Korean IP Due Diligence in M&A and Technology Transactions

Korean IP due diligence in an acquisition, investment, licence, joint venture or technology transfer should establish three points: whether the target owns the relevant rights, whether those rights cover the business being acquired, and whether third-party rights or contractual restrictions affect the transaction.

The review should reflect the business and the transaction. A software company requires attention to source-code ownership, open-source compliance, data rights, brands and key patents. A pharmaceutical licence may require closer review of patent term, inventorship, prosecution history, regulatory matters and freedom to operate.

Products, technology and relevant rights

Management should identify the products, services, manufacturing steps, technical features, brands, codebases, datasets and confidential know-how that account for the target's value. Each item should be matched to the Korean patents, applications, designs, trademarks, copyrights, trade secrets, contracts and licences asserted to protect it.

This comparison often shows that a large portfolio does not necessarily protect the product or technology being acquired. Material rights should be assessed against current revenue, planned products and the transaction documents.

Ownership and recorded title

Official records and prosecution files should be compared with the data room for each material Korean right and application. The review should cover:

• the current applicant or owner of record;
• inventors and assignment history;
• name changes, mergers and reorganisations;
• recorded exclusive licences, pledges and other encumbrances;
• co-ownership and applicable consent requirements;
• employee and contractor invention agreements;
• rights arising from university, research-institute or joint-development arrangements; and
• obligations attached to government-funded research.

The report should distinguish ownership under the governing documents, the owner shown in the Korean register and any recordal that remains to be completed. Employee-invention and joint-development issues require separate review of the relevant agreements and facts.

Legal status and prosecution record

KIPRIS and the official file history provide the starting point for status verification. A material patent should also be reviewed for:

• priority entitlement and filing dates;
• compliance with the request-for-examination deadline;
• lapse, restoration and annuity history;
• pending Office Actions, re-examination, appeals, invalidation or correction proceedings;
• claim amendments and statements made during prosecution;
• support for the claim scope relevant to the business;
• available or restricted divisional filings; and
• consistency with corresponding foreign cases.

A granted patent may have little transaction value if its claims do not cover the target's product or a commercially relevant competitor implementation. The Korean claims and prosecution record must therefore be read, not only the register entry.

Licences and other agreements

Agreements may materially limit rights that appear unrestricted in the register. The review should include inbound and outbound licences, settlement agreements, covenants not to sue, standards commitments, coexistence agreements, security interests, distribution and manufacturing agreements, and joint-development contracts.

The relevant provisions include change-of-control consent and termination rights, additional payment obligations, exclusivity by field or territory, sublicensing rights, control of prosecution and enforcement, ownership of improvements and joint results, and protection of confidential know-how.

Validity, coverage and freedom to operate

Validity, product coverage and freedom to operate are distinct analyses. A target patent may be valid but unrelated to the principal product. It may cover that product without giving the target freedom to operate against third-party patents.

Where infringement exposure could affect valuation or closing, a separate Korean freedom-to-operate review may be required. For a material product, the review should use Korean-language and classification searches, family and legal-status analysis, and claim charts based on the Korean claims. Relevant pending applications should be included because their claims may change during examination.

Disputes and ability to enforce

The diligence materials should include threatened claims, cease-and-desist letters, administrative trials, infringement actions, customs measures, criminal complaints, settlement terms and indemnity demands. Outside-counsel assessments and litigation reserves should be checked against the current status of each Korean matter.

For a patent that may need to be enforced, confirm the correct owner, payment of annuities, availability of the file history and technical evidence, and claim coverage of the relevant product.

Transaction treatment of findings

Each material issue should identify the affected asset, supporting evidence, legal or commercial consequence, proposed action, responsible party, timing and estimated cost. The resulting action may be:

• resolution before closing;
• a representation, warranty, covenant, indemnity, escrow or price adjustment;
• post-closing recordal, documentation, portfolio or compliance work; or
• a disclosed risk accepted in the transaction terms.

Materiality should be assessed by reference to the affected product, revenue and transaction rationale. A minor recordal defect and a gap in ownership of core technology should not receive the same treatment.

Related Korean IP guidance

• Freedom-to-Operate Analysis in South Korea
• Patent Enforcement in Korea
• Korean Patent Portfolio Management: Deadlines and Costs

This article provides general information and does not constitute legal advice. Korean law and MOIP practice may change, and the appropriate review depends on the facts and documents of each transaction.