As a lawyer, IP strategist, and business owner, it has been fascinating to watch how M&A negotiations have changed over the years. These conversations used to revolve almost exclusively around physical assets. Now, the questions being asked are more focused on the intangible: What does the IP portfolio actually contain? Who owns it? What’s it worth? And what happens to it after the deal closes?

According to the Ocean Tomo Intangible Asset Market Value Study, tangible assets represented 83% of the market value of S&P 500 companies in 1975. By the end of 2025, intangible assets accounted for approximately 92% of that same market capitalization. 

This “economic inversion” has changed the way buyers and sellers approach M&A transactions. IP is no longer a line item in the legal section of a purchase agreement. In most industries today, it’s the focus of the entire deal. 

How you identify, value, and transfer your IP will determine whether the price you agree to reflects the reality of what’s being transferred.

Below, I want to share what IP due diligence in M&A transactions should involve, how IP gets valued, where the most common risks appear, and what it takes to protect the value you paid for once the deal closes.

What Does “IP in M&A” Actually Mean?

In the context of a merger or acquisition, there are four main categories of intellectual property.

  • Patents: Registered rights that protect inventions and technical innovations. Patents are often a primary driver of purchase price in tech, pharma, and med-device transactions.
  • Trademarks: Brand identifiers including names, logos, and slogans. Brand equity can represent enormous value, especially in consumer-facing businesses.
  • Copyrights: Rights covering creative and expressive works, including software code, marketing content, and proprietary databases.
  • Trade secrets: Confidential business information like formulas, algorithms, customer lists, and processes. Unlike patents and trademarks, trade secrets carry no registration, which means if they haven’t been properly protected before closing, you may be acquiring something difficult to defend.

It’s important to remember that IP in M&A is not limited to what’s registered. Unregistered assets like common law trademarks, unassigned employee inventions, and undocumented trade secret protections are often where the biggest surprises are found after a deal closes.

Business deal handshake

IP Due Diligence in M&A Transactions: What to Review 

IP due diligence in M&A transactions is a two-part process. The first part is inventory: what IP exists, and who legally owns it. The second part is assessment: how strong is that IP, how enforceable is it, and where do the risks lie. 

In my experience, many companies frequently don’t focus enough on the first part. When there is no clear IP register, deals often run into problems that could have been avoided with more thorough due diligence.

IP due diligence should cover: 

  1. Patent and trademark registrations, including status, maintenance fees paid, expiration dates, and geographic coverage.
  2. Assignment agreements, with particular attention to founders, early employees, and contractors who contributed to core technology.
  3. In-bound and out-bound licensing agreements, covering what IP the target uses but doesn’t own and what it has licensed to others.
  4. Open-source software usage, since GPL and similar copyleft licenses can obligate a company to disclose proprietary source code.
  5. Ongoing or threatened IP litigation, including active infringement claims against the target and claims the target has filed against others.
  6. Freedom-to-operate opinions that confirm whether the target’s core products or services infringe third-party IP rights.

IP due diligence is not a quick checkbox exercise. Gaps discovered during diligence will directly affect how you structure the deal, what representations and warranties you require, and whether you need escrow holdbacks or purchase price adjustments to account for exposure. 

Ownership and Chain of Title

Chain of title means being able to trace IP ownership from creator to current owner with no breaks in the record. It sounds straightforward, but ownership gaps are more common than many people expect. 

A founder who built the core technology before the company was formally incorporated. A contractor who was paid for their work but never signed an assignment agreement. An employee who invented something before they officially joined. If a company does not own what it believes it owns, the buyer will not own it after closing either. 

Fixing chain of title issues after closing is expensive and sometimes impossible. A buyers’ counsel will typically flag these deficiencies as conditions to closing or grounds for price renegotiation. Thorough due diligence will help you find and resolve these issues before they become a problem at closing. 

Licensing Agreements

In-bound licenses cover IP the target uses but doesn’t own, like third-party software tools or foundational technology licensed from another company. Out-bound licenses cover IP the target has licensed to others. Both affect what the buyer actually gets, and both require careful review before closing.

Many licensing agreements include a change-of-control provision, which gives the licensor the right to terminate or renegotiate the arrangement if the licensee is acquired. For a buyer, this means a license that looks like a core business asset may not transfer during a sale. Any critical in-bound license needs to be reviewed for this clause before closing. 

Exclusive licensing arrangements can be among the most valuable assets in a deal, but only if the arrangement is properly documented, clearly scoped, and fully transferable. An exclusive license that can’t survive a change of ownership is worth far less than it appears on paper.

Why is Valuing Intellectual Property in M&A So Hard? 

IP valuation is one of the most technically demanding and impactful parts of any M&A transaction. The number your advisor assigns to the IP affects the total purchase price. If that number is wrong, you’re paying for something that isn’t there.

There are three standard approaches to valuing IP assets:

  1. The cost approach looks at what it cost to develop the IP, including R&D expenditures and filing fees.
  2. The market approach looks at what comparable IP has sold for in similar transactions.
  3. The income approach calculates the present value of future earnings attributable to the IP. 

The income approach is the most commonly used in M&A, but it requires significant assumptions about future performance, which are easy to manipulate and hard to verify.

Intellectual property is uniquely difficult to value compared to tangible assets because it has no physical form, its worth depends on enforceability, and it can depreciate rapidly (particularly in technology). IP value is also often tied to the specific buyer’s use case rather than any universal market price. A patent portfolio worth $50 million to one acquirer may be worth a fraction of that to another.

This unpredictability directly influences how deals get structured. When a target’s value is predominantly IP-based, buyers and sellers frequently turn to earn-outs, escrow holdbacks, and purchase price adjustments to bridge the gap between what the IP appears to be worth at signing and what it actually delivers after closing.

Adding fourth piece to small puzzle

IP Risks That Can Cost You After Closing

IP-related surprises after closing are one of the most common sources of post-deal disputes. Taking the time to identify and address them before you sign is the best way to prevent future headaches.

Here are the risk categories I review with clients who are approaching M&A transactions:

  1. Active IP litigation. Does the target have pending infringement claims filed against it, or claims it has filed against others? 
  2. Freedom-to-operate gaps. Does the target’s core product or service infringe third-party IP rights? 
  3. Open-source license compliance. GPL and similar copyleft licenses can require a company to disclose proprietary source code if open-source components are embedded in its software. 
  4. Regulatory IP issues. When IP interacts directly with FDA exclusivity periods, as it does in pharma and biotech, a problem in this area can affect the value of the entire deal.

In a stock deal, IP litigation exposure doesn’t disappear at closing. Buyers inherit it. In an asset deal, buyers can often structure around certain litigation risks, but the representations and warranties in the purchase agreement still need to address known IP risks directly.

Representations and warranties insurance (RWI) has become an increasingly standard tool for managing risk exposure. It covers losses arising from breaches of IP-related representations in the purchase agreement, and is particularly useful when time is compressed during the due diligence phase.

Post-Closing IP Integration: Protect What You Paid For

Closing the deal is not the finish line. Once a deal closes, the work of integrating IP begins. Overlooking this step can erode the value buyers paid for. 

The Important Paperwork

The immediate priorities after closing include formally recording IP assignments with the USPTO and relevant foreign offices, updating license agreements to reflect the new entity, transitioning trade secret protection protocols, and aligning IP policies across the combined organization. 

The Impact of People

Employees who created key IP may leave after an acquisition, taking technical knowledge with them that no assignment agreement can fully capture. Retention arrangements for key technical staff and structured knowledge transfer protocols should be part of the integration plan before closing, not improvised after the fact.

The Integration Plan 

The integration plan should assign clear ownership of each integration task, establish milestones for completing formal IP transfers, and identify any gaps between what was represented in the purchase agreement and what exists on the ground.

The value you assigned to the IP has to actually show up in your business after closing in order to make the transaction successful. That only happens if integration is treated as a strategic priority from the start.

IP Strategy Is Deal Strategy 

When an M&A transaction fails to deliver the expected value, it’s often because the IP wasn’t understood well enough before the papers were signed. 

Due diligence, deal structure, and post-close integration are the three levers a buyer can control. How well you use them determines whether the IP you paid for becomes a business asset or a liability.

Here’s what I’ve come to believe after years of working on these transactions: the companies that get the most value out of M&A are the ones that treat IP as a strategic input from the first conversation, not a legal formality at the end of the process. By the time you’re negotiating reps and warranties, the most important IP decisions have already been made.

Whether you’re on the buy side or the sell side, bringing in experienced IP counsel early is one of the most straightforward ways to protect the value of a transaction. The cost of getting it right before closing is almost always less than the cost of untangling it after.

Michael Dilworth

Any examples are solely for educational and illustrative purposes. They do not constitute legal advice and should not be construed as recommendations for specific actions. For personalized legal guidance, please consult a qualified attorney.

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.