IP Due Diligence Insight for SMEs.


There are standard points of due diligence prior to the purchase of a well-established business such as financials, debt position, business structure, and supplier and customer contracts. It is broadly understood that intellectual property is an integral part of the due diligence checklist, not least due to the value of intellectual property (‘IP’) such as trade marks. In some instances, the IP of a business may be one of its most valuable assets.

Ascertaining what IP resides in the business, whether or not the IP is protected, who owns the IP, and obtaining an assignment of the IP to the new owner, are standard due diligence checklist items.

A situation may arise where a trade mark has been in use for a number of years but not registered. The new owner should seek registration of such a trade mark as soon as practicable. An unfortunate situation may arise where a trade mark application may be impeded by a prior registered trade mark, and the provisions of prior continuous use or honest concurrent use must be relied upon for registration of the business’ trade mark. Alternatively, an Examiner may object that the applied for trade mark lacks distinctiveness. In either situation, supplying evidence of use is often the most fruitful avenue to overcome the objection. See our article here discussing the type of evidence of use required during prosecution of an Australian trade mark application.
Briefly, non-limiting examples of suitable evidence includes annual turnover, annual advertising expenditure, and how the trade mark has been used since its adoption (eg. advertising, copies of invoices, packaging, delivery slips). Dated evidence is the gold standard. A trade mark application may require several years of dated evidence to support an application.

When such a situation occurs, the new owners must have access to all business records in order to establish trade mark use to the satisfaction of the Examiner.

Although the thought of acquiring dusty old business records may not be palatable, consider having to wrestle such information from a former owner long after the shine of a sale has worn off or the cheque has cleared. A new owner may be faced with a demand for payment from a former owner to access those records or execute a declaration, or worse still, complete silence notwithstanding an agreement that the former owner will comply with a reasonable request for information. This is particularly acute where historical financial information is required to overcome an objection.

Perhaps an additional point for the IP due diligence checklist is to ensure that all business records be transferred to the new owner, ideally within a reasonable time frame. Registration of a trade mark may depend upon it.