Could the right intellectual property (IP) propel your business to greatness? In today’s business environment, technological advances lead to new disruptive business models at a dizzying rate. There are billions of dollars at play. Everything seems to be waiting for the right combination of one big idea and the tech to make it possible.

Often, the question is: How do I get the tech? If you don’t have the means to develop it, or if someone already owns it, you may look at acquiring or leasing it. In the best case, you gain everything you need to sprint forward and enjoy command of a growing market. But if you’re not careful, you might find yourself making a $1 billion mistake.

Due diligence in IP transactions

As Harvard Business Review noted, tech-driven mergers and acquisitions often reshape companies’ futures. The right deals propel companies toward success. The wrong deals can prove disastrous, such as when eBay lost $936 million from its purchase of Skype. In that case, eBay wanted Skype’s tech but failed to secure the underlying IP, which was still owned by the founder.

To avoid these worst-case scenarios, you must be thorough with your due diligence, and IP portfolios present special challenges. You need to understand what IP is at play, how it’s owned and what limits you may encounter. Ultimately, you want to know if you can get full value from your new IP. Forbes noted several steps you want to take in any deal involving an IP portfolio, including:

  • Get a full list of all the IP involved. This should also include all licenses, claims, contracts and disputes involving those IP.
  • Make sure the people you’re dealing with have full ownership of the IP. You don’t want to end up like eBay or find yourself defending the IP in court against the employees who helped develop it.
  • Investigate the strength of the IP protections registered with the government.
  • Identify any obligations tied to the IP. For example, would purchasing the IP bind you to agreements between the developer and other third parties? If so, could you honor those agreements?
  • Investigate any data privacy concerns. Data privacy has become an increasingly prominent concern, and the tech you purchase could expose you to litigation.

While the Forbes article was focused mainly on mergers and acquisitions, it’s also worth asking these questions during any decision to pay for the use of an IP. Before you enter a licensing deal, you want to understand both the strength and value of the IP.

In the world of IP, an ounce of prevention is sometimes worth $1 billion of cure.