Intellectual Property Due Diligence & Transfer

Intellectual property (IP) can represent a significant portion of a business's value, particularly in technology, professional services, and branded consumer businesses. According to WIPO (the World Intellectual Property Organization), intangible assets including IP now account for over 90% of the market value of S&P 500 companies, a proportion that has grown steadily over the past two decades. Thorough IP due diligence protects the buyer from acquiring disputed, improperly protected, or non-transferable IP assets.

• Trademarks: Brand names, logos, taglines, and trade dress. Verify registration status, renewal dates, and any oppositions or cancellation proceedings.
• Patents: Utility patents, design patents, and provisional applications. Check validity, remaining term, and any litigation or licensing commitments.
• Copyrights: Software code, marketing materials, training content, and creative works. Verify ownership (especially for work created by contractors).
• Trade secrets: Proprietary processes, customer data, pricing algorithms, and know-how. Assess protective measures (NDAs, access controls).
• Domain names: Web domains, social media handles, and digital properties. Verify ownership and transfer process.
• Software licenses: Third-party software licenses that may have transfer restrictions or change-of-control provisions.

1. Ownership verification: Confirm the seller (not employees, contractors, or third parties) actually owns all claimed IP
2. Registration status: Check trademark/patent registrations, renewal dates, and any pending applications
3. Assignment agreements: Verify that all employee and contractor IP assignments are properly documented
4. License review: Identify all inbound and outbound licenses, their terms, and any change-of-control provisions
5. Litigation search: Check for any pending or threatened IP disputes, infringement claims, or challenges
6. Open source audit: For software companies, audit open-source components and their license obligations
7. Trade secret protection: Review NDAs, access controls, and employee confidentiality agreements
8. Third-party IP: Identify any IP that the business uses but does not own (licensed technology, white-label products)

The deal structure, whether a stock purchase or asset purchase fundamentally changes how IP transfers and what risks you inherit:

• Stock purchase: IP stays with the company entity. No transfer needed. But verify there are no change-of-control triggers in licenses.
• Asset purchase: IP must be explicitly assigned to the buyer. Requires written assignment agreements for each IP asset.
• Trademark assignment: Must be recorded with the relevant trademark office (USPTO, EUIPO, etc.).
• Patent assignment: Must be recorded with the patent office. Check for any prior security interests.
• Domain transfer: Process varies by registrar; allow adequate time for transfer completion.

• Missing assignments: Contractor-created IP without proper assignment agreements (the contractor may own it)
• Lapsed registrations: Expired trademark or patent registrations that reduce protection
• Open-source contamination: Copyleft open-source licenses (GPL) that could require disclosure of proprietary code. The Open Source Initiative tracks over 100 approved licenses, but GPL and AGPL carry the most significant risk in M&A contexts
• Shared IP: IP developed jointly with another party, creating co-ownership complications
• Key person dependency: Trade secrets that exist only in one person's head, with no documentation

• Verify that the seller actually owns all claimed IP, missing contractor assignments are the most common issue
• In asset deals, every IP asset must be explicitly assigned in writing and recorded with relevant authorities
• Review all third-party licenses for change-of-control provisions that could be triggered by the acquisition
• For software businesses, conduct an open-source audit to identify copyleft license risks
• Include thorough IP representations and warranties in the purchase agreement

Missing contractor IP assignments are the single most common issue. When a business hires freelancers or agencies to create software, designs, or marketing content without proper IP assignment agreements, the contractor may legally own that work. Fixing this post-acquisition can be expensive or impossible if the contractor is uncooperative. Always verify that written assignment agreements exist for every piece of contractor-created IP.

In a stock deal, the company entity remains the same, so IP ownership does not change hands, but you must check for change-of-control triggers in third-party licenses. In an asset deal, every IP asset must be explicitly assigned to the buyer in writing, and assignments must be recorded with relevant authorities (USPTO for patents and trademarks, EUIPO for EU trademarks, etc.). Domain names require separate transfer processes through each registrar. Allow 2-4 weeks for patent and trademark assignment recordings.

For any business where IP is a material driver of value (software, branded products, proprietary processes), engaging an IP attorney is strongly recommended. Typical costs are $5K-$20K for a focused IP audit. For software businesses, add $3K-$10K for an open-source license audit using tools like Black Duck or FOSSA. These costs are small relative to the risk of acquiring impaired or contaminated IP assets.