The potential Buyer of a business’s or an individual’s intellectual property (IP) assets should conduct due diligence to ensure that the Seller does indeed own these IP assets outright and therefore has the legal right to transfer ownership of the IP assets to the Buyer. Otherwise, the Buyer could end up in a situation where its ownership rights are questionable, thereby making it extremely difficult to go after infringers and/or transfer the IP assets in the future to another Buyer.
The following discussion provides a snapshot of the steps a Buyer should take to ensure it is acquiring the IP assets it thinks it is. Additional considerations may arise when IP assets are to be acquired, e.g., when the transaction involves mergers and acquisitions or under successions law.
As discussed below, ownership issues can become more complicated where the Seller is a business and not an individual.
Have any questions about setting up an IP portfolio system, getting an independent review of the status of your company’s IP, or reviewing IP info related to the sale/purchase of IP assets? We are pleased to provide these services. Think of IP Due Diligence as a home inspection. For a potential Seller – to find red flags before it’s too late to salvage a potential deal. For a potential Buyer – to find red flags to avoid entering into a questionable purchase.
1. Copyrights
If the copyrightable works were created by the Seller’s employees, ensure that appropriate agreements exist stating that the employee(s) agreed that any and all copyrightable works created by him/her belong to the Seller and its successors and assigns.
Determine if the Seller actually registered the work(s) with the U.S. Copyright Office. If yes, require that the Seller sign an assignment document specifying the registration number(s) that it is assigning/conveying to the Buyer. The Buyer should record the Seller’s assignment document with the U.S. Copyright Office after closing has occurred.
If the Seller never actually registered the work(s) with the U.S. Copyright Office, the Buyer should consider registering the purchased copyrightable works as the claimant of the copyright(s). Formal copyright registration has become exceedingly important now that no lawsuit for copyright infringement can be brought in federal court in the absence of a registration certificate establishing that the work has been registered.
If the works were created by the Seller’s independent contractors instead of employees, the Buyer should verify that the independent contractors signed formal documents with the Seller conveying any and all rights they may have in the work (e.g., software or technical drawings) as the original creators to the Seller and its successors/assigns. If no such documents exist, the Buyer should consider requiring that the Seller get in contact with the independent contractor and request that the independent contractor sign an assignment of rights document. If the independent contractor refuses to do so or can’t be located, the Seller may wish to opt out of any purchase agreement as it relates to that particular “copyright” IP.
If the Buyer is purchasing the copyrights from a party that itself previously purchased the copyrights, the Buyer should verify the chain of title of copyright ownership prior to purchasing; such information is ideally available through the U.S. Copyright Office as the result of the formal recording of consecutive copyright assignments. If no assignment agreement is provided giving this later Seller document ownership rights in the copyrighted works, the Buyer should not presume that the later Seller has the legal right to sell the copyrights.
Copyright protection generally lasts for decades. Once expired, the copyrightable work enters the public domain. For more information on copyright lifetimes, visit the U.S. Copyright Office website.
2. Trademarks
The Buyer should determine if the trademark(s) is registered by reviewing the records of the United States Patent & Trademark Office (USPTO). Importantly, if the mark is registered, the Buyer should understand when documents verifying that the mark is still in use are due. Failure to timely file this documentation will result in cancellation of a previously registered mark and loss of registered trademark rights.
Registered trademarks should be formally assigned to the Buyer in the closing documents and the assignment document recorded with the USPTO. The registered trademark Buyer generally assumes the responsibility of maintaining the mark’s registration pursuant to the purchase agreement. The Buyer should record the assignments with the USPTO to provide a chain of title and update the registered mark’s correspondence records to ensure that the Buyer or its designated representative (e.g., attorney) will be notified of any matters related to the registered trademark(s).
The Buyer should also check the status of the Seller’s pending mark applications, if any, to determine potential registration problems. Intent-to-use applications are generally not assignable until a Statement of Use is ready to be filed following the receipt of a Notice of Allowance from the USPTO.
Registered trademark protection can go on indefinitely providing the mark is in use by the designated owner and appropriate documentation is timely filed with the USPTO establishing the mark’s use.
The Buyer should also ensure that the Seller will transfer any domain names which incorporate the trademark(s) to be purchased under the terms of the purchase agreement.
3. Patents
A Buyer should determine: 1) the remaining lifetime of an issued utility, design, or plant patent; and 2) the fee schedule for maintaining the active status of a utility patent throughout its statutory lifetime. Design patents and plant patents do not have maintenance fees. The lifetime of both utility patents and plants patents is 20 years (if no patent term adjustment) from the filing date. Design patents have a lifetime of 14 years from the grant date. Once expired, the patent enters the public domain and can be practiced by anybody.
Additionally, where the Seller is not the Inventor, the Buyer should verify that: (1) the patent issued directly to the Seller as the applicant on behalf of the Inventor (generally where the inventor’s job involves research and development activities on behalf of his her employer); (2) the Seller has become the assignee of the Inventor’s rights for a patent issuing directly to the Inventor (e.g., where the Inventor assigned the rights to his later company established for commercializing the invention); or (3) the Seller is the recorded current assignee of the patent rights by the patentee (patent owner). When a patent is purchased, a formal assignment document should be filed with the USPTO to provide a chain of title with the Buyer assuming the responsibility of paying future maintenance fees as part of the purchase agreement.
Where the patent sales transaction involves a pending patent application, the Buyer should review all correspondence to date with the USPTO, prior art search results, etc. to get a good handle on whether patent claims have a good chance of being approved. The Buyer of a pending patent application has the statutory right to take over prosecution of the application.
4. Trade Secrets
Trade secret protection is not the result of a grant from a governmental agency. The trade secret claimant (here, the Seller) must have taken steps to protect the information, procedures, processes, knowhow, etc. it claims are trade secrets as trade secrets. Pertinent state trade secret statutes are worth reviewing to understand the nuances of trade secret law. See, e.g., Florida’s Uniform Trade Secret Statute. Importantly, the Buyer will be assuming the responsibility of maintaining the acquired trade secrets as trade secrets. Purchasing agreements should make make very clear that the Seller will have a continuing obligation to protect its former trade secrets from dissemination as well indefinitely.
5. What if the Seller Has Been Licensing the IP?
Where the Seller has been licensing IP assets but now wishes to sell its rights in the IP, the Buyer needs to evaluate existing licensing agreements to determine the Seller’s (as the Licensor) obligations to the Licensee(s) under those agreements and how those obligations will affect the Buyer’s own business objectives in acquiring the Seller’s licensed IP.
6. Final Comments
The sale of intellectual property is akin to the sale of real estate – last minutes “whoops” can prevent the sale from taking place. The commentator highly recommends that any business relying on IP and proprietary information for its success maintain a formal IP portfolio containing information on its intangible IP assets to determine if appropriate protections are in place and ensure active status is being maintained. Schedules should be maintained establishing when renewal documentation is due at the USPTO and designated employees/departments put in charge of this schedule. Such attention to detail can help ensure that any sale involving intellectual property will proceed more smoothly and also allow a potential Seller to identify gaps (e.g., a missing independent contractor agreement) which could reduce the value of the Seller’s IP.
All IP purchase agreements should also include a provision stating that the Seller warrants that it is the owner of the IP being sold and to the best of its knowledge, no third party has any claim in any of the IP being sold. An indemnification provision should also be included. It is also recommended that the Buyer require the Seller to provide copies of cease & desist letters it has received, if any. The Buyer should also verify that there are no anticipated or pending court or administrative proceedings before the Trademark Trial & Appeal Board or the Patent Trial & Appeal Board contesting the legitimacy of the Seller’s claimed rights in the IP being sold to the Buyer.
Troy & Schwartz, LLC
Where Legal Meets Entrepreneurship™
©2025
THANK YOU FOR READING THIS BLOG. WE HOPE YOU FOUND IT INFORMATIVE. THE CONTENT IS FOR INFORMATION ONLY AND DOES NOT CONSTITUTE AN ATTORNEY-CLIENT RELATIONSHIP.
Susan Dierenfeldt-Troy
