This is why a thoughtful, structured IP due diligence review is essential in any transaction. Below is a simple guide to understanding what IP due diligence involves and the best‑practice steps businesses should follow to get it right.

Why IP Matters in Transactions

Intellectual property can significantly influence deal value. Thorough IP due diligence helps answer key questions:

• Does the company actually own its IP? Ownership gaps (such as contractors who never assigned their rights) can become costly surprises.
• Is the IP protected and enforceable? Lapsed filings, weak trademarks, or unpatented innovations can reduce value or require remediation.
• Is the IP free from third-party claims? Infringement disputes, open-source licensing issues, and restrictive agreements can all create risk.
• Does the IP support the company’s strategic goals? Understanding how the IP aligns with business plans informs deal pricing and integration planning.

Best-Practice Steps for Conducting IP Due Diligence

Below is a streamlined playbook for an effective IP review.

1. Identify the Full IP Portfolio

A good diligence process starts with a clear inventory of all IP assets, often including:

• Patents and patent applications
• Trademarks, brand names, and logos
• Copyrighted works (software, marketing content, product materials)
• Trade secrets and confidential know‑how
• Domain names and social media handles
• Licenses (both inbound and outbound)

Tip: Ask not only for registered IP but also unregistered IP—many valuable assets go unfiled.

2. Verify Ownership and Chain of Title

Buyers and investors need to confirm that the company legally owns the IP it claims.

Key checks include:

• Employee and contractor invention assignment agreements
• Acquisition and transfer records
• Registration documents
• Joint development agreements

Red flags: missing agreements, unclear ownership history, or shared rights with third parties

3. Assess the Strength and Status of IP Protections

Review how well the company has maintained its IP:

• Are patents active and renewed?
• Are trademarks registered in all relevant markets?
• Are trade secrets protected by policies and confidentiality practices?
• Are copyright registrations accurate and up to date?
• Are software products using open-source code in a compliant way?

Strong protections support higher valuation and reduce risk.

4. Look for Infringement Risks and Disputes

Potential liabilities must be uncovered early:

• Pending or threatened litigation
• Claims of copying or unauthorized use
• Competitor challenges
• Prior art that may affect patent validity
• Improper use of open-source licenses

Even small disputes can expand once ownership changes.

5. Evaluate Key Contracts and Obligations

IP rights often depend on contractual relationships, including:

• Licensing agreements
• Supplier and manufacturing contracts
• Research collaboration agreements
• Software development contracts
• Non-compete and non-disclosure agreements

Focus on terms that restrict use, require payments, or limit transfer of IP in a transaction.

6. Understand How the IP Supports the Business Model

Finally, IP must be viewed strategically, not just legally. Ask:

• What IP drives revenue?
• What IP differentiates the business?
• Which assets are mission‑critical for future growth?
• Are there gaps in protection where competitors could enter?

This helps inform valuation, negotiation, and post‑deal integration planning.

The Bottom Line

IP due diligence isn’t a legal formality, it’s a strategic necessity. A thorough, well-structured review:

• Reduces transaction risk
• Helps avoid expensive surprises
• Supports fair valuation
• Strengthens negotiation positions
• Sets the foundation for long-term success

Whether you're acquiring a company, investing in one, or forming a strategic partnership, understanding the full picture of its IP assets is essential.