Know When to Hold ‘Em - IP Edition

If you are managing a start-up, sooner or later you may be asked to share information about your company’s intellectual property with another party.  If a company is interested in investing in, or acquiring your start-up, they will want to examine your IP.  If a company wants to buy some of your patents or patent applications, they will expect access to those patents and patent applications before they close their purchase.

The process of a party investigating your company’s IP before making a purchase is called “IP Due Diligence.”  Normally, you don’t want to enter into IP Due Diligence without getting some advice from an experienced IP lawyer.  One issue you’re likely to encounter is that a potential buyer may ask you to share confidential information, trade secrets and even attorney-client privileged information.

As a general rule, you should disclose information in stages based on how serious the buyer is.   For example, you might first share issued patents and published patent applications with the buyer.  Both of those are public so there’s no real risk in sharing them.  If there is continued interest, then you might consider sharing unpublished patent applications and just enough trade secret or non-public information of your company necessary for them to commit to their purchase.  If so, you will want to have the buyer execute a non-disclosure agreement (“NDA”) or similar agreement where the potential buyer agrees to keep the information secret.

The toughest issue arises if the buyer asks to see attorney-client privileged information – a privilege that may prevent disclosure of such information in a later legal proceeding.  For example, your IP attorney may have prepared a “freedom-to-operate” analysis that indicates you can likely commercialize your technology without violating the IP of others.  Or your IP attorney may have prepared a patentability analysis showing your invention will likely be patentable over the state of the art.  It’s important to remember that if you share privileged information with the buyer, you will likely lose the legal protection of the privilege.  NDAs alone are normally not enough to save the privilege.  So before you share privileged information with a buyer or, for that matter, anybody else outside your company, check with your IP attorney.

This post on Intellectual Property was authored by Steve Schreiner.


= required field