In addition to these legal documents, each side must have a thorough understanding of key contact personnel on each side,
including their roles and responsibilities. Each side must also agree to a common vision of the process, including actions
for each stage and likely outputs. Gaining a complete understanding of the management process for the data room (a designated
location where all due diligence input is maintained and monitored by both sides) is critical. Even when legal agreements
and process understandings are in place, there are risks to sharing proprietary information, particularly as each side must
disclose its proprietary assets to the other before signing the licensing agreement. This point is crucial. If the licensing
agreement never occurs, each side possesses knowledge of the other's proprietary intellectual assets. Even more important,
both companies are intent on commercializing this type of technology. It is easy to see how disputes can arise when a licensing
agreement does not take place and one company sees the other bring a similar technology to market. With this in mind, both
sides must balance the need to share proprietary information with the knowledge that the deal may not occur.
One preferred methodology is to begin with a clear understanding of what each side needs to know, then engage the other in
a series of targeted discussions with very clear agendas. A goal of each meeting is to rapidly reach a go/no-go decision while
minimizing the amount of proprietary information disclosed. This goal encourages each side to identify its deal breakers and
share them with the other side. For example, when a large pharma company is assessing a small biotech's technology, the two
companies' due diligence teams will create an agenda based on the following questions:
What information about the biotech's technology must the pharma company learn to move to the next decision making stage?
What complementary information about the pharma's technology must be shared with the biotech?
Who is the responsible manager from each company?
Which scientists and business managers from each company will attend the meeting?
Where will the meeting take place?
Do both sides agree on the agenda?
After the session, both companies reassess their interest. If warranted, another session is held to reveal the next level
of information. This technique may not match the claim of firms that allegedly have 24-hour due diligence programs, but it
is a superior way of controlling the release of proprietary information and minimizing overexposure if a deal falls through.
Conducting Due Diligence on Intellectual Assets
The framework's 550-question diligence survey covers the gamut of physical and intellectual assets. But the intellectual assets
are the most difficult to assess. There are two types, those that are "hard" to assess and those that are "really hard" to
assess. The hard category includes patents, trademarks, copyrights, and domain names. Their claims are captured in legal documents
that are available to the public. Although reasonable men can differ on their interpretation and value, little is hidden from
view. One complicating factor is the existence of agreements with third parties that grant rights to these assets. For example,
many biotech compounds have their beginnings in university research labs. What rights does the university maintain to the
technology and how will those rights impact large pharma's commercialization plans? When assessing these intellectual assets,
due diligence team members should ask the following questions:
Are the intellectual assets (for example, trade names and patents) registered everywhere the product will be sold?
Are these intellectual assets encumbered or are they enabled by third-party agreements?
Are all the third-party agreements that enable the intellectual assets being transferred?
What additional third-party intellectual assets are needed to practice this technology?
Are there known cases of litigation or notices of infringement?
Have any intellectual assets been used as collateral?
What third-party activities could lessen the value of these intellectual assets?
What do the patent landscape and existing licensing agreements reveal about the licensors' intellectual assets and their