Avoiding IP pitfalls that can sink M&A deals

October 2026 | SPOTLIGHT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2026 Issue

In most M&A transactions, intellectual property (IP) and intangible assets are core value drivers. Brands, technology, data, software, know-how and licences often constitute a significant portion of a target’s enterprise value. Global investment in intangible assets reportedly exceeded $10 trillion in 2025, growing 3.6 times faster than tangible investment since 2008.

One would imagine that, given the substantial value of IP assets in many M&A transactions, buyers would pay special attention to IP due diligence. However, IP-related risks are one of the most underestimated hazards in the M&A process. Failure to properly identify and mitigate these risks can result in adverse outcomes ranging from an inability to realise the full value of the acquired IP, to infringement of third-party rights and payment of damages.

This article highlights three of the most critical types of IP-related risks in the M&A context: valuation risk, infringement risk and the risk of being unable to commercially exploit IP.

Valuation risk

The core purpose of IP due diligence is to understand the IP-related assets and liabilities within the target business. Properly conducted, due diligence enables the acquirer to assign a fair value to the target’s IP by confirming what IP rights exist, who owns them, and the strengths and weaknesses of those rights.

The universe of relevant IP rights is broad. It encompasses registered rights such as trademarks, patents and registered designs, as well as unregistered rights including copyright, in most jurisdictions, confidential information and goodwill. A single item or product may comprise multiple types of IP. For instance, a smartphone may run on patented technology. Its name may be registered as a trademark, and its visual appearance registered as a design. Its operating system – the software it runs on – is typically protected by copyright, which extends not only to the underlying source code, but also the accompanying graphics, text and sounds.

A common due diligence pitfall is focusing on one category of IP to the exclusion of others. A manufacturing company may have an extensive patent portfolio, but some of its most valuable technology may be protected as trade secrets. A business in the fast-moving consumer goods space may own a range of beloved household brands; while these may be protected as registered trademarks, the designs behind these iconic logos may also be protected by copyright law.

Another recurring pitfall is prioritising registered rights over unregistered rights. While registered IP rights may be easier to identify through registration numbers and public records, unregistered IP rights are often equally important. For instance, a target may be most well-known for its proprietary technology, which is registered as a patent across multiple countries. However, this technology would be difficult to operate without operating manuals developed by the target’s business teams, as well as the years of know-how which they have accumulated. If the acquirer only obtains the patent rights without the operating manuals and know-how, they would not be obtaining the full value of the technology.

Overvaluation

Errors in IP due diligence can lead to overvaluation or undervaluation of a target. Of the two, overvaluation is probably the more obvious risk. For example, the target has a key brand that appears to be worth millions. However, its trademark protection for that brand could be limited and vulnerable due to non-use, descriptiveness or lack of registration in key markets.

A target may have licensed its patent to third parties and generated significant licensing fees over the years. However, if the patent is near expiry, and the target’s competitors have developed a new technology that works in a different way from the patent, the value of the patent may be swiftly diminishing.

In another common example, the target represents that it owns the copyright in certain software that was created in the course of its business. However, some of the software was created by independent contractors without effective written assignment provisions. The source code of the software also incorporates open-source modules; the open-source licence terms may require the target to make source code available (or otherwise licence derivative works) on an open-source basis.

The above circumstances may all diminish the value of a prized IP asset. IP assumed to be exclusive, enforceable or freely exploitable may in fact be subject to material legal or commercial constraints, undermining the assumptions on which the purchase price was negotiated. In a worst-case scenario, the acquirer discovers after completion that it does not own or cannot enforce what it believed it had acquired, leaving it without effective ownership or control over IP assets that were fundamental to the transaction.

Undervaluation

Undervaluation is less obvious but can be equally problematic. This may arise where well-protected IP is poorly documented, leading the buyer to underestimate monetisation opportunities. Commercial potential in brands, technology or data may not be priced into the deal if they are not highlighted during due diligence.

For example, when asked to provide a list of IP assets, an unsophisticated seller may focus on registered IP rights to the exclusion of unregistered IP rights such as copyright and trade secrets. This could result in the seller being unable to realise the full value of its IP portfolio. A poorly informed buyer may be equally unaware of the extent of the assets it has acquired, and therefore unable to exploit these assets to their full potential. Alternatively, a bidder who takes the seller’s information at face value may submit a lower bid and lose out to a savvy bidder who probes further to understand what it is acquiring.

Undervaluation therefore undermines the commercial outcomes of the transaction, leaving unrealised value that could otherwise have been captured by one or both parties.

Infringement risk

Beyond valuation, it is important to consider whether the target’s business infringes third party IP rights. If the target is locked in infringement proceedings or an IP dispute with a third party, that is an obvious red flag. However, infringement scenarios could also include lookalike branding adopted without appropriate clearance searches, software that is copied or used in breach of licence terms, technology builds that ignore key third-party patents, and third-party IP used without the appropriate licences in place.

The consequences of acquiring a business with infringement risks are serious. A third party could seek an injunction preventing use of a core product or service, which would be commercially devastating. Losing a claim in court may result in a significant award of damages. A forced rebrand or product redesign consumes time and resources and may adversely affect the target’s market position. In addition, if infringement disputes are publicised, the acquirer’s reputation and goodwill may be irretrievably tarnished.

Open-source licences

A less obvious but potentially significant source of risk arises from the use of copyright works under open-source licences. Open-source licences generally fall into two categories: permissive and ‘copyleft’. A permissive licence allows a user to incorporate the open-source material into its own proprietary work with limited restrictions, such as giving credit to the original source. In contrast, if a user incorporates certain types of ‘copyleft’ open-source material into its work (for instance, under the GNU General Public License), it may be required to make source code available and licence derivative works on the same terms.

Hence, where a target has incorporated ‘copyleft’ source code into its software, it may be obliged to make the source code of its software open-source and publicly available. This may restrict the target’s ability to commercially exploit its software. Failure to abide by the terms of the open-source licence also constitutes a breach of the licence, which creates exposure to infringement claims and enforcement action. When conducting due diligence on companies with proprietary software, it is therefore important to verify whether the codebase contains open-source material – and if so, the applicable licence terms and compliance position.

Inability to commercially exploit IP

A third category of risk is being unable to protect and commercially exploit the IP being acquired. This risk manifests across various dimensions, including structural issues, geographic and product gaps, documentation failures, and chain-of-title oversights.

A failure to conduct proper due diligence on a target’s corporate structure can lead to serious problems. Core IP rights may sit with another group company rather than the target; if the transaction is limited to acquiring the shares in the target, ownership of these IP rights will not transfer. If IP rights are jointly owned with business partners, exploitation may require consent or be subject to restrictions. Know-how or copyright ownership in certain works may sit with the founders or key staff who exit after completion. Geographic and product gaps compound these structural problems: the target may have little or no IP protection in territories that the buyer wishes to expand into or may have neglected to seek IP protection over new product lines the buyer intends to launch.

Another area of vulnerability is chain of title. The target may claim that it obtained ownership of IP through prior assignments. However, these assignments may not have been properly documented. A thorough review of key assignment chains, especially intragroup transfers, is therefore essential. It is also important to ensure that IP rights created by contractors have been properly assigned to the target. Buyers often assume that IP rights created by the target’s staff automatically belong to the target, however these rules often apply to employees but not to independent contractors.

Where the target is party to IP-related agreements, it is prudent to pay close attention to the wording in these agreements. Some buyers may assume that the target’s licences and other IP contracts will remain valid post-transaction. However, many of these agreements require the consent of the counterparty if there is a change of control, failing which the agreement will terminate. Where necessary, counterparty consent should therefore be sought as a condition precedent to completion.

Another pitfall involves defective assignment wording. If an assignment clause says an assignor “will assign” or “agrees to assign” IP rights to the target, that may only create a future obligation to assign, rather than effecting an actual transfer. Lastly, post-completion recordals with IP registries should be carried out promptly, as any delay in recording assignments can create enforcement difficulties.

Conclusion

In a world where the value of IP is constantly increasing, IP counsel and valuation experts should be involved from the early stages of an M&A transaction, not as an afterthought, especially on deals where the core value of the target lies in its intangible assets.

Misunderstandings about IP can sink a deal. This article covers some of the most common mistakes, such as unfamiliarity with the different categories of IP, over-focusing on registered IP, not understanding the territorial nature of IP, failing to verify ownership of the target’s IP and misinterpreting IP-related agreements. This underscores the importance of seeking advice from IP counsel and not making assumptions which may not hold true.

Where material IP issues are identified, the objective should not be to stop the deal, but to allocate risk intelligently. Depending on the issue, that may mean adjusting price, carving out assets, requiring pre-completion steps to be taken (such as assignments, recordals or consent requests), and tightening the suite of warranties, indemnities and conditions precedent so that the buyer does not pay for IP rights it cannot use in practice.

Jeremiah Chew is a partner at RPC Premier Law. He can be contacted on +65 6422 3036 or by email: jeremiah.chew@rpc.com.sg.

Jeremiah Chew

RPC Premier Law