Key Takeaways
- Chain of title from human inventor to the target entity must be documented through executed assignment agreements for every material IP asset. A patent or copyright that was never properly assigned to the company is not the company's property, regardless of how it is characterized on the balance sheet.
- Contractor-created software is not a work made for hire under 17 USC 101 without both a qualifying written agreement and a written assignment clause. Missing contractor assignments are among the most common and most correctable IP diligence findings in technology acquisitions.
- Prior employer trailer clauses can reach inventions developed after a founder or engineer leaves employment if those inventions relate to the prior employer's business or used its resources. This risk is highest in same-sector acquisitions of early-stage companies built by former employees of large technology companies.
- Patent assignments must be recorded at the USPTO to protect priority. An unrecorded assignment is void against a subsequent purchaser who records first, under 35 USC 261. Post-closing recordation within 30 days of closing is standard practice, with nunc pro tunc assignments used to correct pre-closing gaps.
In a technology acquisition, the intellectual property portfolio is often the primary driver of transaction value. Whether the acquirer is buying a software platform, a patent portfolio, a data asset, or a combination of all three, the value of the purchase depends entirely on the target's actual ownership of the IP it represents as its own. IP diligence is the process through which an acquirer confirms that ownership, identifies defects in the chain of title, evaluates the strength and scope of the portfolio, and assesses the exposure the acquirer assumes if undisclosed third-party claims materialize after closing.
This sub-article is part of the Technology and Software M&A Legal Guide. It addresses the full scope of IP diligence in technology transactions: IP portfolio mapping and categorization, employee invention assignment agreements, contractor and consultant IP assignment gaps, founder contribution assignments, prior employer claims, patent portfolio diligence and prosecution history review, patent validity and infringement exposure, trademark diligence, copyright registrations and DMCA obligations, trade secret protection programs, license-in and license-out analysis, IP indemnification and liability cap structures, and post-closing USPTO recordation mechanics.
Acquisition Stars advises buyers, sellers, and investors on intellectual property diligence, technology M&A transaction structuring, and post-closing IP transfer. Nothing in this article constitutes legal advice for any specific transaction.
IP Portfolio Mapping and Categorization
IP diligence in a technology acquisition begins with a complete inventory of every intellectual property asset the target holds or claims to hold. The inventory covers four primary categories: patents and patent applications (including provisionals, non-provisionals, continuations, continuations-in-part, divisionals, and international filings); copyrights (including registered and unregistered software code, documentation, datasets, and creative works); trademarks and service marks (including federal registrations, state registrations, common law marks, intent-to-use applications, and foreign filings); and trade secrets (including proprietary algorithms, source code, formulas, processes, customer data, and technical know-how).
Portfolio mapping also encompasses domain names, social media handles, and any other registrations associated with the target's brand identity. Each asset in the inventory is then categorized by materiality: core assets whose impairment would directly affect the acquirer's ability to operate the acquired business, supporting assets whose impairment would affect specific product lines or markets, and peripheral assets whose loss would not materially affect operations. This materiality categorization drives the depth of diligence applied to each category. Core assets receive full chain-of-title analysis and validity assessment. Supporting assets receive targeted diligence focused on ownership and encumbrances. Peripheral assets receive a higher-level review.
The diligence request list should require the target to produce all IP-related agreements executed since formation, all assignment agreements with employees and contractors, all license agreements (inbound and outbound), all IP-related litigation and threatened claims, all government registrations and applications with prosecution status, and any IP audits or assessments previously conducted. The completeness of the target's response to the IP diligence request is itself diagnostic: a company that cannot produce organized records of its IP agreements and registrations has a higher probability of having unaddressed chain-of-title defects.
Employee Invention Assignment Agreements: Pre-Hire, Post-Hire, and PIIA Effectiveness
In the United States, an employer does not automatically own the inventions of its employees. The shop right doctrine gives employers a royalty-free non-exclusive license to use inventions made by employees using company time or resources, but a shop right is not an ownership right and it cannot be transferred in a transaction. To obtain ownership, the employer must have a written assignment from each employee who contributed to the invention. A proprietary information and invention assignment agreement (PIIA) is the standard instrument by which technology companies secure this ownership.
IP diligence examines whether every current and former employee who contributed to the target's material IP assets signed a PIIA at or before the time they began contributing to those assets. Pre-hire execution is the cleanest structure: the employee signs the PIIA as a condition of employment, creating an obligation to assign inventions made during employment before any specific IP is created. Post-hire PIIAs can be enforceable but require independent consideration beyond continued employment in some jurisdictions, and there is a question in those cases whether the agreement covers inventions already conceived before signing. The analysis must identify any period during which a material contributor was employed without a signed PIIA in effect.
PIIA effectiveness also depends on the scope of the assignment clause and the limitations imposed by applicable state law. California, Delaware, North Carolina, Washington, Minnesota, and Illinois each have statutes that limit the scope of invention assignments by excluding inventions developed entirely on the employee's own time, without using employer resources, and that do not relate to the employer's business or result from work performed for the employer. A PIIA that purports to assign all inventions without acknowledging these statutory limits may be partially unenforceable in those states. Diligence should confirm that the target's PIIA form acknowledges applicable statutory carve-outs and assess whether any employee may have preserved rights to specific inventions under those carve-outs.
Contractor and Consultant IP Assignments: Work-for-Hire Limits and Assignment Fallback
Independent contractors and consultants occupy a fundamentally different legal position than employees with respect to IP ownership. Under 17 USC 101, a work is a work made for hire if it is prepared by an employee within the scope of employment, or if it is specially ordered or commissioned for use in one of nine specifically enumerated categories and the parties expressly agree in a written instrument that the work shall be considered a work made for hire. The nine enumerated categories include contributions to collective works, translations, supplementary works, compilations, instructional texts, tests, answer material for a test, atlases, and parts of motion pictures or audiovisual works. Software code is not on this list.
The practical consequence is that contractor-created software code, even if developed specifically for the company under a written services agreement, does not vest in the company as a work made for hire under copyright law. The contractor retains the copyright unless the agreement contains an express assignment of that copyright to the company. Many older contractor agreements and many agreements drafted without IP counsel contain work-for-hire language without a fallback assignment clause, leaving the company without enforceable ownership of the contractor's work product. Diligence must review every contractor and consultant agreement for material IP contributions and confirm that each agreement contains either a valid work-for-hire designation (applicable only for the enumerated categories) or an express, broad assignment of all IP rights in the work product, including copyrights, patents, and moral rights where applicable.
Where assignment agreements are missing or defective, the diligence finding must assess whether the contractor can be located and will execute a corrective assignment, whether the contractor has any basis to claim competing rights, and whether the underlying work product can be recreated or replaced at manageable cost if the contractor refuses to assign. Offshore contractors, particularly those in countries with moral rights regimes that are not waivable by contract, present additional complications. An assignment from a French contractor that waives moral rights may be enforceable under French law only to the extent permitted by the Code de la propriete intellectuelle, and the scope of that enforcement is narrower than a comparable U.S. assignment.
Founder Contribution IP Assignments and Tax Considerations
Founder IP assignments are the most consequential assignments in any early-stage technology company acquisition, because the core technology was typically developed by the founders before the company was formed or during the early period before PIIA agreements were implemented systematically. A founder who contributed IP to the company at formation may have done so through a formal IP assignment agreement, through a section 83(b) election in connection with the receipt of restricted equity, through a technology license from the founder to the company, or, in the most problematic cases, through no formal instrument at all.
Where founders contributed IP to the company at formation in exchange for equity, the transaction may have tax implications that affect the enforceability of the assignment and the terms under which the founder is willing to cooperate with corrective documentation. A contribution of IP to a corporation in exchange for stock is generally tax-free under section 351 if the contributing group controls 80 percent or more of the corporation immediately after the exchange, but a contribution to an existing entity with pre-existing shareholders may not qualify for section 351 treatment. If the founder received equity with a value less than the fair market value of the contributed IP, there may be a gift or compensation component to the transaction that was not properly reported. Corrective IP assignments executed years after the original contribution raise different tax questions, and the cooperation of the founding stockholder may depend on a satisfactory resolution of those questions.
Diligence should identify any gap between the date of the company's formation and the date of the earliest signed PIIA or IP assignment agreement for each founder, and should assess what IP was created during that gap period. For founders who also signed agreements with prior employers that contain assignment clauses, the pre-formation IP development period is the most likely period of overlap between the founder's obligations to a prior employer and the core technology that became the target's product. This overlap is the subject of Section 5 of this article.
Prior Employer Claims: Trailer Clauses and California Labor Code 2870
Trailer clauses in prior employer invention assignment agreements extend the prior employer's claim to inventions developed by a departing employee for a defined period after termination of employment, typically six months to two years, if those inventions relate to the prior employer's business, use the prior employer's confidential information, or result from work the employee performed for the prior employer. The enforceability of trailer clauses varies significantly by state. In California, section 2870 of the Labor Code limits assignment obligations to inventions that relate to the employer's business or anticipated research and development, or that result from work performed for the employer. An invention that was developed entirely on the employee's own time, using only the employee's own resources, and that does not relate to the prior employer's business, falls outside the section 2870 assignment obligation.
The practical challenge in technology M&A is that many founders and early engineers at technology companies come from large technology employers whose business spans a broad range of software, hardware, infrastructure, and platform technologies. The scope of the prior employer's "business or anticipated research and development" may be broad enough to reach the very technology that the target has built, particularly if the target's founders worked in a related product area at the prior employer. A founder who worked on enterprise software infrastructure at a large cloud provider and then founded a company offering enterprise software infrastructure tools may have difficulty demonstrating that the core technology is outside the prior employer's business scope for section 2870 purposes.
Diligence on prior employer claims requires collection and review of prior employer invention assignment agreements for all founders and key technical contributors. The review assesses the scope and duration of any trailer clause, the state law governing the agreement, the substantive overlap between the prior employer's technology business and the target's products, and whether any communications between the founder and the prior employer addressed the post-employment work. Where a prior employer claim is identified as a material risk, the acquirer's options include obtaining representations and indemnification from the selling stockholders, adjusting the purchase price to reflect the risk, or seeking a direct communication with the prior employer to obtain a release or covenant not to sue. Each approach has distinct strategic and legal implications.
Patent Diligence: Portfolio Review, Family Analysis, Prosecution History, and USPTO Recordation
Patent diligence in a technology acquisition covers the complete portfolio of issued patents, pending applications, provisionals, and abandoned applications. The review begins with a portfolio map identifying each patent family, the priority chain from earliest provisional or PCT filing through each issued patent and pending continuation, the inventors of record, and the chain of assignment from each inventor to the target entity as reflected in USPTO assignment records. This last element, confirmation of recorded assignments, is often the first finding in patent diligence because many early-stage companies do not record inventor assignments at the USPTO at the time of invention, relying instead on executed assignment agreements that are valid between the parties but not recorded with the USPTO.
Patent family analysis is important for understanding both the scope of protection and the prosecution history estoppel that may limit claim scope. A continuation application filed from a parent patent shares the parent's priority date and can claim the same disclosure, but the claim scope of the continuation is shaped by the prosecution history of both the parent and the continuation. An acquirer purchasing a patent portfolio should understand not just the face of the issued claims but the prosecution history of each patent in the family, including any claim amendments made in response to office actions and any arguments made to the examiner that could be used against the acquirer in later licensing or litigation. Prosecution history estoppel can significantly narrow the range of equivalents available to the patent owner in infringement analysis.
The diligence review should also identify any inter partes review petitions filed against the target's patents, any ex parte reexamination proceedings, and any reissue applications filed by the target. An IPR petition challenging a key patent is a material litigation event that affects the value of the portfolio and must be disclosed in the purchase agreement representations. Pending continuation applications represent both opportunity (claims can be crafted to cover competitive products) and risk (the target may have prosecution obligations that require continued investment). For international filings, the review covers PCT national phase entry status in key jurisdictions and the status of any direct national filings in major markets.
Patent Validity and Infringement Exposure
Patent validity analysis addresses whether the target's issued patents would survive a validity challenge. A patent is presumed valid under 35 USC 282, but the presumption is rebuttable by clear and convincing evidence of invalidity based on anticipation, obviousness, enablement, written description, indefiniteness, or other statutory grounds. In practice, the validity of software patents under Alice Corp. v. CLS Bank International and the section 101 subject matter eligibility doctrine is a recurring concern in technology M&A, because many software patents issued before and shortly after the Alice decision cover subject matter that courts have subsequently found to be directed to abstract ideas without an inventive concept sufficient to transform the abstract idea into patent-eligible subject matter.
Freedom-to-operate analysis addresses a distinct question: whether the target's products and services, and the acquirer's planned post-closing operations, infringe any third-party patents. FTO analysis is a separate workstream from validity analysis and requires claim charting of potentially relevant third-party patents against the target's products, assessment of defenses including invalidity and non-infringement, and review of any existing litigation, demand letters, or licensing discussions involving third-party patent claims. A FTO analysis cannot guarantee that no infringement exists, because not all relevant patents may be identified, and new patents emerge from pending applications with priority dates that predate the target's products. The analysis provides a structured assessment of identified risk and supports the indemnification and escrow structure in the purchase agreement.
Patent infringement exposure in the acquired business should be distinguished from infringement exposure that the acquirer creates post-closing by integrating the target's technology with its own products. An acquirer that combines the target's software with its own platform may create combined products that infringe third-party patents that neither product alone would infringe. This integration risk is outside the scope of pre-closing diligence on the target's IP, but it is within the scope of the acquirer's own pre-closing assessment of how it intends to use the acquired technology.
Trademark Diligence: Federal Registrations, Common Law Rights, Intent-to-Use, and Foreign Filings
Trademark diligence confirms that the target's brand assets are owned, maintained, and free from material third-party claims. The review begins with a search of USPTO records for all marks associated with the target's products and services. For each registration, diligence confirms that the registration is active and not subject to cancellation proceedings, that required maintenance filings (section 8 declaration of continued use, section 15 incontestability affidavit, renewal applications) have been timely filed, that the mark is in use in commerce in the form registered, and that the goods and services description in the registration accurately covers the target's current business.
Common law trademark rights are acquired through actual use in commerce and are not dependent on federal registration. Diligence assesses common law rights in marks that the target uses but has not registered, including product names, taglines, and distinctive identifiers that may have acquired secondary meaning through use. Common law rights are geographically limited to the territory of actual use, which means a target operating nationally through digital channels generally has nationwide common law rights in its marks, while a target operating regionally may have rights limited to its actual trade area. Where a third-party senior user has registered rights in a substantially similar mark for related goods or services, the target's continued use of its mark in commerce may constitute infringement regardless of the target's good faith belief in the distinctiveness of its brand.
Intent-to-use applications present specific timing risks in acquisitions. A federal trademark application based on bona fide intent to use the mark in commerce may be assigned before use only as part of a business transfer that includes the goodwill to which the mark pertains. An assignment of an intent-to-use application in gross, without the transfer of associated goodwill, is void. In a technology acquisition that includes the transfer of trademark rights associated with products under development, the assignment of any pending ITU applications must be structured as part of the broader business transfer to preserve the application's validity. Failure to satisfy the goodwill-transfer requirement can invalidate the assigned ITU application and require the acquirer to re-file, losing priority to intervening applications.
Copyright Registrations and DMCA Agent
Copyright in original works of authorship arises automatically upon creation and fixation in a tangible medium. Registration with the U.S. Copyright Office is not required for copyright ownership, but it is a prerequisite for filing an infringement suit for U.S. works under 17 USC 411, and registration within five years of publication creates a presumption of validity under 17 USC 410(c). Registration within three months of publication or before infringement occurs enables recovery of statutory damages and attorney's fees under 17 USC 412, as opposed to only actual damages and disgorgement of profits. For a software company whose products are its primary valuable asset, the absence of copyright registrations covering core software is a correctable gap that affects litigation remedies but not underlying ownership rights.
Software copyright diligence addresses whether the target has registered copyright in its core software products, whether the registration covers the current version of the code, and whether the chain of title from the human authors to the company is supported by executed assignment agreements. Because copyright automatically vests in the human author rather than the employer absent a work-made-for-hire relationship or an assignment, the same chain-of-title analysis applied to patents applies to copyrights: every developer who contributed original expression to the code should have signed an assignment in favor of the company. Unlike patents, which are filed with named inventors, software copyrights frequently involve contributions from many developers over years of development, making a complete copyright assignment audit impractical for large codebases. Diligence typically focuses on key contributors and core modules.
For targets that operate online platforms or services that host user-generated content, diligence includes verification that the target has a designated DMCA agent registered with the U.S. Copyright Office under 17 USC 512(c) and that the target has implemented and maintains DMCA-compliant takedown procedures. Failure to maintain a registered DMCA agent or a functioning takedown process can forfeit the target's safe harbor protection under the DMCA, exposing it to direct liability for infringing content hosted on its platform. The DMCA agent registration must be renewed every three years, and many companies that registered agents at the time of their original platform launch have allowed renewals to lapse.
Trade Secret Protection Programs: NDAs, Access Controls, and Marking
Trade secret protection under the Defend Trade Secrets Act (18 USC 1836) and analogous state statutes requires that the information constitute a trade secret (defined to include information that derives independent economic value from not being generally known and is subject to reasonable measures to maintain secrecy) and that the owner take reasonable measures to keep the information secret. The "reasonable measures" requirement is not a strict standard, but it requires more than subjective intent to protect information. Courts assess whether the protective measures were objectively reasonable given the nature of the information and the resources of the company.
The elements of a trade secret protection program that IP diligence examines include: the existence and scope of NDA agreements with employees, contractors, customers, and business partners who have access to proprietary information; access control systems limiting trade secret information to personnel with a genuine need to know; physical security measures for any facilities where trade secrets are developed or stored; electronic security measures including access logs, encryption, and data loss prevention systems; trade secret marking practices applied to confidential documents and systems; and offboarding procedures that include confidentiality reminders and documentation of returned materials. A trade secret that the company has not taken reasonable steps to protect is legally unprotected regardless of its commercial value.
Diligence findings on trade secret programs often reveal systemic gaps that developed as companies scaled faster than their compliance infrastructure. A company that implemented strong NDA practices for its first ten employees may have stopped obtaining signed NDAs consistently as it grew. A company that marked all confidential documents in its first year may have abandoned marking practices as the volume of proprietary material grew. These gaps do not necessarily defeat all trade secret protection, because courts assess the totality of protective measures rather than requiring perfection, but they create arguable defenses for defendants in trade secret litigation and reduce the value of trade secret assets as acquired property.
Licenses In and Out: Inbound Dependencies and Outbound Revenue Licenses
Technology companies routinely operate with significant inbound IP licenses: licenses for development tools, SDKs, APIs, data sets, fonts, graphics libraries, music, and third-party software components. Inbound license diligence identifies every license the target relies on to operate its business and assesses whether that license (a) is transferable in the context of the transaction, (b) will survive the transaction, and (c) contains any change-of-control provision that triggers termination, consent requirements, or modified financial terms upon a transaction.
Change-of-control clauses in inbound licenses are a frequent source of transaction complexity. A material inbound license that terminates upon a change of control, or that requires the licensor's prior written consent to assignment, can delay closing, require the acquirer to negotiate a new license, or in the worst case, create a gap in the acquirer's ability to operate the acquired business post-closing. The diligence review should identify all inbound licenses, categorize them by materiality to the target's operations, and flag any change-of-control provisions that require pre-closing action. Where a consent requirement exists for a material license, the acquirer and target must decide whether to seek consent, structure the transaction to avoid triggering the provision, or negotiate a closing condition that allows the transaction to proceed only if the consent is obtained.
Outbound licenses are the licenses the target has granted to customers, partners, and distributors. Outbound license diligence assesses whether the target's outbound licenses contain most-favored-nation pricing clauses, exclusivity grants, or perpetual license terms that the acquirer must honor post-closing. An outbound perpetual license granted to a major customer for a software product may significantly affect the acquirer's ability to monetize that product in the acquired customer relationship. An exclusivity grant in an outbound distribution agreement may restrict the acquirer's ability to sell through alternative channels or to reach certain geographies or customer segments with the acquired product. These constraints must be identified pre-closing and factored into the acquirer's integration planning and purchase price analysis.
IP Indemnification, Liability Caps, and Post-Closing USPTO Recordation
IP representations in technology acquisition agreements address the full scope of IP ownership and freedom to operate. Standard IP representations include that the target owns or has valid licenses to all IP necessary to conduct its business as currently conducted, that the target's products and services do not infringe any third-party IP rights, that no claim has been asserted by any third party alleging infringement, that all employee and contractor assignments are valid and in place, that all government registrations are valid and in good standing, and that the target has implemented reasonable measures to protect its trade secrets. Each representation must be carefully scoped to address the known findings from diligence, with appropriate disclosure schedules identifying known exceptions.
IP indemnification in technology acquisitions is typically structured with a higher cap than the general indemnification cap because IP claims, particularly patent infringement claims, can be disproportionately large relative to the transaction size. A common framework places general rep and warranty indemnity at 10 to 15 percent of the purchase price, with specific IP indemnification at 25 to 50 percent of the purchase price, and fraud or intentional misrepresentation at the full purchase price. The deductible and basket structure applicable to IP claims may also differ from the general indemnification framework. Where reps and warranties insurance is obtained, the policy terms for IP representations must be carefully reviewed, because some R&W policies exclude known IP risks, IP claims that were the subject of pre-closing litigation, and claims arising from open-source software noncompliance.
Post-closing USPTO recordation of patent assignments should be completed within 30 days of closing. Under 35 USC 261, a recorded assignment takes priority over an earlier unrecorded assignment when the subsequent purchaser took in good faith, for value, and without notice. Prompt recordation eliminates this priority risk. Where diligence identified inventor assignments that were never recorded, or where chain-of-title gaps exist that require corrective assignments, those instruments should be prepared before closing and recorded simultaneously with the primary acquisition assignments. Nunc pro tunc assignments, which correct chain-of-title defects by assigning rights as of the date they were originally intended to vest, are a recognized mechanism for addressing pre-closing gaps, but they do not retroactively eliminate the risk that third-party rights may have attached during the period of incomplete title.
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Frequently Asked Questions
Why does chain of title matter in a technology acquisition?
Chain of title establishes that the target company actually owns the IP it purports to sell. If a critical patent or core software copyright was created by an employee or contractor who never signed a valid assignment agreement, the target does not hold title to that asset regardless of what the cap table or financial statements show. An acquirer that closes without confirming chain of title for each material IP asset can find that the most valuable component of the transaction belongs to a third party. Unbroken chain of title from original human creator to the target entity, documented through executed assignment agreements and, for patents, USPTO recordation, is a threshold requirement in any technology M&A transaction.
What are the most common contractor IP assignment gaps?
The most frequent gap is the absence of any written IP assignment at all. Where an agreement exists, the next common failure is reliance on work-for-hire doctrine without a qualifying written agreement. Under 17 USC 101, a work made for hire by an independent contractor requires both that the work fall within one of nine enumerated categories and that the parties execute a written agreement designating the work as made for hire before the work is created. Software generally does not fall within the enumerated categories, meaning contractor-created code is not work for hire as a matter of law without a signed assignment. Even where an agreement includes an assignment clause, the clause may be limited in scope, exclude prior inventions broadly, or lack consideration sufficient to support enforceability.
How serious are prior employer IP claims on founder and employee inventions?
Prior employer IP claims are a material risk, particularly for companies in the same technology sector as a founder's or key employee's prior employer. Most sophisticated technology employers require employees to sign invention assignment agreements that include a trailer clause, extending the employer's claim to inventions developed after employment ends if those inventions relate to the employer's business or use the employer's confidential information. California Labor Code section 2870 limits these clauses by excluding inventions developed entirely on the employee's own time without using employer resources or relating to employer business, but that exclusion is often narrower in practice than founders expect. Diligence should obtain copies of prior employer agreements for founders and key engineers and assess the overlap between the prior employer's technology and the target's core IP.
How broad should a patent validity search be in technology M&A?
The scope of patent validity diligence should be calibrated to the materiality of the patent portfolio to the transaction value. For a transaction where patents represent a significant portion of the purchase price, a freedom-to-operate analysis and a validity search covering prior art, prosecution history estoppel, and continuation practice for each material patent in the portfolio is appropriate. For transactions where software or data assets drive the value and the patent portfolio is secondary, a higher-level review confirming recordation, identifying any inter partes review proceedings, and flagging assignment gaps may be proportionate. The key outputs are an assessment of patent enforceability, identification of any validity challenges in litigation or IPR proceedings, and confirmation that the chain of assignment is complete and recorded at the USPTO.
What does trademark diligence cover in a technology acquisition?
Trademark diligence covers all registered and common law marks used by the target in connection with its products and services. The review examines federal registrations for current status, maintenance filings, use in commerce, and any office actions or oppositions on file with the USPTO. For intent-to-use applications, diligence confirms that the statutory filing deadlines and statement of use requirements have been met. Common law rights not backed by federal registration are assessed by reviewing the geographic scope of use and the industries in which the marks have been used. International marks are reviewed for coverage in key markets, including Madrid Protocol designations and direct national filings. Diligence also identifies any trademark coexistence agreements, consent agreements, or concurrent use registrations that limit the target's right to use its marks.
What makes a trade secret program sufficient for M&A purposes?
A trade secret protection program must demonstrate that the target took reasonable measures to keep the information secret, which is the core requirement under the Defend Trade Secrets Act and analogous state statutes. Reasonable measures include: written confidentiality and non-disclosure agreements with all employees, contractors, vendors, and business partners who have access to proprietary information; access controls limiting trade secret information to personnel with a need to know; physical and electronic security measures appropriate to the sensitivity of the information; trade secret marking on documents and systems containing proprietary information; and employee offboarding protocols that include confidentiality reminders and return of company materials. A trade secret that exists in fact but for which the company cannot document reasonable protection measures is difficult to enforce and may not survive litigation, which reduces its value as an acquired asset.
How are IP representations and indemnity caps structured in technology acquisitions?
IP representations in technology acquisition agreements typically include representations that the target owns or has valid licenses to all IP necessary to operate the business, that the target's products do not infringe any third-party IP, that no third party has asserted any infringement claim, that all employee and contractor assignments are valid and in place, and that the target has taken reasonable steps to protect its trade secrets. IP indemnification is often subject to a separate, higher cap than the general indemnification cap because IP claims can be disproportionately large relative to transaction size. A common structure places general rep and warranty indemnity at 10 to 15 percent of the purchase price, with IP infringement indemnity at 25 to 50 percent, and fraud or intentional misrepresentation at the full purchase price. Reps and warranties insurance is increasingly used to backstop IP representations in mid-market technology transactions.
When must patent assignments be recorded at the USPTO after closing?
Under 35 USC 261, an unrecorded assignment is void against a subsequent purchaser or mortgagee who takes for value and without notice, if that subsequent purchaser records first. Prompt recordation at the USPTO following closing protects the acquirer's priority in the transferred patents and eliminates the risk that a third party could record a prior unrecorded assignment and take priority. The standard practice is to record all patent assignments at the USPTO within 30 days of closing, and where assignments were not executed contemporaneously with the original invention but are executed after the fact to correct chain of title gaps, those assignments are recorded with a nunc pro tunc designation reflecting the date the rights were first intended to vest. Nunc pro tunc assignments can correct chain of title gaps but do not eliminate the risk that the intervening period created third-party rights, which is why diligence prior to closing is preferable to post-closing correction.
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