IP Due Diligence: Getting Investment-Ready

Before a financing or acquisition closes, your IP will be examined closely. Here's how to make sure it strengthens the deal rather than slowing it down.

When a company raises a round of financing or prepares for an acquisition, intellectual property moves to centre stage. Investors and acquirers want to be confident that the company truly owns what it claims to own, that its rights are defensible, and that it can operate and grow without tripping over someone else's rights. Weak, unclear, or undocumented intellectual property can quietly reduce a valuation — and, in the worst cases, it can stall or sink a deal that everyone at the table wanted to complete. The good news is that almost every issue diligence uncovers is one that could have been resolved cheaply and calmly in advance.

Ownership Comes First

The single most common problem diligence exposes is broken ownership. Founders who wrote early code or worked out an invention before the company existed, contractors and agencies who were never required to assign their work, contributions entangled with a university or a prior employer, co-founders who left without formalizing what they created — any of these can leave gaps in the chain of title to the company's core assets. Resolving those gaps after a term sheet has been signed is stressful, expensive, and hands leverage to the other side. Resolving them beforehand is routine paperwork. The difference is entirely a matter of timing.

Protection and Freedom to Operate

Diligence looks not only at ownership but at what protection actually exists. Reviewers will want to see the company's patents, registered trademarks, industrial designs, and copyright position, and to understand how well those rights cover what the business actually sells. They will also probe freedom to operate — whether the company can conduct its business without infringing the rights of others. A clear, well-organized picture on both fronts reassures an investor that the business can scale without a hidden liability surfacing at an inconvenient moment, and that the money going in will build value rather than fund a fight.

Patents Get a Closer Look

Patents are usually the most heavily scrutinized part of an IP diligence review, because a defective patent is a different order of problem than a defective trademark. Reviewers will look past the mere existence of an application or grant to the prosecution history, the scope of the claims relative to what the company actually makes and sells, the remaining term, and whether maintenance or annuity fees have been paid on schedule. They will also check inventorship: every actual inventor needs to be correctly named and to have signed an assignment, including former employees, academic collaborators, and contractors who touched the underlying invention. Incorrect inventorship, an unassigned co-inventor, or claims that no longer match the product are exactly the kind of defects that tend to surface for the first time during diligence, and they are far more painful to fix under deal pressure than they would have been at the time of filing.

Patents also raise a freedom-to-operate question that is more pointed than the general one: not just whether the company's own rights are sound, but whether a competitor's patent could block it from making, using, or selling its own product. A freedom-to-operate search and opinion, obtained before diligence rather than in response to it, turns that question from an open risk into a documented answer. And because patent rights are territorial and governed by strict, largely non-extendable deadlines — a twelve-month priority window to file abroad, national phase deadlines under the Patent Cooperation Treaty — a coherent international filing strategy matters as much as the initial filing itself. A gap in that timeline usually cannot be fixed after the fact, which is part of why patent counsel should be involved from the first invention disclosure, not once a deal is on the table.

Confidentiality and Know-How

Not every valuable asset is registered. Much of a company's edge often lives in its confidential information — processes, methods, data, customer insight, and accumulated know-how. Diligence will test whether that information is genuinely protected: whether employees and contractors are bound by appropriate confidentiality obligations, whether access is controlled, and whether trade-secret protection has been maintained in practice rather than merely assumed. A company that treats its confidential information carefully signals discipline, and discipline is exactly what a prospective investor is looking to see.

By SRM Intellectual Property Law — SRM Insights