This paper will examine best practices for carrying out an IP due diligence investigation of an anticipated IP transaction involving a pharmaceutical invention. It is not possible to anticipate and discuss all possible issues that may need to be investigated. This paper merely sets forth a path to follow that may lead to other paths for investigation. Typically, the due diligence investigation is divided into three parts, the first two of which overlap to some extent. The first part is the validity/patentability investigation. The second part is the freedom to operate ("FTO") investigation. The third part involves determining whether the rights to the IP have been secured properly. How the investigation is carried out is determined in part by the client and the nature of the transaction in question. Sometimes, it is necessary to be extremely thorough from the start, and the investigation may involve turning over every rock, for example, when a company is to be acquired. When faced with such an investigation, it is wise to establish a team of professionals who are assigned various tasks, sometime overlapping as a quality control check. Other times, your client may wish for a very quick investigation to be carried out with a report on any obvious problems. Still further, sometimes the client will want a relatively thorough investigation, but at a relatively low cost. Whenever a less than complete investigation is carried out, it is important to make clear to the client that not all avenues of investigation were pursued, and to set out what else might be done in a written report to the client. Often clients will request an estimate for the due diligence investigation or set forth an upper limit that may be incurred. It can be difficult to establish an estimate at the outset of the investigation, as one never knows what issues will be uncovered, what the database search charges might be, how many teleconferences there might be with the other side, how may third party patents might be uncovered and have to be analyzed, etc. If the investigation is intended to be extremely thorough, then the estimate should be high and based upon the past experience of the practitioner. If not, one way to control costs is to provide a fixed number which, when reached, will result in an oral report describing what was found and what remains to be done. If serious problems are reported, then the client may decide not to go forward with the transaction, thus terminating the investigation. If no serious problems are found, then the client may authorize additional investigation based upon a new fixed number. This iterative process can be very useful when other diligence activities are being carried out in parallel, for example, whether the pharmaceutical is expected to exhibit therapeutic efficacy, or whether a reasonable licensing deal can be struck. If any one of these parallel investigations turns negative, then the whole process can be stopped, thus limiting the expense. We have experience in carrying out IP due diligence investigations on behalf of companies and venture capitalist firms. Depending on the size of the anticipated transaction, IP due diligence investigations on behalf of companies can be very large and cost hundreds of thousands of dollars. On the other hand, IP due diligence investigations on behalf of venture capitalist firms tend to be smaller, in part because of lower budgets and less IP being evaluated. If the IP due diligence is not completely thorough, it is critical that the limitations of the investigation be set forth in the report. The report should also make clear the limitations of the report, that the report comprises only the opinions of the practitioner, and that the patent office or court may hold otherwise based upon the facts as they are found. The report should never say definitively that an invention is valid/patentable, or that there is freedom to operate.
A method for selectively inhibiting [a certain enzyme] activity in a human host, comprising administering a compound that selectively inhibits activity of the [enzyme in question] to a human host in need of such treatment.
Freedom to Operate
Determine Whether the Rights Are Secured
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