Managing IP Considerations in M&A: A Practical Guide for General Counsel

Intellectual property (IP) often sits at the center of enterprise value in modern M&A. For companies in technology, life sciences, and consumer products, IP is not just an asset class but a core driver of competitive advantage. General counsel on both sides of a transaction play a critical role in ensuring IP issues are identified, evaluated, and addressed from letter of intent (LOI) through closing and into post-deal integration. Here is a step-by-step guide for in-house teams navigating IP considerations in M&A transactions.

Start with what matters

Both buyers and sellers should align early on which IP is truly material to the deal, whether that be patents, trademarks, and copyrights, or unregistered assets such as trade secrets, software, and know-how. Buyers will focus on whether the target’s IP meaningfully supports its revenue and growth projections. Sellers, in turn, should be ready to clearly articulate how their IP portfolio underpins the business and differentiates the business from competitors.

For sellers, conducting internal diligence before going to market pays dividends. A well-organized portfolio with clear ownership and documentation speeds up the process and reduces the chance of unwelcome surprises.

Ownership and chain of title

One of the most common sources of risk is uncertainty around IP ownership. Buyers expect a clean chain of title for all material assets, including executed assignments from employees, contractors, and any third parties who contributed to development. Gaps can delay closing or create indemnity exposure. Buyers should scrutinize assignment provisions carefully, particularly in jurisdictions with employee-friendly IP laws.

AI-generated IP

A newer but increasingly important diligence issue involves the target’s use of artificial intelligence (AI) in developing its core IP. Ownership of AI-generated outputs remains unsettled. Under current United States Patent and Trademark Office (USPTO) guidance, only natural persons can be named as inventors, which means patents covering inventions developed with significant AI involvement may face protectability challenges. Buyers are right to ask whether key assets were created with the assistance of AI tools and, if so, whether the human inventive contribution is sufficient and well documented. Sellers should be prepared to document how AI was used in their development processes and what safeguards are in place.

Licenses and third-party dependencies

Most companies rely on IP they have licensed from others, and many have granted others the right to use theirs. Buyers need to understand these relationships because some license agreements contain change-of-control provisions that can require consent, allow termination, or impose new conditions at closing. Sellers should inventory all material licenses early and surface any problem provisions before they become surprises.

Freedom to operate

Buyers will evaluate whether the target has freedom to operate in its core markets, including assessing infringement risk and reviewing any history of disputes or litigation. Even without active claims, operating in a space with dense patent coverage or relying on third-party technology that has not been fully vetted can create exposure that buyers will want to understand. Sellers should disclose known risks and, where possible, provide supporting analyses.

Software, open source, and trade secrets

Software diligence matters more than ever, especially in AI, SaaS, and data-driven deals. Buyers will look at how the target uses open-source software because certain open-source licenses carry obligations that can affect commercialization, including requirements to disclose source code.

Trade secrets and proprietary data can represent significant value, but only if they are properly protected. Buyers will want to see that the target has reasonable safeguards in place, such as access controls, non-disclosure agreements (NDAs), and non-competes.

Reps, warranties, and indemnities

This is where the deal documents allocate IP risk between buyer and seller. Sellers make statements in the purchase agreement about the state of their IP, such as confirming ownership, non-infringement, and the absence of undisclosed claims. If those statements prove false, the buyer has a contractual claim. 

Buyers want these protections to be as broad as possible. Sellers push back by narrowing their exposure through qualifiers that limit reps to what the seller actually knew, thresholds that filter out immaterial issues, and caps on total liability. Where diligence uncovers a specific known risk, the parties may negotiate a tailored indemnity to address it directly.

IP and deal economics

IP does not just affect legal risk. It affects the purchase price. A strong, well-protected portfolio can support a premium valuation, while gaps or uncertainties can lead to discounts, holdbacks, or adjusted earnout terms. On the buy side, general counsel can flag portfolio weaknesses that should drive the price down or warrant protective deal terms. On the sell side, the legal team can help present the portfolio in a way that supports the asking price and preempts buyer concerns.

Key takeaways

For general counsel navigating IP in M&A, the fundamentals hold: prepare early, organize your portfolio, be transparent about risks, and make sure the deal documents reflect what diligence actually uncovered. The landscape is evolving, particularly around AI and data assets, but the fundamentals still apply: the better your preparation, the fewer surprises at the closing table.