Intellectual property is the stock-in-trade of technology startups is often the crown jewel in a tech acquisition, but unresolved disputes over who owns it, who can use it, or whether it’s infringing on someone else’s rights can quickly become a dealbreaker. In today’s acquisition landscape, IP disputes in M&A are among the most common sources of delays, price reductions, or complete transaction collapse.
Acquirers want certainty. When a startup’s codebase, brand, or data is entangled in litigation or opposition proceedings, the risk profile shifts dramatically. What could have been a clean, high-multiple deal becomes a complicated negotiation requiring holdbacks, indemnities, and sometimes walking away entirely. That’s why founders and legal counsel must identify and address IP disputes early—ideally before they ever enter the deal room.
Common IP Disputes in M&A Transactions
Most IP disputes in M&A fall into a few predictable categories. The first is trademark opposition or cancellation proceedings. A startup may be using a name that’s currently being challenged before the USPTO’s Trademark Trial and Appeal Board (TTAB). Even if the startup has used the name in commerce for years, an active opposition can stall enforcement and raise questions about brand continuity post-acquisition. If the mark is central to the company’s product or platform, that’s a material risk to any buyer.
Patent disputes are another major concern, particularly in deep tech, AI, health tech, and fintech sectors. A pending infringement lawsuit or a third-party challenge to the validity of a key patent can materially lower the value of the portfolio. Even pending applications can be problematic if there’s overlapping IP with competitors, former collaborators, or prior employers of technical founders.
Then there are copyright and trade secret claims. A former contractor may assert that source code wasn’t properly assigned. A co-founder may allege they co-created a feature or design element. A current employee might have used open-source code in a way that violates license terms. Each of these can lead to lawsuits or threats of injunction—especially once the company announces it’s being acquired.
In all of these scenarios, buyers are forced to evaluate whether the company owns what it says it owns and whether those rights are enforceable. If not, they’ll negotiate protections—or walk away.
How Intellectual Property Disputes in M&A Affect Deal Structure
Buyers encountering IP disputes in M&A transactions typically take one of three approaches: price reductions, risk allocation through legal mechanisms, or conditional closing terms.
A price reduction is the most straightforward: if the target company’s IP is tied up in legal conflict, the buyer will reduce the valuation to account for the uncertainty. But that’s often just the beginning. More sophisticated deals may involve escrow accounts, where a portion of the purchase price is held back pending resolution of the dispute. Others may include indemnification clauses, requiring the seller to cover legal costs or damages that arise post-closing.
In high-risk scenarios, the buyer may require litigation to be resolved before closing, especially if the target’s IP is the core product or brand. This was the case in several tech deals over the past decade, including situations where pending TTAB disputes or unresolved software licensing claims created last-minute disruptions. The buyer’s legal team will insist on comprehensive reps and warranties around IP ownership and freedom to operate. If these can’t be made confidently, the deal may collapse.
Startups often assume that “it will work itself out” during diligence. In reality, buyers don’t want to inherit a legal mess. A startup with an active trademark dispute or an unclear patent chain of title is often perceived as unready, unprofessional, or overvalued. Even large companies like Yahoo, which faced litigation over its patent portfolio during its acquisition by Verizon, saw their valuation and deal terms adjusted accordingly.
Preventing IP Litigation in M&A Before They Become Deal Killers
The good news is that most IP disputes in M&A can be avoided—or at least mitigated—with proactive legal work. That begins with a clean IP portfolio: registered trademarks, properly assigned patents, clear documentation of code authorship, and reviewed open-source usage. Founders should regularly audit their IP, confirm that employee and contractor agreements contain strong assignment clauses, and resolve disputes long before they plan to sell.
If a dispute is already pending, sellers should develop a resolution strategy, whether that’s settlement, rebranding, or initiating a counterclaim to clear the record. Silence is not a strategy. Buyers will ask, and any “we’ll get to that later” response during diligence signals exposure.
At L.A. Tech and Media Law Firm, we guide clients through both sides of this equation—identifying IP red flags for acquirers, and helping sellers prepare their portfolios to survive diligence without valuation hits. We’ve supported M&A deals across tech, consumer products, and media, where brand equity and IP ownership are make-or-break variables.
David Nima Sharifi, Esq., founder of the firm, is a Wall Street Journal–featured intellectual property and M&A attorney, recognized among the Top 30 New Media and E-Commerce Attorneys by the Los Angeles Business Journal. He regularly counsels founders, VCs, and corporate counsel on how to structure deals around enforceable IP and reduce post-closing exposure.
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