What investors check in IP diligence
The questions that come up in a raise or acquisition, and how to have the answers ready.
At some point, someone will look hard at your intellectual property: a lead investor, an acquirer, a strategic partner. Diligence is rarely about the number of patents. It is about whether the company actually owns what it says it owns, whether that protection covers the business, and whether anything is lurking that would complicate a deal. Here is what usually gets reviewed. The depth varies by transaction.
1. Ownership
The first question is whether the company owns its inventions. Diligence teams look for signed invention assignment agreements from every founder, employee, and contractor who contributed to the technology, and for a complete chain of title from the inventors to the company for each patent and application. Recorded assignments at the USPTO help document that chain, but the record and the underlying ownership are different things: what matters is that the signed assignments actually transfer the rights.
Common problems: a founder who built the core technology before the company existed and never assigned it; contractors whose agreements never mentioned inventions; agreements that say an employee "agrees to assign" rather than "hereby assigns"; applications for which the company cannot document a complete chain of title from the inventors. Addressing these early often makes resolution easier, but some ownership defects require negotiation with people who are hard to reach or unwilling, and some cannot be fully repaired. Fixing them in the middle of a deal is slower and more awkward than fixing them beforehand.
2. Coverage of the actual business
A portfolio can be large and still miss the point. Reviewers ask whether the claims cover the product the company sells today and the direction it is heading, or whether they protect an early prototype the company has moved away from. A short map connecting each family to the product features it covers answers this question quickly.
3. Status and hygiene
Are applications pending, granted, abandoned, or lapsed? Are maintenance fees paid and deadlines docketed? Is there a continuation pending in the families that matter? Reviewers are looking for evidence that the portfolio is managed, not just accumulated.
4. Encumbrances
Anything that limits what the company can do with its IP: licenses granted to customers or partners, university licenses, joint development agreements, and government funding. Inventions made with federal grants, including SBIR awards, carry reporting obligations and government rights that diligence teams check for. Open source use is reviewed too, both for license obligations in shipped code and for what the company has released publicly.
5. Third-party risk
Has anyone asserted patents against the company, sent a demand letter, or offered a license? Has the company done any freedom-to-operate review for its core product? Owning patents and being free to operate are different questions, and sophisticated reviewers ask both.
Many avoidable diligence problems are not about patent quality. They are about paperwork: a missing assignment, an unrecorded transfer, an agreement that was never signed. These are usually far easier to address in a quiet quarter than under a term sheet.
How to be ready
- Audit assignments now. Confirm every contributor has a present assignment of inventions, and get confirmatory assignments where anything is missing.
- Record assignments at the USPTO for every application and patent.
- Build a one-page portfolio summary: each family, its status, what product features it covers, and key upcoming deadlines.
- List your encumbrances: licenses, grants, joint development agreements, and university relationships.
- Keep a data room folder with agreements, assignments, filing receipts, and the summary, updated as things change.
Where this connects
Companies that manage their portfolio continuously tend to have these answers ready, because the same records that support good filing decisions also support diligence. A factual IP summary from patent counsel, prepared for external sharing, is often a useful addition to the data room. Have counsel review any proposed disclosure of legal opinions or advice, such as validity, infringement, or freedom-to-operate analysis, before sharing it with investors or buyers.
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