Definition

• Part of the problem in trying to comply with intellectual property laws is the broad scope of what we define as intellectual property. For example, you cannot copyright specific words in the English language, but you may be able to copyright the order in which you place them. A good rule of thumb is to define "IP" as something you create with human intelligence.
  
  

Why Due Diligence Is Important

• Before investing in a company, you should make sure it has rights to intellectual property or conducts due diligence on potential business takeovers. Volkswagen is the poster child for needing a due-diligence checklist. It bought out Rolls Royce for almost $1 billion, but failed to realize that BMW had a previous contract to claim ownership of the Rolls Royce trademark if the company was sold.
  
  

Time Frame

• One of the biggest errors a company can make when completing a deal is performing its IP due-diligence check at the last minute, especially in business sectors that do not always involve IP, such as real estate. Recognizing potential stumbling blocks in acquiring IP rights can improve the buyer's negotiating position. Sometimes, for example, a company holds a license to use a certain piece of IP, but not the copyright authority.
  
  

Seller's Standpoint

• A prompt due-diligence check on IP helps both buyer and seller. Double-checking the rights on your IP holdings can give you time to find alternative solutions in case your IP rights do not transfer to other countries, or you find that you do not have rights to some works included in a deal. With good checking, the seller can avoid losing negotiating power or halting a potential deal.
  
  

Future

• Instilling good habits for performing IP due-diligence checks will prepare you for the ever-increasing presence of IP assets in business negotiations, and put you ahead of the curve as due-diligence checks grow in importance. After the scandals with Enron and Worldcom, investors demand much stricter reporting on companies' financial information.