Thursday, 11 August 2016

In praise of IP due diligence: more value, lower cost in corporate transactions

Cleaning up after a mega-M&A
is a truly tedious task
Intellectual property law and practice is not a place where fact and fantasy often meet.  This is particularly true of tales of due diligence, where fairytale endings are never contemplated, still less found.

It has been said of due diligence that, in the world of intellectual property practice, it is both the Cinderella and the Ugly Sister.  It's the Cinderella because, when it comes to billing for professional services attending any IP-driven satisfaction, it's the service that clients are least willing to pay large sums for, and it's the Ugly Sister because, when it comes to being sexy, it's a lot less appealing than litigation, negotiating transactions and other areas of IP practice that are more personally gratifying for whoever is tasked with doing the work. Worst of all, due diligence requires a great deal of attention to vast quantities of detailed information -- often without any sense of which specific items of detail might ever turn out to be of interest or importance in the future.  At least in the world of fairytales and fantasy, when kisses a large number of frogs, one has the expectation that one will turn into a handsome Prince. But in the world of due diligence, the frogs will stay pretty much as they are.

IP analytics operates in the zone of fact, not fantasy -- and while it can't turn frogs into Princes there is a good deal it can do, to improve the quality of decision-making and general understanding that underpins any large corporate transaction and to remove layers of unnecessary drudgery from the process of checking the legal basis on which that transaction is built.

The example given below (with the names of parties removed), puts IP analytics through its paces and shows, at a general level, how it can perform.
Case Study: IP Due Diligence

Objective

Due diligence can consume significant time and resources, and clients are reluctant to pay for commoditised work. Law firms are now deploying IP analytics to deliver fresh insight and to secure access to higher value and more substantive assignments. Cipher was designed by a team with over 30 years’ experience of IP due diligence, and is specifically designed to reduce costs and increase efficiency in an area which is increasingly important.

Challenge

Frequently M&A and other corporate transactions involve companies with large and complex patent portfolios. While there is a need to understand the importance of these rights to the transaction, clients are highly reluctant to pay for the mundane verification of ownership and renewal. However, more detailed analysis involves aggregating and correlating data from a wide variety of sources. Even basic tasks such as analysis of status, age, territory and clustering are typically uneconomic and impractical. As an illustration, a manual review of 500 patent families would take over a month's labour on the part of a suitably trained person.

Solution

Cipher is able to respond to these challenges as follows:

1. Data aggregation

Cipher aggregates curated data relating to patent ownership and use:
Figure 1
Instant access to this combination of datasets makes it possible for the first time to deploy IP analytics into the mainstream of corporate transactions.

2. Technology areas

The commercial driver of a transaction is often a specific technology. Cipher is able to cluster the patent families in a target’s portfolio into distinct technologies. This capability enables teams to focus on what matters - and not waste time on distractions.
Figure 2
Figure 2 illustrates a portfolio: the largest cluster is Machinery, but that still only represents 39% of the portfolio.

3. Comparables

In due diligence, the most important thing is to have an understanding of the age and geographical profile of the patent rights owned by the target, and a qualitative comparison to similar rights owned by others (comparables).
Figure 3
Figure 3 is a Cipher heatmap which identifies other companies that own similar technologies to the target - sorted by reference to the target’s clusters. This is a classic analytics solution to a task that would be impractical to replicate manually at any reasonable cost or within any sensible timeframe.

4. Impact

Cipher provides a quantum leap forward in efficiency and added value:
  • Cost: using IP analytics for due diligence transfers the burden of low value/high intensity work to machines, reducing costs and releasing resources to higher value work. 
  • Focus: analytics reveals issues that would routinely go unnoticed. This provides the opportunity to deploy resources to the investigation and resolution of IP issues that will make a difference. 
  • Client satisfaction: Cipher provides insight beyond the reach of traditional due diligence. 
Differentiation and efficiency in the delivery of legal services is at the heart of trusted adviser relationships. At a time when IP issues are increasingly being elevated to board level, the IP challenge is to deliver insight that enables clients to make better decisions.

3 comments:

  1. What blogmeister is the connection between due diligence and Cinderella?

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  2. The blogpost offers one explanation. Another is that, with due diligence, the Prince could have identified the existence and credentials of Cinderella, thus circumventing the need to hold a Ball and to trouble the Fairy Godmother to activate a pumpkin and engage a team of mice.

    ReplyDelete
  3. ....and if there had been a complete and full record and register of shoe ownership in the Kingdom the Prince could have identified his M&A target at much lower cost. Surprised Disney allows their image use this way!

    ReplyDelete