligence as one component of the transaction. The due diligence is akin to an audit of the patents owned or licensed by a company, business or individual, with the process helping to assess the value, strength, opportunities and risks associated with acquiring a patent or patent portfolio.

Building the Roster

No matter if you're on the buy or sell side of the transaction, the makeup of the due diligence team is critical to ensure you are obtaining the information you need, when you need it. Every due diligence exercise is different, as is every due diligence team. Having a game plan and strategy in place from the onset is key. You must address: What is the goal of the transaction? Is it a product acquisition to fit in a broader portfolio and brand, or does it represent a new or fundamental shift in a platform? Why are you interested in the transaction? What is the value proposition? How does the patent portfolio diligence intersect with and support broader corporate and technical diligence goals for the transaction?

Once your goals and an understanding of how IP diligence can support them are understood, select the team that will help you get the specific answers you need. There are a few perspectives which almost always need to be involved in patent due diligence, especially for a potentially complex patent assessment. These include:

• The scientist.
• The businessperson.
• The IP lawyer.

For some industries, such as life sciences, it is critical to have someone on the team who understands the science behind the patent portfolio and how that intersects fundamentally with the portfolio. This person can be a scientist or an IP attorney with the appropriate technical background. In order to evaluate the strength, scope and impact of the IP portfolio, the team member must be able to technically understand the meaning behind a patent's claim limitations and be able to search the prior art and patent literature for potential validity issues, either by himself/herself or with the assistance of IP attorneys.

The team member must understand the client's products and technologies to be able to identify potential freedom to operate issues. The team member must be able to think creatively about design-around scenarios, about who potential infringers might be, both now and in the future, and about assessing the exclusivity position of the portfolio relative to identified and future competitors. A team member wearing the scientist hat is necessary to evaluate the technology, the competitive IP landscape and the strength and opportunities of the portfolio.

A deep dive into a patent portfolio includes evaluating a host of employment contracts, consulting agreements, assignments and license agreements, sponsored research agreements, development agreements, etc., along with other business and financial information. Someone familiar with identifying the obligations present in such contracts and assessing compliance with the same after execution is necessary for the team. This person should further identify how such obligations and the performance (or lack) thereof could potentially translate to issues in the resultant IP portfolio, such as identification of potential inventorship and ownership concerns.

Finally, the team needs someone who can integrate the input of the scientist perspective and the business perspective to be able to characterize and quantify the scope and value of the portfolio, from geographic, claim breadth, patent term and competitive positioning perspectives. This person must be able to be willing to identify the strength and weaknesses of the relevant assets, but also should creatively consider latent opportunities in the portfolio. The IP attorney must help evaluate the level of risk of any ownership or inventorship issues, assess current and former litigation risks, evaluate patentability or validity risks, and quantify freedom to operate risks. Ideally, the IP attorney will creatively identify risk mitigation opportunities or competitive positioning opportunities that were not appreciated before the diligence.

There's No 'I' in 'Team'

Beyond just choosing team members with the right qualifications and expertise, as everyone knows, a successful team relies on communication. A team should enjoy working together, and the members must be able to pose questions to one another, be willing to push back against groupthink and be willing to engage in meaningful debate. It's important that they not only have the qualifications to understand what they are evaluating, but also be able to speak about it in lay terms—potentially even to a judge or jury.

Speed or Stamina?

How many players on your team will be determined greatly by how much time you have for the due diligence process. If the deal needs to be closed in a very short period (anywhere from a few days to a few weeks), then multiple people with the same role may be needed to divide the work. If there are several months, the team can typically be smaller. Confidentiality concerns might require that the team be very small, such as when a team is put together on a strict need-to-know basis. In such circumstances, it is critical that the team understands each member's role and communicates often.

Benching Star Players

Unfortunately, there are certain people who may perfectly fit the qualifications for a team member, but who must be left off the team. One such person is your internal expert whom you do not want to be contaminated by the sharing of sensitive or confidential information.

For example, if a small company gives a potential partner's internal IP lawyer access to a clinical compound's specific structure, that IP lawyer should likely not be handling similar portfolios of molecules, so that the lawyer is not contaminated by the knowledge of the structure, should the deal not ultimately occur.

Win the Game

Having the right people to critically assess the value, opportunities and risks of acquiring a patent or portfolio can provide you the necessary comfort to do the deal—and win the game.

Chad Shear is a principal in Fish & Richardson's Southern California office and a leader in the firm's life sciences and pharmaceutical litigation group. He can be reached at [email protected].

Teresa A. Lavoie is a principal in the firm's Silicon Valley office focusing on developing, managing and overseeing the patent portfolios for a range of clients. She can be reached at [email protected].