IP due diligence is the investigation a buyer or investor runs before closing to confirm that a target company actually owns the patents, trademarks, copyrights, trade secrets, and software it says it does, that those assets are still enforceable, and that nothing in the target’s contracts or third-party exposure will unravel at signing. Getting it wrong means paying for assets you may not fully own or cannot legally defend.
The work breaks into a handful of questions the buyer has to answer in order: what is there, who owns it, is it still alive, does it step on anyone else’s rights, and what happens to it under the structure of this particular deal.
Start With a Real Inventory
The first job is a complete list of everything the target treats as intellectual property, then a cross-check against what the government databases actually show.
For patents, that means every application filed with the USPTO, including provisionals and any foreign filings.1Office of the Law Revision Counsel. 35 USC 111 – Application For trademarks, every registration and every pending application, whether based on use in commerce or bona fide intent to use.2Office of the Law Revision Counsel. 15 US Code 1051 – Application for Registration; Verification Copyright registrations, domain names, and industrial designs round out the formal filings.
Companies routinely overstate what they own. An application abandoned three years ago may still sit on the internal schedule. A registration may be held by a founder personally rather than by the corporate entity you are buying. The point of matching the internal list against USPTO and Copyright Office records is to strip the inventory down to what is really there.
Pull in every contract that touches IP as well: employment and contractor agreements, NDAs, inbound and outbound licenses, joint development agreements, and prior settlements. Those documents tell you who created each asset, who currently has rights to use it, and what restrictions travel with it.
Confirm Ownership and Chain of Title
A broken chain of title is the most common dealbreaker. Every asset needs a clean paper trail from the person who created it to the seller at the closing table.
Patent assignments have to be in writing and should be recorded with the USPTO. An unrecorded assignment is void against a later buyer who pays value without notice of the earlier transfer, so any gap in the recording history is a real exposure.3Office of the Law Revision Counsel. 35 USC 261 – Ownership; Assignment
For copyrights, the analysis turns on whether the work qualifies as a “work made for hire.” If an employee created it within the scope of their job, the employer automatically owns it.4U.S. Copyright Office. 17 US Code Chapter 2 – Copyright Ownership and Transfer The definition is narrower than most companies assume. It covers works by employees acting within the scope of employment, plus a limited set of specially commissioned works where both parties signed a written agreement designating the work as made for hire.5Office of the Law Revision Counsel. 17 US Code 101 – Definitions Software written by an independent contractor without a proper assignment clause is a ticking time bomb. The contractor may still own the copyright even after the company paid for every hour of work.
Look hard at employment agreements. Each one should contain an explicit assignment clause transferring IP rights to the company. Boilerplate that doesn’t actually accomplish an assignment is common, and so are key engineers or founders who predate any formal HR process and never signed anything at all.
Liens and Security Interests
Ownership can be technically clear and still encumbered. When a company pledges its IP as loan collateral, the lender usually files a UCC-1 with the relevant secretary of state, creating a public record of the security interest. An unreleased lien at closing can hand the lender control of the IP in a default. Search state UCC records and the USPTO assignment database for recorded security interests, then make lien releases a condition of closing.
Check That the Protection Is Still Alive
Owning an asset and being able to enforce it are two different things. A patent may be one missed fee away from expiration; a trademark registration may be ripe for cancellation.
Patent Maintenance and Remaining Term
Utility patents require maintenance fees at three intervals after issuance: between years 3 and 3.5, years 7 and 7.5, and years 11 and 11.5.6United States Patent and Trademark Office. Maintain Your Patent Missing a window doesn’t kill the patent immediately. A six-month grace period follows each due date during which the fee can be paid with a surcharge, but if both the window and the grace period pass without payment, the patent expires.7United States Patent and Trademark Office. MPEP 2506 – Times for Submitting Maintenance Fee Payments Verify payment status for every patent and flag deadlines falling near the expected closing.
A standard utility patent lasts 20 years from its filing date, but the actual expiration can shift.8Office of the Law Revision Counsel. 35 USC 154 – Contents and Term of Patent; Provisional Rights USPTO processing delays can add days to the term; terminal disclaimers filed during prosecution can cut it short. Calculate the real remaining life of each patent instead of relying on the seller’s numbers.9United States Patent and Trademark Office. Patent Term Calculator
Trademark Maintenance
Trademark registrations require ongoing filings. Between the fifth and sixth year, the owner must file a declaration confirming the mark is still being used in commerce. A similar declaration and a renewal application are due between the ninth and tenth year, and then every ten years after that.10Office of the Law Revision Counsel. 15 USC 1058 – Duration, Affidavits and Fees11Office of the Law Revision Counsel. 15 USC 1059 – Renewal of Registration Each window has a six-month grace period with a surcharge. Miss both, and the registration is canceled. Confirm every registration is current and that the marks are actually being used on the goods or services listed.
Would It Survive a Challenge?
Administrative status is only half the question. Patent claims are tested against novelty and non-obviousness. Prior art that existed before the filing date and anticipates the claimed invention can invalidate the patent.12Office of the Law Revision Counsel. 35 USC 102 – Conditions for Patentability; Novelty Even without an identical reference, a patent can fall if the invention would have been obvious to someone with ordinary skill in the field.13Office of the Law Revision Counsel. 35 USC 103 – Conditions for Patentability; Non-obvious Subject Matter A prior art search during diligence is far cheaper than discovering the problem after closing.
Trademarks have their own vulnerabilities. A merely descriptive mark cannot be registered unless consumers have come to associate the term with a specific source, an acquired distinctiveness the seller must prove.14Office of the Law Revision Counsel. 15 USC 1052 – Trademarks Registrable on Principal Register; Concurrent Registration A mark that has become generic loses protection outright. Assess where each mark sits on the distinctiveness spectrum and whether the company has policed it.
Look Outward for Infringement Exposure
The other half of the review asks whether the target’s products step on someone else’s rights.
Freedom to Operate
A freedom-to-operate analysis compares the target’s core products and processes against active third-party patents to find claims the company’s operations might infringe. If there is overlap, the buyer chooses among licensing, designing around, challenging validity, or pricing the litigation risk into the deal. Cease-and-desist letters, ongoing disputes, and prior settlements deserve close reading. A single unresolved claim from a well-funded competitor can dwarf the value of the IP being bought.
Indemnification clauses buried in customer and partner contracts compound the exposure. If the target has agreed to defend its customers against third-party infringement claims, the buyer inherits that obligation across every affected customer relationship.
Open-Source Software
Open-source exposure is where technology deals most often break. Permissive licenses such as MIT or BSD generally let code be incorporated into proprietary products with minimal restriction. Copyleft licenses behave differently. Under the GNU General Public License, distributing a modified version of GPL-covered code triggers an obligation to release the entire modified program under the GPL and to make its source code available.15GNU. Frequently Asked Questions About the GNU Licenses
If the target’s proprietary software incorporates GPL components that are intermingled with its own code, the company may be obligated to publish its source. That can wipe out the competitive value of a software asset. A code audit mapping every third-party component to its license terms is essential when the deal turns on proprietary technology.
AI-Generated Material
Generative AI has created a newer category of risk. The U.S. Copyright Office has taken the position that purely AI-generated content cannot be protected by copyright because copyright requires human authorship.16U.S. Copyright Office. Copyright and Artificial Intelligence, Part 2 – Copyrightability Report Text-to-image prompts alone do not give the user enough control to qualify as an author. Human contributions perceptible in the output, such as creative selection, arrangement, or substantial modification of the AI material, can support copyright for those human-authored elements.17U.S. Copyright Office. Copyright and Artificial Intelligence
Ask whether any of the target’s copyrighted assets, particularly marketing materials, software documentation, or design work, were generated by AI without meaningful human input. If they were, those assets may carry no enforceable copyright, and the company cannot stop competitors from copying them.
Read License Transfer Clauses Against the Deal Structure
Licenses the target holds from third parties often contain anti-assignment clauses or change-of-control provisions that the transaction itself can trigger. The deal structure matters here in a very concrete way.
In an asset sale, the buyer acquires the IP and related contracts directly, which almost certainly trips an anti-assignment clause. In a stock acquisition, the target remains the same legal entity, so a plain anti-assignment clause usually is not violated. But a separate change-of-control provision can still be triggered when the buyer takes a majority of voting shares, giving the licensor a consent right or a termination right.
Mergers sit in between. A reverse merger, where the target survives, is generally less likely to trigger anti-assignment provisions than a forward merger, where the target ceases to exist. Courts have not been entirely consistent, especially where the clause prohibits transfers “by operation of law.”
Flag every inbound license, identify the transfer restrictions in each, and match them against the chosen structure. Where consent is required, start asking well before closing. Losing a critical technology license at signing because nobody read the anti-assignment clause is an avoidable disaster.
Trade Secrets: Look for the Protections, Not Just the Claim
Trade secrets are often the most valuable and most overlooked assets in a deal. They have no government registration, so their existence depends on the company’s own documentation and protective measures. Under federal law, information qualifies as a trade secret only if the owner has taken reasonable steps to keep it secret and the information derives economic value from not being publicly known.18Office of the Law Revision Counsel. 18 USC 1839 – Definitions
That statutory requirement turns into a practical checklist during diligence. Look for access controls limiting who can view sensitive data, confidentiality agreements signed by employees and contractors, physical or digital security around formulas or source code, and written policies for handling trade secret material. Courts have rejected trade secret claims where the owner could only offer vague assertions of secrecy without documenting specific measures. A proprietary algorithm sitting on an unencrypted shared drive accessible to every employee is not a protected trade secret, whatever the seller calls it.
Look at enforcement too. If former employees walked out with confidential information and the company did nothing, that inaction can weaken future claims.
Tax Treatment Depends on Structure
How the deal is structured affects the tax treatment of the acquired IP, and buyers who ignore this during diligence leave money on the table.
In an asset purchase, the buyer receives a cost basis in the acquired IP equal to the purchase price allocated to those assets. Acquired intangibles, including patents, trademarks, copyrights, goodwill, customer lists, and covenants not to compete, are amortized over 15 years under federal tax law.19Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles The 15-year period applies regardless of the asset’s actual useful life. A patent with four years remaining and a trademark with indefinite life amortize on the same schedule.20Internal Revenue Service. Intangibles
In a stock purchase, the buyer acquires shares rather than assets. The existing tax basis of the target’s IP carries over, so the buyer often inherits a lower basis and loses the step-up to purchase price. Anti-churning rules can also block amortization of certain intangibles acquired in transactions that don’t produce a meaningful change in ownership or use. The allocation of purchase price among IP assets versus other assets drives future deductions, so the diligence team and tax advisors need to work together on it.
Fix What You Find, and Record It on Time
Diligence doesn’t end with a report. Issues surfaced during the review usually need remediation either before closing or shortly after, and some recording obligations carry hard deadlines.
Trademark assignments must be recorded with the USPTO within three months of the assignment date to be effective against later purchasers who buy the mark in good faith without knowing about the earlier transfer.21Office of the Law Revision Counsel. 15 USC 1060 – Assignment Patent assignments carry a similar three-month recording deadline.3Office of the Law Revision Counsel. 35 USC 261 – Ownership; Assignment Missing these windows doesn’t void the assignment between the original parties, but it opens a preventable vulnerability to third-party claims.
Where diligence uncovers gaps in the chain of title, such as a missing assignment from a former employee or a misspelled inventor name, corrective assignments have to be prepared and recorded. The USPTO doesn’t delete the original incorrect record; a corrective document is filed alongside it. Tracking down former employees or contractors to sign paperwork after they’ve left the company takes time, so the efficient move is to spot these issues early and build the fix into the closing timeline.
Common post-closing tasks include recording every transfer document with the USPTO and Copyright Office, updating security interest filings to reflect the new owner, obtaining consents from third-party licensors, and transferring domain names and social media accounts. Each has its own deadline, and dropping any of them can leave gaps that undermine the protections the buyer just paid for.