Intellectual Property (IP) Due Diligence
Every other workstream asks what an asset is worth. IP due diligence asks whether the seller owns it.
For founders and GCs closing gaps, and for buy-side counsel finding them.
What IP Due Diligence Tests
Intellectual property due diligence answers 4 questions. Ownership comes 1st. The other 3 only matter if the answer is yes.
Does the seller own it?
Ownership starts with the creator and moves only by written assignment. Creating something and owning it are 2 different things.
Matters most to: the M&A head and the deal counsel drafting the warranties
Is it free of encumbrances.
Licensed out, pledged as collateral, or subject to consent. Each limits what the buyer actually acquires.
Matters most to: the lender, and the underwriter on an IPO
Is it protected and in force.
Registrations current, renewals paid, filings in the right territories. Trade secrets exist only if they were kept secret.
Matters most to: the patent agent and the CFO carrying the valuation
Can the business operate.
Freedom to operate on the products that earn revenue. Owning your IP does not mean you avoid someone else’s.
Matters most to: the investment banker who has to defend the forecast
The seller has lived with the portfolio for years. The buyer has weeks. That asymmetry is why this workstream exists.
IP Due Diligence Document Checklist
13 groups. The inventory first, then the paper proving each entry belongs to the seller.
Advisers and GCs: separate signed documents from templates, and label every former contributor. Buy-side counsel: this is the request list.
1.0 IP inventory
Everything claimed as an asset
- ✓ Schedule of patents and applications by family and territory
- ✓ Trademark registrations and applications with classes
- ✓ Registered designs and copyright registrations
- ✓ Domain names and social handles
- ✓ Unregistered rights and know-how asserted as valuable
2.0 Prosecution and status
Live matters plus 5 years
- ✓ Prosecution files for material families
- ✓ Office actions outstanding and response deadlines
- ✓ Renewal and maintenance payment records
- ✓ Abandoned, lapsed or withdrawn applications and the reason
- ✓ Foreign filing coverage against where revenue is earned
3.0 Chain of title
Every material right
- ✓ Assignment from each named creator or inventor
- ✓ Evidence that assignments were recorded at the registry
- ✓ Pre-incorporation work and the assignment that moved it into the company
- ✓ Assignments on every prior corporate change of name or entity
- ✓ Title searches confirming the registry matches the schedule
- ✓ Any right where the recorded owner is not the target
4.0 Creator agreements
All contributors, current and former
- ✓ Employment contracts with invention assignment provisions
- ✓ Contractor, consultant and agency agreements
- ✓ Assignment wording, present assignment versus promise to assign
- ✓ Contributor matrix showing which service period each agreement covers
- ✓ Founder and departed employee assignments
- ✓ Contributors with no agreement on file at all
5.0 Inbound licences
All the product depends on
- ✓ License agreements for embedded or dependent technology
- ✓ Scope, territory, field of use and term
- ✓ Change of control and assignment provisions
- ✓ Royalty and reporting obligations
- ✓ Termination triggers and cure rights
6.0 Trade secrets and confidentiality
Current practice plus history
- ✓ Identification of what is claimed as a trade secret
- ✓ Confidentiality agreements with employees and third parties
- ✓ Access controls and physical or technical measures
- ✓ Exit process for departing staff with access
- ✓ History of suspected misappropriation
7.0 Freedom to operate
Revenue-generating products
- ✓ FTO opinions or clearance searches obtained
- ✓ Third-party rights identified as relevant
- ✓ Design-around or licensing decisions taken
- ✓ Product launches made without clearance
- ✓ Monitoring or watch services in place
8.0 Encumbrances and security
All in force
- ✓ Security interests or charges granted over IP
- ✓ Outbound licenses, exclusive and non-exclusive
- ✓ Co-ownership and joint development arrangements
- ✓ Options, rights of first refusal and reversion rights
- ✓ Rights retained by a funding institution or collaborator
9.0 Disputes and assertions
All open plus 5 years closed
- ✓ Infringement claims brought or received
- ✓ Opposition, revocation and invalidity proceedings
- ✓ Cease and desist correspondence in both directions
- ✓ Settlement and coexistence agreements
- ✓ Invalidity or non-infringement opinions held
10.0 Software and open source
All shipped products
- ✓ Dependency inventory with license type
- ✓ Copyleft components in proprietary or distributed code
- ✓ Contributor logs for core repositories
- ✓ Repository ownership and administrator access
- ✓ Third-party code accepted from outside contributors
- ✓ Prior open-source compliance reviews
11.0 Brand and commercial use
Current portfolio
- ✓ Trademark use evidence in each registered class
- ✓ Coexistence, distribution and franchise arrangements
- ✓ Unregistered marks in active commercial use
- ✓ Brand clearance searches before launch
12.0 Training data and model rights
Where the target ships AI features
- ✓ Dataset inventory with the source of each corpus
- ✓ License or assignment evidence for every training dataset
- ✓ Contract data rights where customer data was used to train
- ✓ Reconciliation of the dataset manifest against training run records
- ✓ Model weights ownership where training was outsourced
13.0 Governance
Current state
- ✓ IP policy and invention disclosure process
- ✓ Docketing system and who maintains deadlines
- ✓ Budget and decision process for filings and renewals
- ✓ Employee inventor remuneration obligations where they apply
- ✓ Gap log recording every known defect and its status
- ✓ Named owner of the portfolio inside the business
An open-source audit asks whether the target has permission to use somebody else’s code. This list asks whether it owns the work it calls its own. Buyers run both.
IP Due Diligence Runs on a Moving Document Set
Assignments get signed mid-review. Every version has to supersede cleanly.
Chain of Title and the Assignment Gap
Paying for an invention does not make you its owner. It belongs to the creator until a written assignment moves it.
For the banker or GC preparing a sale, this is a to-do list with a completion date on it.
6 words that decide who owns it
The distinction survives in most jurisdictions, and it is routinely missed in drafting.
Hereby assigns.
A present assignment. Title moves when the document is signed, with nothing further required.
Agrees to assign.
A promise. Title stays with the creator until a second document is executed, and that document may never exist.
A cure signed days before closing rarely settles the matter quietly. Buy-side counsel may ask for a legal opinion as a closing condition, and the gap raises a question about what else was missed.
Red Flags in IP Due Diligence
11 findings that reprice deals or delay them. Nobody chased any of them.
Advisers: fix the top 3 before launch. Buy-side: price the rest.
The product predates the company
Whatever the founders built before incorporation, they still personally own.
A founder who left without signing
The signature you need most belongs to the person least motivated to give it.
Core product built by an agency
No assignment in the contract means the agency still owns the deliverable.
Registry owner is a former entity name
A clean transfer cannot be recorded until the chain is.
Renewals managed by nobody in particular
A lapsed registration is not always recoverable.
Trade secrets with no access controls
Nothing kept loosely was ever a trade secret.
A product launched with no clearance search
Freedom to operate was assumed, not established.
Co-owned IP from a customer collaboration
The co-owner can license your competitor and owes you nothing.
Copyleft inside the product being sold
Ownership of the whole may be compromised, not just 1 component.
Training data with no license on file
A model cannot be untaught. The fix is a retrain.
Inventor compensation never paid
Where the law grants it, the claim survives the sale.
From IP Due Diligence to Deal Terms
IP findings behave differently. The preferred outcome is not a price adjustment. It is a signature before completion.
Read the last column first. It decides who does the work.
IP indemnities run long. When a claim surfaces years later, the argument is about what was disclosed, to whom, and when.
5 Reviewers, 1 Document Set
IP counsel, patent agent, technical reviewer, deal counsel, lender. Each needs a different slice.
IP Due Diligence by Deal Type
Depth is set by the transaction. The same estate gets 3 different reviews depending on why somebody is looking.
On an M&A process
Full review inside a diligence period that now runs 6 to 12 weeks on many deals. Title gaps become conditions to completion, and acquirer diligence is harder than any investor’s because the buyer carries all the risk.
On a funding round
Missing assignments are the single most common finding at Series A. An unsigned founder or contractor assignment resurfaces at every subsequent raise, and a broken chain makes an asset-based valuation hard to support.
On an IPO
An IP report written for the banks and the underwriters, not for a buyer. It has to support what the prospectus says, which makes omission a disclosure problem rather than a negotiating one.
IP counsel leads, with a patent agent on prosecution files and a technical reviewer on the code. The same review applies to licensing deals, joint ventures, IP-backed lending, and insolvency sales.
Frequently Asked Questions
What buy-side counsel asks the patent agent, and what founders wish they had asked 2 years earlier.
A review of whether a target owns the IP it claims, whether it is in force and unencumbered, and whether the business can operate without infringing anyone. Patent due diligence is 1 part, alongside trademarks, trade secrets, and software licenses.
IP Due Diligence Rewards a Clean Paper Trail
Assignments, registry evidence, and licenses in 1 indexed place. Each reviewer on their own slice.