Why intellectual property due diligence matters

November 2025  |  SPECIAL REPORT: HEALTHCARE & LIFE SCIENCES

Financier Worldwide Magazine

November 2025 Issue

In today’s economy, intangible assets, particularly intellectual property (IP), can form a significant portion of the value of an innovative business. IP can be described as ‘creations of the mind’ and includes business critical assets such as new inventions, brand and company names, logos, written materials and product design. Legal protection for these creations comes in many forms, including patents, know-how, trademarks, copyright and design rights.

For finance professionals interested in funding or acquiring innovative businesses, understanding the IP strategy and verifying the IP portfolio is essential during the deep dive into a target’s affairs. Properly considering IP during the process not only mitigates risks but can also uncover opportunities that enhance deal value.

In this article we seek to explore the core components of IP due diligence and examine how best to approach the process.

Background

In any transaction involving an innovative business, IP can be both a major asset and a minefield. Without experience and understanding, lists of IP assets have no meaning and can hide litigation risks.

The objective of IP due diligence is to assess the strength, scope and enforceability of IP rights, identify risks and determine how well those rights align with the commercial strategy. IP due diligence should seek to ascertain the strategy put in place to identify, protect and enforce IP rights.

For example, a technology may be protected by a single patent family that is about to expire, and the technology is then easily replicated once the protection ends. Brand assets might lack proper trademark registrations or be vulnerable to cancellation for non-use.

Additionally, the ownership position may be unclear, particularly where contractors, employees or joint ventures are involved. A much-referenced case where ownership of IP rights was not explored occurred when Volkswagen purchased the assets of Rolls-Royce Motors, with the aim of producing the iconic cars. Unfortunately, after the deal closed, Volkswagen realised that it had not bought the right to use the Rolls-Royce trademark. At the time, BMW owned this right and was not involved in the deal.

Less dramatic issues can arise if the IP rights are held in the name of different parties within the same group. Changes to ownership need to be recorded on various official registers meaning that if the IP assets are split within a group, the cost to record the change may quickly increase. An example is where a global trademark portfolio was moved from one company to another in a group ‘for tax purposes’ only to reduce the value of the transaction in a future deal by far more than the saved tax in view of the requirement to record an additional step in the chain of title.

Even having an old address on an official register will increase costs. If part of the portfolio is licensed from third parties, licensing agreements might contain onerous or non-transferable terms, therefore requiring careful review.

IP due diligence can be described as ensuring certainty of what is being funded or acquired, because unlike physical assets, IP is intangible, and details are often overlooked.

Key objectives of IP due diligence

The IP due diligence process has several objectives. These include confirming that the target company owns or controls the IP across the various territories and that these rights are in force and all fee payments are up to date.

Due diligence can also determine whether IP protection aligns with the company’s offerings, markets and growth strategy. For example, has there been a change in business strategy such that the IP protection no longer aligns? Are there any major gaps? Is there an IP strategy that has been implemented?

Additionally, the due diligence process will identify any existing or possible litigation risks that may hinder future use or monetisation of the IP. For example, does the company rely on any in-licensed IP to provide its offerings?

Types of IP in due diligence

Different types of IP may require different approaches. For patents and designs, which mainly protect products and processes, due diligence typically focuses on criteria such as who invented or created the idea and how the rights to this IP passed to the business, grant status in key territories, expiration dates and fee payment status, freedom-to-operate considerations, prior or ongoing legal battles, and alignment with the company’s current and future products or services.

Trade secrets and know-how are, by their very nature, more sensitive and can be some of the most valuable IP, requiring careful handling. Due diligence would normally investigate evidence of trade secret policies and protection mechanisms; confidentiality agreements (such as non-disclosure agreements) with employees and partners, and demonstration of control over sensitive information. Trade secrets are very often overlooked in due diligence and can often provide the pivotal IP that underpins an innovative business’s success.

For trademarks, which protect brand names, logos and slogans, investigations would typically assess the registration scope and status in all key markets around the world, use and unregistered rights, third-party opposition, litigation or cancellation risks, and the presence of any agreements or licences.

For copyright, which protects creative works, including software code and marketing content, due diligence would focus on creation and ownership, employee and contractor agreements, and permission to use any third-party content. Rights in any work created by consultants do not transfer to a company unless specifically assigned in writing.

This was particularly relevant for the copyright in ‘The Dude’ logo, used for many years on Innocent Smoothies – being a cartoon representation of a face with a halo. However, the agreement assigning the copyright from the designer was not formally signed and the matter ended up in court where ownership was eventually decided in favour of the Innocent brand holders.

Stages of IP due diligence

The scope and breadth of any due diligence exercise will depend on the type of business and IP involved, along with the budget, the value of the deal and any future intentions with the IP. Drafting some initial key questions that need answering in respect of the IP will also help focus activities during the due diligence process, and guide further enquiries.

Furthermore, identifying potential red flags or high-level issues at the outset which could be deal breakers is vital. For example, are the company’s core products and services protected by IP? Are there any known disputes or litigation? Are IP ownership records as expected and consistent with public registers?

After the deal breaker stage is completed, a more comprehensive audit can be undertaken. This stage involves a deeper dive, including reviewing all registrations and applications – for example, by inspecting registers and available records and contracts, checking any chain-of-title documentation which transfers the rights from creator to company and beyond, requesting details of and analysing any litigation history and competitor IP landscapes, and scrutinising key agreements.

How can IP lawyers support the process?

Patent and trademark attorneys and IP solicitors can play a vital role. Their combination of technical and legal expertise can help identify and mitigate risks. For example, IP lawyers are experienced at tracing ownership of each asset. An IP attorney can check that creator’s rights to their innovations have been properly transferred. This provides confidence for an interested party that they will not be exposed to costly claims of lack of entitlement.

Consideration should be given to whether the IP supports the company’s current and future offerings. For instance, a company may hold rights unrelated to its main revenue-generating products, which could indicate a misalignment between research and development and IP strategy. Conversely, this could provide an opportunity to sell or license non-core IP to generate income. Having the scope of protection reviewed by an IP lawyer is highly beneficial.

Patent attorneys can evaluate whether patent claims cover the company’s core technology or are overly narrow which may limit plans. They can also draw on technical knowledge in the field and provide opinions on the validity of IP rights. The aim of this review is to provide more confidence that the rights could be successfully enforced against an infringer.

A key concern is whether using or commercialising the target company’s technology might infringe prior third-party rights. Searching for third-party rights and conducting the relevant assessments to determine the likelihood of risk, particularly in highly competitive sectors, is recommended. This applies equally to most registered rights, including patents, designs and trademarks.

Innovative businesses often collaborate and may have several agreements with third parties, including embedded IP clauses. These should be reviewed by an IP lawyer to look for risks such as non-assignable licences, revenue-sharing arrangements or royalty obligations, and limitations on sub-licensing.

Conclusion: identifying and reducing risk

In any transaction involving innovation, technology or brand value, the success of the deal often hinges on the IP portfolio and surrounding IP strategy. If a company has this right, then it makes it an attractive proposition.

We recommend starting early. IP due diligence can be complex and time consuming. Importantly, ask the simple questions and ensure it is completely clear what IP is being funded or acquired. Treat IP due diligence as a critical component of the overall deal process, which needs to run in parallel with other investigations.

Working closely with IP lawyers helps to provide clarity, reduces risk and can even uncover hidden value. With a proactive approach to IP due diligence, knowledge can lead to smarter deals with better understood risk profiles.

 

Sam Piper is a patent attorney, Abigail Woolhouse is a chartered trade mark attorney and Sarah Grant is a principal trade mark attorney at Stratagem IPM Limited. Mr Piper can be contacted by email: sam.piper@stratagemipm.co.uk. Ms Woolhouse can be contacted by email: abigail.woolhouse@stratagemipm.co.uk. Ms Grant can be contacted by email: sarah.grant@stratagemipm.co.uk.

© Financier Worldwide

BY

Sam Piper, Abigail Woolhouse and Sarah Grant

Stratagem IPM Limited

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