Imagine you’re looking to acquire or invest in an IP-rich business which has a portfolio of patents. How do you know if those patents are worth anything? Do you know if they are valid? Do you know if anyone is infringing them – thereby eating into the target company’s technology exclusivity? Do they even secure the company’s core innovations?
Solutions driven by artificial intelligence (AI) that are now on the market can help you identify key value opportunities and identify potential hidden skeletons.
Conducting IP due diligence
To maximise value in IP-rich M&A transactions, you need to get under the skin of a target company’s portfolio. Most importantly, you need to understand the technology that you are acquiring by asking the right questions to identify both technical risks and commercial opportunities. In a world where technological discoveries have become a daily occurrence, AI is now a powerful tool to make due diligence faster and more efficient, and spot risks and opportunities that a human-only review might not.
In technology M&A transactions, buyers frequently find assessing the real value of their target’s IP portfolio to be a challenge. A full manual review to the required levels could take months of work or result in shortcuts in due diligence because of budget or limited time.
AI can now help swiftly identify factors affecting the value of a patent portfolio.
AI can now help swiftly identify factors affecting the value of a patent portfolio. If it turns out the patents are mostly invalid – you may decide to pull out of the deal altogether or chip the price. On the other hand, if the portfolio is strong and there are hidden value opportunities (for example, from suing obvious infringers), you may want to move quickly, demand exclusivity and reduce time spent on other aspects of the deal.
An AI-driven review can also identify if patents cover the target’s core products and services and, if not, whether they can be sold or licensed to third parties. It can also contribute to competitor analysis on the target’s sector to help establish the robustness of their portfolio.
AI impact on IP transactions
In typical M&A IP due diligence, legal teams are often focussing on a select ‘red‑flag’ review. This may be limited to the assessment of ownership issues and any assignment/licence positions. The important data surrounding infringement and validity of those IP rights is sidelined in many cases due to time and cost constraints. The application of AI can help avoid the need for shortcuts. All due diligence can now benefit from the speed and cost effectiveness of an infringement/validity analysis, meaning that buyers and sellers can be armed with vital data
AI can be used to deliver better and more sophisticated IP due diligence in transactions. As IP assets are often a significant component of a company’s value, particularly within sectors such as technology, life sciences and energy, ensuring that their value is fully assessed and accounted for can shape the direction of a deal. It is therefore important to implement new technologies seamlessly into existing due diligence procedures.
Joel Vertes is a partner in CMS’s “Band-One” ranked IP team. Toby Sears is a partner and leading IP litigator, advising clients in the High-Tech and Life Science Sectors. Louis Glass is a partner and heads CMS’s TMT-sector M&A group in the UK and is also managing partner of the Tel Aviv office.
