In today’s knowledge economy, intellectual property has eclipsed physical assets as the primary source of enterprise value. Whether it’s a technology startup, a consumer brand, or a digital media company, IP portfolios often make up the majority of what’s being acquired in a transaction. That’s why IP due diligence isn’t a legal formality — it’s a financial imperative.
In any merger or acquisition, the buyer must verify that the target’s intellectual property is complete, enforceable, transferable, and free of encumbrances. On the sell-side, a failure to prepare for this review can delay deals, reduce valuations, or even derail the transaction altogether. Investors and acquirers want certainty — and IP is where hidden liabilities often live.
IP Due Diligence and Ownership Clarity
At the core of IP due diligence is one deceptively simple question: does the seller actually own the intellectual property they claim to own? This includes registered and unregistered trademarks, software code, domain names, social media handles, patents, copyrights, and trade secrets.
Buyers will want to review the chain of title on all registered IP — including assignments from founders, contractors, and third-party developers. If a startup used a freelance engineer to build proprietary software, and that engineer never signed a proper IP assignment agreement, the company may not own that code. In an M&A context, that can become a dealbreaker.
Trademarks require special attention. If the brand being acquired has pending or registered marks with the USPTO or abroad, the due diligence team will review whether any oppositions, office actions, or cancellation risks exist. Brands with active infringement litigation or unresolved disputes may be seen as unstable assets, especially if the resolution would require rebranding.
Patents also require ownership review, but with an added layer of technical scrutiny. Buyers want to understand whether the patent claims are enforceable, whether they align with the target’s commercial products, and whether any infringement risks exist with competitors. For AI and software companies, §101 eligibility remains a key concern in this analysis. Any ambiguity about the strength of issued patents can affect the structure of an earn-out or deferred payment mechanism.
Assessing IP Licensing, Liens, and Revenue Dependencies
A second pillar of IP due diligence involves reviewing third-party licensing arrangements and encumbrances. Many companies monetize their IP through exclusive or non-exclusive licensing deals. Others rely on inbound licenses from open-source software, platform APIs, or brand partnerships.
A thorough review of license agreements is essential to understanding post-closing flexibility. Can the buyer continue using the IP on the same terms? Are any licenses non-transferable? Do any agreements contain “change of control” clauses that trigger re-negotiation or termination? These questions are particularly urgent when the target company licenses its brand, media, or software from a celebrity, creator, or platform that may not want to renew post-acquisition.
Additionally, IP assets are often pledged as collateral in debt or venture financing deals. The due diligence team must confirm that the IP is free and clear of liens or encumbrances. If the IP is entangled in loan agreements, the buyer will require payoff letters and lien releases prior to closing. Otherwise, the buyer risks acquiring a portfolio that can’t be monetized or enforced.
Revenue streams tied to IP must also be analyzed. If the company earns revenue through royalties, SaaS subscriptions, or licensing, the acquirer needs to confirm the strength and enforceability of those rights. A target company may look profitable on paper, but if it’s built on IP the seller doesn’t fully control, the deal exposes the buyer to downstream litigation or licensing claims.
IP Due Diligence as a Strategic Lever in Negotiation
Done well, IP due diligence is not just about identifying risks — it’s about identifying leverage. Buyers can use IP findings to structure deals more favorably. If key trademarks are unregistered or disputed, the buyer may negotiate a price adjustment or escrow holdback. If patents are pending or narrow in scope, the deal may shift toward milestone payments tied to enforceability or licensing outcomes.
Sellers, on the other hand, can improve outcomes by preparing for IP due diligence early — before they go to market. This means assigning IP properly from all contributors, registering critical trademarks and copyrights, documenting trade secret protections, and resolving any existing disputes. The more complete and clean the IP portfolio, the more competitive the seller becomes in negotiations.
We’ve seen this play out across industries — from skincare and fashion brands with celebrity trademarks, to SaaS startups with patented algorithms, to e-commerce companies with viral product names and social media equity. In each case, IP either created deal momentum or created legal friction that had to be overcome.
At L.A. Tech and Media Law Firm, we advise clients on both sides of the table — whether they’re preparing for exit, raising capital, or conducting due diligence for a strategic acquisition. Our approach is proactive, commercial, and sharply focused on the kind of IP scrutiny that investors, acquirers, and regulators apply in 2025.
David Nima Sharifi, Esq., founder of the firm, is a nationally recognized IP and technology attorney with decades of experience in M&A transactions, startup structuring, and high-stakes brand protection. Featured in the Wall Street Journal and recognized among the Top 30 New Media and E-Commerce Attorneys by the Los Angeles Business Journal, David regularly advises founders, investors, and acquirers on the legal infrastructure of innovation.
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