Intellectual Property Due Diligence Investigation Failure
Trademark applications can be tricky. There is a lot to understand and digest when creating a trademark, but failure to understand the competitive landscape via due diligence is just not acceptable. Find out what you should know from a real example.
Early 1900's United States Patent and Trademark Office
Intellectual Property Due Diligence
There is nothing new about intellectual property infringement. It has always occurred and always will. What is interesting is when multi-national companies do not conduct their due diligence when creating packaging or considering the name of a new product.
This very thing happened recently when Ahana Gautam, CEO & Co-Founder, Open Secret, posted in LinkedIn that ITC is using her brand’s name on the package of their luxury chocolate brand Fabelle ‘Open Secret’.
IP Due Diligence - What Happened to Open Secret
It is alleged that ITC, a company located in India that uses TCstore.in and is managed by Technobubble Innovation Lab Private Limited. According to their website (www.itcstore.in) they are licensed by ITC Limited to list sellers distributing the range of products from ITC’s portfolio. This includes chocolates, personal care, foods, household goods, etc.
Open Secret posted a picture with their LI post to show the infringing mark.
It was reported that a senior counsel who is an expert in copyrights and trademark said Immaculatebites (which owns Open Secret) has registered the trademark for Open Secret in 2019 while ITC’s Fabelle Open Secret was launched in 2020.
ITC Fabelle Open Secret Still Being Promoted
Although this is a new infringement matter, and these issues usually move slowly, we still take note that on the ITC Store site they are still selling the product with the alleged infringement as of November 1, 2022.
Open Secret and ITC Alleged Infringement
What is Intellectual Property Due Diligence
Intellectual property due diligence is the process of investigating and assessing a company's or individual's intellectual property assets. This can be done in order to determine the value of the assets, or to identify any potential risks associated with them. The due diligence process can be complex, and often requires the assistance of an experienced IP attorney.
Another Transaction and Acquisition Intellectual Property Blunder
Another example of poor due diligence involving IP was when an acquisition occured in 1998 where Volkswagen bought Rolls Royce assets. Reportedly the transaction was around $900k. The IP purchased by Volkswagen omitted one critial piece of the pie...although they did purchase the rights to manufacture Rolls Royce, they did not purchase the rights to the name Rolls Royce (trademark). In fact, there was a prior agreement between RR and BMW, and it was BMW who held the trademark IP on the Rolls Royce brand name. Therefore, Volkswagen could not market the name.
Due Diligence Issues With Transactions Involving IP
Due diligence is critical when evaluating any transaction that involves intellectual property. IP can be a complex and sensitive asset, and it is important to thoroughly understand the value and potential risks of the IP before entering into any agreement.
There are a number of due diligence issues to consider when evaluating a transaction involving IP. These include:
- The nature of the IP and how it is being used by the company
- The strength of the IP rights and whether they are properly registered and enforced
- The value of the IP, including any potential revenue streams
- The risks associated with the IP, including infringement or invalidation risks
Thorough due diligence will help to ensure that you are getting what you expect from the transaction and that you are adequately protected against any risks.
Intellectual Property Due Diligence Checklist
When conducting intellectual property due diligence, it is important to consider the following checklist:
- Has the company performed a comprehensive audit of its intellectual property?
- Does the company have appropriate policies and procedures in place to protect its intellectual property?
- Does the company have insurance coverage in place to protect against loss or damage to its intellectual property?
- Does the company have any pending or threatened litigation involving its intellectual property?
- Is the company's intellectual property properly registered and/or copyrighted?
- Has the company conducted a risk assessment of its intellectual property portfolio?
If the answer to any of these questions is no, then the company may be at risk of losing its valuable intellectual property.
Trademark Due Diligence Investigations
A trademark due diligence investigation is an inquiry into the history of a trademark to determine whether it is valid and enforceable. The investigation may also reveal potential problems with the mark that could affect its use in the future. Trademark due diligence investigations are typically conducted prior to the purchase or licensing of a trademark.
Companies can hire a reputable and thorough firm to help with their due diligence for trademarks. This is important to do in order to ensure that the trademark is available and not already in use. The firm will be able to help with the search and provide a comprehensive report.
Due Diligence Must Cover These Types of Transaction
Ownership of IP rights
A review must be undertaken by conducting searches of the IP the target believes it owns through the countries Intellectual Property office. This examination will ensure that the relevant patent, trademark and copyright offices to establish that:
1) All IP that can be registered is registered and all filings are current, contacts and ownership information is current;
2) Accounting for any transfers or changes to the IP;
3) Check to see if the IP was potentially assigned to another division, company or third party;
4) Verify that there are no incumbrances to the use of the property in current times.
Control of IP Rights
The bigger a company is, the longevity of the company, the more acquisitions it is involved in, the more mergers it has been part of is more inclined to have loose ends that were gone and forgotten A target may have entered into assignments or licences that restrict the use of its Intellectual Property. The due diligence process should include a review of such agreements and identify any restrictions that may apply to the buyer of such IP assets.
Potential liability or Infringement Claims
A well orchestrated due diligence investigation should too cover if the target company is infringing on others trademarks or other IP. And, too, certainly due diligence should consider the exposure that may be coming down the road for any potential infringement. Good due diligence looks out for known and potential litigation and understands that the target could sucessfully register a mark today but be sued for infringement for up to 5 years in countries like the United States.
Due Diligence Has a Thorough Understanding of the Targets Products or Services
Due diligence is critical in any business deal, and that means having a thorough understanding of the target's products or services. This can be difficult if the products or services are complex, but it's essential to do your homework and ask plenty of questions to make sure you know what you're getting into. The last thing you want is to be blindsided by something unexpected down the road.
Knowing what the company sells or the solutions it provides to it's customers will give the due diligence investigator a better understanding of the landscape in which they are operating. Intellectual Property rights departments, usually managed by IP counsel have no excuse for being the source of IP issues. It is a matter of proper organization, documentation and routine audits.
Target Company IP Due Diligence Audits
As part of our target company due diligence audits, we review the company's IP portfolio and identify any potential risks. We then work with the company to create a plan to mitigate those risks. This may include developing new IP policies and procedures, or working with the company to obtain the necessary IP rights from third parties.
Contact us to help avoid negative brand reputation infringement matters. We conduct Intellectual Property audits and due diligence investigations that promote the holistic view of all the IP in your organization.