When I sit across the table from a general counsel or CFO in the middle of a deal, one question almost always comes up: “What could we be missing?”

It’s a fair question. In high-stakes transactions, surprises are expensive and intellectual property is often where they hide. 

I’ve seen deals unravel overnight because a single overlooked licensing restriction or unassigned patent wiped out millions in projected value. I’ve also watched savvy clients turn due diligence into an advantage, using it not just to flag risks, but to uncover hidden assets and reshape negotiations in their favor.

That’s what IP due diligence is really about: more than a checklist, it’s a tool for protecting value, uncovering opportunities, and setting the stage for long-term growth.

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What Is IP Due Diligence?

IP due diligence is a comprehensive assessment of all intellectual property owned, licensed, or used by an organization. It’s most often done during transactions when IP rights are being transferred or could impact the deal.

This analysis answers three key questions:

  1. What’s the value of the IP assets?
  2. What’s the scope of the IP?
  3. What risks come with them?

Effective IP due diligence also reveals how IP supports the overall business strategy, highlights ways it can create value, and flags potential roadblocks before they become deal-breakers.

When Should IP Due Diligence Be Conducted? 

There are several scenarios that should trigger an immediate IP due diligence analysis. The earlier you begin in a transaction, the easier it is to spot and resolve issues before they impact the deal.

IP Due Diligence for Mergers and Acquisitions

M&A transactions often call for the most rigorous review. Patent infringement claims, ownership disputes, or invalid registrations can erase the value of a deal overnight.

Common IP risks during M&A include:

  • Assignment restrictions such as licensing terms that prohibit transfers without the licensor’s consent.
  • Ownership gaps such as missing signatures, unresolved joint ownership, or improperly assigned contractor-developed IP.
  • Pending disputes, active litigation, or threatened claims that could attach to the transferred assets after closing.

Consider this scenario: a buyer discovers too late that the target’s flagship product relies on licensed technology that can’t be reassigned without approval. Suddenly, tens of millions in deal value vanish.

On the other hand, due diligence can uncover M&A opportunities as well. This can help shape smarter, more profitable deals.

Benefits of early IP due diligence in M&A:

  • Synergy mapping can identify overlapping patents and complementary technologies to streamline integration.
  • Portfolio alignment can be used to consolidate redundant filings and focus resources on high-value assets.
  • Deal structuring insights can assist with adjusting purchase price or negotiating escrow and indemnities based on risk findings.

IP Due Diligence for Licensing Deals

Licensing agreements require absolute clarity about what rights are being granted. Due diligence confirms that the licensor truly owns the IP and has the authority to license it. It also checks for existing agreements that could limit exclusivity.

Some of the most common issues uncovered are:

  • Licenses already given to competitors in overlapping territories.
  • “Field of use” restrictions that make the rights far less valuable than expected.
  • Trademarks that were never registered, leaving brands with little or no legal protection.

This review also shapes royalty discussions. If the IP is tied up in validity challenges or has narrow enforceability, that is a strong basis for negotiating lower rates. Without this step, you risk paying top dollar for rights that may not hold up.

IP Due Diligence for Investment Deals and Joint Ventures

Investors need to know that a portfolio company can protect its market position. Due diligence shows whether patents cover the core innovations, whether the IP strategy supports growth, and whether any restrictions could affect future fundraising.

In joint ventures, it is critical to define who owns what. Documenting each party’s contributions and agreeing on ownership of jointly developed IP before work begins prevents fights later. Without that clarity, disputes over new technology can delay product launches and strain partnerships.

IP Due Diligence When Preparing for Litigation 

IP due diligence gives you a clear picture of your position in the case of legal disputes. It can uncover prior art to challenge a rival’s patent, confirm the strength of your own rights, and identify leverage points for settlement.

Having a full view of your IP before filing or responding to a lawsuit saves money and strengthens your negotiating hand. It also lets you weigh the risks of litigation against the potential upside of enforcement, so decisions are made with business goals in mind.

What Components Create Effective IP Due Diligence?

Effective IP due diligence builds a clear picture of what IP a company has, how strong it is, and what risks or opportunities come with it. A well-run process helps deal teams make confident decisions and avoid surprises that can reduce value.

Here are the core components that should be addressed:

Identify and Catalogue IP Assets

Start with a complete inventory. This includes patents, pending applications, trademarks, copyrights, trade secrets, domain names, and proprietary software. It’s common to find assets that internal reporting missed. You may even uncover valuable rights that can strengthen your competitive edge or open up new licensing opportunities.

Verify Ownership

Strong IP only matters if it can be transferred. Ownership review confirms registrations, checks assignment chains, and resolves gaps with employees, contractors, or past collaborators. Review agreements like NDAs or joint research contracts to make sure no hidden rights exist that could limit use.

Assess Validity and Enforceability

Validity is a cornerstone of IP value. You’ll want to assess claim scope, search for prior art, and review the patent’s history to see if amendments or statements made during prosecution created weaknesses.

A solid validity and enforceability check should include:

  • Careful claim construction to know exactly what the patent covers.
  • File wrapper review to see if past statements could narrow enforceability.
  • Litigation or opposition history to measure resilience under challenge.

Enforceability can also extend to IP assets beyond patents. For trade secrets, you need to confirm that confidentiality and cybersecurity measures are in place. For trademarks, consistent use and strong consumer recognition are key. And when patents span multiple countries, each jurisdiction must be reviewed on its own, since a patent granted in one country carries no weight in another.

Identify IP Encumbrances

Encumbrances can block clean transfers or limit future use. IP is often pledged as collateral, so reviewing for liens, security interests, or other restrictions is essential. A buyer could be left without full control of key assets if this step is overlooked.

Assess Likelihood of IP-related Litigation

Some industries, like software, biotech, and telecom, face constant legal battles. Due diligence should cover pending lawsuits, demand letters, or threats from competitors. This allows the deal team to plan for potential costs and negotiate indemnities with the full picture in mind.

Reveal the Value and Monetization Potential

Understanding how specific IP generates revenue is as important as identifying what IP exists. That means reviewing existing licenses, spotting untapped licensing opportunities, and understanding how the IP supports current products. You may also discover IP that can open doors into new markets.

Perform a Freedom To Operate (FTO) Analysis

A FTO helps confirm that you can make, use, or sell a product without stepping on third-party rights. This requires mapping IP competition and flagging blocking patents. In crowded technology fields, skipping this step can lead to immediate infringement suits right after launch. (For more detail, see our Freedom to Operate guide.)

How to Avoid Common Mistakes 

Assemble a Qualified IP Legal Team

Patent attorneys, trademark specialists, and technical experts bring the depth needed to uncover details that might otherwise slip through the cracks. Expert legal input can help identify risks before they turn into costly liabilities.

Don’t Treat IP as a Last-Minute Step

IP review should start as early as possible in a transaction. Waiting until the end limits options if problems appear. Early diligence gives you time to clear ownership issues, adjust deal terms, or even rethink strategy before commitments are locked in.

Evaluate Geographical Limitations

IP rights only apply in the jurisdictions where they’re filed. Make sure protection covers your current and future markets, and understand how enforcement standards or costs may differ from one country to another.

Align Diligence with Business Objectives

Not all IP carries equal weight. Focus on assets that support the company’s core goals. Maintaining patents or trademarks tied to old product lines can drain resources without adding real value.

Document and Organize Findings

Keep a clear, structured record of what diligence uncovers. Well-organized reports make it easier for decision-makers to act quickly and provide a foundation for integration, enforcement, and long-term portfolio management.

The Bigger Opportunity in IP Due Diligence

Ultimately, I see IP due diligence as a moment of truth in a business deal. It represents the point where you find out whether the assets on paper really support the value on the table. I’ve been in the room when a poorly drafted license nearly sank a deal. I’ve also seen clients leverage their due diligence insights to negotiate better terms and walk away stronger.

My job isn’t just to surface risks. It’s to help you turn information into strategy. If you’re entering a transaction, raising capital, or preparing for litigation, solid IP due diligence can change the outcome. I’d be glad to bring that level of clarity and confidence to your team.

 

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.

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