What Are Common Red Flags in IP Due Diligence?

When businesses prepare for a merger, acquisition, investment round, or even a significant internal restructuring, intellectual property is often assumed to be in order without anyone truly confirming that it is. Unfortunately, failing to carefully examine intellectual property can expose a business to risks that are not only serious, but also financially devastating. That’s where IP due diligence comes into play. IP due diligence is essentially a comprehensive review of a company’s intellectual property assets to ensure they are valid, enforceable, properly owned, and adequately protected. While this process may sound straightforward, there are several red flags that frequently come up. Read on and reach out to Lemler IP to speak with an experienced Orleans Parish, Louisiana lawyer to learn more about the most common red flags during IP due diligence.

Nine Common Red Flags in IP Due Diligence

Some of the most common red flags in intellectual property due diligence are as follows:

1. Unclear Ownership: One of the most frequent and most dangerous issues is uncertainty surrounding who actually owns the intellectual property. If founders, employees, or independent contractors helped develop a product or brand but never signed proper assignment agreements, ownership may be disputed.
2. Missing Assignment Agreements: Even when ownership was intended to be transferred, the paperwork may be incomplete, improperly drafted, or never formally executed. In many cases, businesses assume everything was handled correctly, only to later discover gaps in documentation.
3. Unregistered or Lapsed Protections: Patents and trademarks must be properly filed and maintained. If a registration was never secured, or if renewal deadlines were missed, the protection may be weaker than anticipated.
4. Pending Infringement Claims: If a company has received cease and desist letters or is involved in ongoing intellectual property litigation, that risk must be evaluated carefully before moving forward with a transaction.
5. Failure to Conduct Clearance Searches: Adopting a brand name, logo, or product without a thorough search can expose a business to infringement liability that may not become apparent until years later.
6. Weak Trade Secret Protections: Trade secrets must actually be kept secret. If there are no nondisclosure agreements, no confidentiality policies, or no meaningful internal safeguards, the information may not qualify for legal protection at all.
7. Gaps in the Chain of Title: When intellectual property has changed hands multiple times, incomplete transfer records can create uncertainty about whether the current owner truly holds enforceable rights.
8. Lack of Enforcement History: If a company has allowed others to infringe on its intellectual property without taking action, it may weaken its own position and reduce the perceived strength of its portfolio.
9. Open Source Software (OSS) Compliance: During modern IP due diligence, acquirers heavily scrutinize a company’s codebase. Many companies integrate open-source code without realizing that certain licenses (like the GPL) can legally force them to make their own proprietary, revenue-generating source code public. This is one of the biggest deal-killers in tech M&A today.

Though this list may seem long, identifying these issues as early on as possible can save you significant time, money, and stress down the road. Ultimately, intellectual property due diligence is about protecting your investment and ensuring that what you believe you are buying or selling is legally secure.

If you have additional questions or would like to speak with an attorney about conducting IP due diligence, please don’t hesitate to contact Lemler IP today.