Avoiding Costly IP Missteps: Insights for high-quality due diligence searches

As chemical and life science companies seeking to monetize their IP portfolios emerge from the challenges of COVID-19, 2021 looks to be a year that will see increased product licensing, acquisitions and partnerships.

Well-executed due diligence searches are critical for reducing risks and optimizing opportunities within these high-stakes transactions. Missing critical information during a landscape, freedom-to-operate or validity search can put years of product development at risk and lead to future legal conflicts.

Gene Quinn, President and CEO of IPWatchdog, explained this challenge in a recent webinar with CAS: “In life sciences, and particularly in crowded spaces such as oncology and cell and gene therapy, a huge amount of money is at stake when businesses embark on searches.”

“High-stakes IP searches can involve a considerable investment of both time and money, but it is well placed,” Quinn said. “These searches drive the cost-benefit analysis for every merger and acquisition, new product license and portfolio audit. A missed opportunity or litigation can damage both careers and corporate reputation.”

During the webinar panel of experts joined Quinn to provide their unique perspectives on best practices for due diligence IP searches. The panel included Heidi Berven, PhD,, Partner, and Co-Leader Patent Practice at business law firm Honigman, Paul Coletti, Associate Patent Counsel at Johnson & Johnson and Matthew McBride, Director of IP Search Services at CAS.

View the full webinar recording to learn how you can prevent wasted time, avoid errors, and reduce legal risks during due diligence, so you can make critical decisions with greater confidence.

Setting the standard for an effective IP search

Effective due diligence searches are highly complex projects with multiple critical success factors. They are best performed iteratively, with many stages, reviews and refinements along the way to ensure a comprehensive view of the landscape. These searches are also highly collaborative, requiring a team of patent, business, IP and search experts to align their responsibilities and processes with clearly defined goals and objectives.

Poor communication, incomplete or inaccurate search protocols or disjointed project management can lead to missteps with disastrous business consequences. “I think everybody wants to see the Parade of Horribles or the Train Wrecks,” said Berven. “And the truth of the matter is, you don't really learn about train wrecks in the searching world. You only see them in litigation.”

The panel of experts highlighted four common and costly mistakes they see made during due diligence searching, which can derail research and development efforts and delay investment opportunities:

1. Missing the penultimate product or compound. While the target compound is usually the focus of the search, it is also important to check for close active compounds and their metabolites. When considering the target, it’s important to look one compound back and make a decision about whether or not it might be active. For example, a prodrug or intermediate may have activity. Extending the search to the closest metabolites could also be critical to protecting future IP.
2. Providing to the attorney or searcher incomplete or inaccurate information. Sometimes searchers miss relevant patents because the wrong original structure was provided and the searcher went on to uncover variations in different compound databases. Checking and validating structures is part of the iterative process, giving greater confidence down the line before time and money is spent on further searches.
3. Failing to carefully validate key details in public documents. The searcher may find that the structure being cleared is already protected. This should be a red flag, prompting the team to validate that they are reviewing the right structure. Before continuing, the searcher should dig deep and check the patent file wrapper to see whether or not the name has actually been correlated to the structure or the structure number, otherwise the search will be misdirected.
   
   “You don't think it's going to happen, but it can,” Berven said. “I’ve seen situations where the structure is not public, or it's public but it's wrong, or it's disclosed for the first time in the file wrapper of the fourth or fifth U.S. continuation application during prosecution to overcome an obviousness rejection.”
4. Neglecting diligent review. Small things can go wrong.The searcher might find a piece of prior art, but fail to double-check the patent filing or profiling date. They might make typographical errors or even design a search that’s too broad. The way to avoid inaccuracies is to go slowly and double-check every finding. Each member of the due diligence team is responsible for reducing human error by ensuring checks and balances are a natural part of the process to eliminate lost time and resources from simple errors

Get to the opportunities with less stress

The good news is that most missteps in due diligence can be avoided by clearly defining responsibilities and establishing collaborative processes that ensure iterative checks and balances.

“Intellectual property has always been a partnership,” said CAS’s McBride. “Everyone has a part to play, and those parts are not necessarily equal. You may have to give control to someone who has larger ownership or deeper expertise, so a lot of trust goes into this work and it's why the best team relationships are built over years.”

To skip the stress and head straight to opportunities, adopt these three strategies:

Strategy #1: Don’t try to do it all in-house

Many organizations have a wealth of in-house technical and legal expertise, and it can be tempting to rely on in-house legal and scientific expertise for searches. While these professionals might be experts in science or patent law, they are not likely to be experts in the complexities of due diligence searches.

“I would never assume after working with sophisticated searchers that I can do a high-quality search on any of the complex databases they use,” Berven said.

One size does not fit all when it comes to searches. The higher the stakes, the more scrutiny the search should have, and that takes dedicated expertise.

“Companies and law firms need searchers who can find obscure patent information and references. Professional patent search specialists have a wide range of commercially available technologies and resources at their disposal to complete fast searches with greater accuracy, without escalating costs,” McBride said.

A good searcher will persistently ask questions, double-check every finding, communicate seamlessly with every member of the team and move off the beaten track to uncover every piece of pertinent information.

Strategy #2 Build a transparent and collaborative process

Effective high-stakes due diligence projects require collaboration between in-house and outside attorneys, IP management, business management, research and development and search professionals.

“Success is directly correlated to the degree of collaboration,” Quinn said. “Each team needs to have a careful balance of expertise, be clear on its direction, and foster an environment for transparent and honest discussions.”

Strong communication is needed between the person asking for the search, the person performing the search and organizing the information, and the people relying on the results to make business, legal, and IP decisions. The entire team needs to be clear about the aims of the search what it needs to discover and what information cannot be missed.

Johnson & Johnson’s Coletti highlighted the obligation of the team to question and refine search parameters: “What are we looking for? What is important in this potential molecular search? Is it the entire molecule? Is it certain components? Knowing these answers will lead to the best search structure. But the scientists must also answer questions that refine the search: What's important to you? What can you change? What can you do without?”

While large companies with extensive IP support are accustomed to answering these questions, managers in smaller companies usually are not. They sometimes find it difficult to understand the value of IP, as it can seem distant from the research activities that drive their daily decisions.

“When talking to technical company managers, we emphasize that IP management is an investment in their life's work,” said McBride. “When company managers view IP in this way, both in the partners they choose and the resources they use, it changes their perspective. The investment becomes serious to them, because it’s going to determine success years down the line.”

Strategy #3 Embrace the process – it is the means to the end

Due diligence searches are iterative and they evolve as information is discovered. The business need, criticality and budget considerations will influence the scope and design of the search.

“Initially, you might cast a wide net, looking at multiple molecules or delivery devices, so your searches might be more relaxed and less focused,” said Coletti. “For companies in pre-IPO or IPO stages, licensing opportunities will be of interest, so enhanced searches will help evaluate investment potential. If you’re deep into research and development and looking to combine licensed biologics with Phase II candidates, you’d better be sure to perform searches for patentability without infringement.”

As a due diligence progresses, new data is unearthed, evaluated and discussed and that can change the direction of the search process. The activity should not stop until all members of the team are satisfied that their questions and concerns are answered.

Because due diligence searches are iterative, managing costs can be a challenge.

“It is risky to provide a search result based on a cost point, so it needs to be done in steps,” Coletti said. “That way you’re not spending a huge amount of money on a restricted search that gives limited value.”

Raise the effectiveness of your IP search

In complex, innovative industries with increased pressure to fully monetize IP, due diligence searches reduce risk and give confidence for licensing, acquisitions and other business transactions, but only if they have been thoroughly planned and carefully executed.

By building a team of trusted legal advisors and IP search specialists and developing an iterative, collaborative project strategy, you can prevent wasted time, avoid errors, and reduce legal risks so you can make critical decisions with greater confidence.

We invite you to discuss your IP search strategies and needs with a member of our search team. To get started, please contact us at StrategicIP@cas.org.