An IP Due Diligence Checklist for Technology and Licensing Acquisitions

In a technology or licensing deal, the patents, trademarks, code, and contracts on the table are often worth more than every other line on the balance sheet combined.

Yet many due diligence checklists still treat intellectual property as one item inside the general legal review, not as a workstream of its own. That gap tends to surface at the worst possible time: after signing. A missing assignment, an undisclosed license, or an unassessed infringement risk can lower the deal’s value, trigger an indemnity claim, or in some cases undo the reason the deal made sense in the first place.

This article lays out a practical checklist for treating intellectual property due diligence as its own discipline, with its own risks and its own documentation requirements.

Why IP Due Diligence Requires Its Own Workstream

Patents, trademarks, copyrights, and trade secrets are usually the reason a technology or licensing deal exists in the first place. They aren’t a supporting detail behind the revenue numbers; they often are the value.

That’s the reason that when they fold them into general legal review, there are blind spots. The typical M&A due diligence checklist should include corporate, financial, and employment risk. It’s not designed to address a 2015 chain of title issue or a licensing requirement down the email chain. The best way to handle M&A due diligence for technology is to add a dedicated IP review track alongside the regular legal due diligence process, not replace it.

This is an expensive way to avoid this step. If there is an IP problem before signing, it is a negotiating issue. Disputes are more costly to settle than to avoid, and the same issue that occurred after closing is a conflict.

Core Categories of IP Due Diligence Documentation

The first step of a workable IP due diligence checklist is to divide the target’s IP into categories, as each represents a different risk and will necessitate a different type of record.

• Patents. Ensure the filing history, prosecution status, maintenance fees filed and paid, and inventor assignment documents for each patent are correct. This is the basis of patent due diligence, and problems in this area are among the hardest to address after the closing.
• Trademarks. Review registration status and evidence of actual use, as well as any opposition or cancellation proceedings. The American Intellectual Property Law Association says trademark diligence also should ensure that the portfolio provides the buyer or acquirer with actual and not only a registration certificate of market exclusivity.
• Copyrights and trade secrets. Discuss proprietary information documentation, confidentiality agreements, and internal policies for safeguarding proprietary information on an everyday basis.
• Licensing agreements. Identify all inbound and outbound licenses, and any obligations to pay royalties or give or receive any exclusivity rights on an ongoing basis. Any license that limits the use and/or transfer of the IP acquired should be identified during due diligence for the licensing agreement.

With these categories identified, comes access: patent counsel, licensing experts, and corporate development all must access the same records, without each party getting in touch with the other party’s confidential information. Data rooms built for due diligence make it possible to organize this volume of documentation by asset type, such as patents, trademarks, licenses, and litigation records, while still controlling which reviewers can see privileged or sensitive files.

Verifying a Clean Chain of Title

Ownership sounds like a simple thing to confirm. In practice, it’s where many deals run into trouble.

• Confirm that inventor and employee IP assignment agreements are complete and properly executed for every material asset. An uncancelled signature could result in an ambiguous situation when it comes to ownership.
• Look for gaps where IP was developed by contractors, consultants, or joint venture partners without a formal assignment in place. All work products are not necessarily transferred automatically.
• Identify any liens or security interests that might encumber the IP included in the deal, since these can limit what the acquirer can actually do with the assets after closing.

The starting point of any other component of the IP due diligence checklist is a clean chain of title. When ownership is an issue, the valuation, licensing terms, and implications of the findings of freedom to operate are all on shaky ground.

Assessing Freedom-to-Operate and Third-Party Risk

It doesn’t mean the same thing to own an asset as to be free to use it. This is also referred to as a freedom-to-operate examination and is a search to determine whether the target company’s product or technology infringes another company’s rights.

• Evaluate whether the target’s technology could infringe third-party patents or other IP rights, particularly in crowded technical fields.
• Review pending and historical IP litigation involving the target, including settled disputes that still carry ongoing obligations, such as royalty payments or field-of-use restrictions.
• For software targets, audit open-source usage and license compliance across the codebase. Open source components were detected in all 100 of the M&A transactions reviewed in an audit analysis by Black Duck that compared practices in those transactions to those in its audits from over a year ago. If left unaddressed, such conflicts can result in compliance requirements the acquirer didn’t anticipate.

Organizing IP Documentation for Reviewer Access

Patent counsel wants prosecution files. The agreements and royalty schedules are desired. Corporate development desires a summary viewpoint throughout it all. Often these groups will be working concurrently; the documentation must be organized in such a way that it can be used by all of these groups, and not require any of them to search for information that is not relevant to them.

Centralized organization also enables you to identify assets already verified to a risk category, rather than having to check in on a spreadsheet by each reviewer. In the last couple of weeks leading up to close, that one point of reference becomes invaluable when someone has a question about a particular patent or license and would like to get a quick and correct answer—and not have to sift through someone’s inbox.

Common IP Due Diligence Gaps That Surface Late

Even careful teams miss certain things, usually because they weren’t looking in the right place. Watch for:

• Missing or incomplete inventor assignment agreements, particularly for older or foundational patents that predate current documentation practices.
• Unrecorded licenses or informal arrangements that were never captured in a signed agreement.
• Undisclosed open-source dependencies in acquired codebases, carrying compliance obligations the target wasn’t actively tracking.
• Lapsed or expired protections that the target believed were still active.

Each of these can be easily spotted when deliberately reviewing content. None of them can be easily caught by chance!

Final words

IP due diligence should be a standalone process rather than a checkbox item in general legal review, particularly in transactions where the IP is the rationale for the transaction. By completing a chain of title, mapping the licensing encumbrances, and conducting a freedom-to-operate assessment before closing, teams put themselves in a much better position than teams that find out what they bought after closing. The IP workstream is now a critical component of any M&A transaction, and the same applies to the documentation, verification process, and reviewers coordinating it. It is now a standard implementation for anyone dealing in this area.