Intellectual Property

Intellectual Property Due Diligence

BACKGROUND

We recently had dinner with a friend of ours who manages a large fund for investment in Chinese technology companies. His fund is very optimistic about the Chinese tech industry and its ability to innovate new products. However, he said that the many of their prospective deals fail to close or close at much lower valuations because of problems revealed during the IP due diligence process. This is unfortunate because these IP problems could probably have been avoided if the company had focused earlier on creating an IP Management System at the international standard.

When an investor conducts IP due diligence, it generally focuses on three critical questions regarding the tech company's business:

  1. Does the company have its own IPs?
  2. Does the company's IP adequately protect its technology / products from copying?
  3. Does the company's technology / products infringe any third party IP?

It is no coincidence that a world-class IP Management System also focuses on addressing these three issues.


1

An effective IP Management System continuously takes stock of its current IP and makes sure that the company has taken all actions necessary to perfect its ownership rights? This includes not only registering the IP with the appropriate government agency, but also implementing the internal processes that ensure the company’s contracts with employees, contractors and collaborators clearly detail the its ownership of the resulting IP.


2

Every good IP Management System focuses on creating the IP to protect the company's current products and its future development path. This includes the preparation and implementation of policies, processes and forms that support a coordinated, inter-departmental approach to creating and perfecting intellectual property rights. The enactment of such an IP Management System is not easy. It requires training and sustained effort, but it also inevitably increases both the quantity and quality of the company's IP rights.


3

IP Management Systems ensure that that the company identifies and strategically evaluates how to avoid or minimize the risks of infringing third-party IP. Too often I have seen foreign companies enter the US market without paying adequate attention to the risk that they will be sued for infringement of third party IP. While such risks can never completely be eliminated, there are many opportunities for minimizing those risks if adequate attention and resources are devoted to this effort.


CONCLUSION

The creation of an IP Management System itself sends a strong message to investors, employees and competitors about your company’s future. By implementing a world class IP Management System, a company takes the first critical step towards creating a culture of innovation that comforts investors, attracts and retains the most talented employees and gains the respect of even the most fierce competitors.


nTheta is China's 1st cross-border growth-builder exclusively serving the tech industry with GTM strategizing & execution services. We are an international team of professionals who know how to launch and grow tech companies in China and globally because we have done it before. Our unique operations expertise comes from years of experience working as tech executives and intellectual property specialists in China, the United States and Europe. Our mission is to leverage our cross-border operations expertise to help tech companies overcome obstacles to global growth and release their products to a waiting world. Reach us at contact@ntheta.com for an aspiring and insightful talk.


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