What Is IP Due Diligence? Checklist & Key Questions

When getting ready for a merger or an acquisition on the buy-side, one of the key steps is to learn everything about the target company. This includes financial data, legal documents, HR info, and also the target company’s IP (intellectual property).

In fact, IP is what makes the business really valuable, and this critical aspect must be thoroughly explored during due diligence. Otherwise, there is a chance to discover later that someone else can claim ownership or that there’s a lawsuit waiting around the corner.

That’s where IP due diligence comes in. This is a thorough check-up of everything the company owns: patents, trademarks, copyrights, and trade secrets. The main business goal of IP due diligence is to confirm that the target company really owns what it claims to own and spot any hidden problems before they escalate.

This guide explores what the IP due diligence process involves, how to organize everything, and which questions to ask in the context of Canadian intellectual property rights.

What is IP due diligence?

World Intellectual Property Organization (WIPO) identifies IP due diligence as a part of a comprehensive due diligence audit that is done to assess the financial, commercial, and legal benefits and risks linked to a target company’s IP portfolio, typically before it is bought or invested in.

They mention that IP due diligence shows issues that can change the deal price, affect key terms, or even lead both sides to stop the transaction altogether.

IP due diligence generally aims to:

Identify and list all the target company’s IP assets, then assess what they cover, how they are used, and whether they are free of legal or contractual restrictions.
Spot any issues that could block or complicate the transfer, pledging, or use of the IP in the future.
Clarify which party is responsible for the costs related to transferring the tangible and intangible assets.

Why IP due diligence matters for valuation and deal risk

So why does intellectual property due diligence matter? It all comes down to two points: getting the valuation right and avoiding surprises that can be deal breakers.

Imagine companies have closed the deal, and then the buy-side discovers the company’s most important patent was never properly transferred from the person who invented it. Or their main software product uses third-party code with one of those viral open-source licenses that comes with strings attached. These factors mean that the company, in fact, costs less than it was evaluated at the early stage.

Now, courts have sided with buyers in situations like this, and it just demonstrates the importance of IP due diligence. Companies have successfully sued sellers who lied about owning their IP. For example, when Uber bought a self-driving startup, it turned out that some of the technology was not legally theirs. Another company, Waymo, proved that its ideas had been taken without permission. As a result, Uber had to pay a large settlement and stop using the disputed technology.

But going to court is expensive and time-consuming. It’s much better to catch these problems during due diligence when it is still possible to do something about them. If the existing IP assets were not as valuable and legal as they were claimed to be, the buy-side can:

renegotiate the deal
adjust the price
stop the deal

IP due diligence is critical for tech companies, biotech firms, and consumer brands. Basically, everywhere where intellectual property often makes up most of what the business is actually worth.

How to conduct IP due diligence step by step

The exact IP due diligence process will depend on factors like the industry you work in, the size of the deal, and local regulations. However, the general guidelines are quite similar. Here are the key aspects to keep in mind when conducting thorough IP checks:

Preparation & Scoping
The goal of this initial stage is to define:

➜ Is this IP due diligence in an M&A transaction, investment, licensing, IPO (initial public offering), or other type of deal?
➜ What IP is critical to the target’s business value? Focus on what drives revenue or competitive advantage.
➜ Initial request list. Ask for basic documentation upfront (IP registrations, key IP agreements, involved parties).
Collecting documents
Request these core documents:

➜ Complete list of all IP assets (patents, trade marks, copyrights, domains)
➜ IP registration certificates and current status reports
➜ Employment and contractor agreements (for assignment clauses)
➜ All IP-related contracts (licenses in/out, R&D agreements, joint ventures)
➜ Litigation documents (past/pending lawsuits, cease & desist letters)
➜ Internal IP policies and invention disclosure forms

Then, it is important to gather all relevant IP evidence in one secure place, such as a virtual data room (VDR).
Verification
At this stage, the buy-side confirms ownership and validity of the IP. To do so:

➜ Check official registries and verify each patent/trademark with the USPTO, EUIPO, etc. (Is it actually registered? Who is the named owner? Is it active and are fees paid? What is the expiration date?)
➜ Review assignment chains to trace ownership from the inventor to the current company.
➜ Confirm that every key creator signed an IP assignment agreement.
Analysis
During the detailed analysis phase, the buy-side (or the external IP specialists) assesses quality, risks, and gaps. Here is how this usually happens:

Quality assessment
➜ How broad/strong are the patent claims?
➜ Do trademarks actually cover the core products/services?
➜ Are trade secrets properly documented and protected?

Risk identification
➜ Infringement risk (Could the company be violating others’ IP?)
➜ Validity risk (Could key patents be challenged/invalidated?)
➜ Dependency risk (Does the business rely on licensed IP that could be lost?)
➜ Transfer risk (Will key licenses survive the transaction?)

Gap analysis
➜ Are there markets/products without IP protection?
➜ Is there missing documentation for critical assets?
Review
At this point, it’s important to understand the business impact of the corporate transaction.

➜ Map IP to revenue (Which assets protect which income streams?)
➜ Assess competitive position (How does this IP portfolio compare to competitors?)
➜ IP strategy review (Is the company actively managing and enforcing its IP?)
Report & Recommendations
Once the key findings are reviewed, the due diligence team communicates with decision-makers. The findings are categorized as high/medium/low risk. What must be fixed before closing vs. what can be monitored after:

➜ Pre-closing actions (get missing assignments, pay overdue fees).
➜ Deal terms adjustments (specific indemnities, holdback amounts).
➜ Post-closing priorities (file in new jurisdictions, enhance trade secret protocols).
Negotiation & Integration
Now, it’s time to address risks and secure value.

➜ Draft specific reps and warranties based on findings.
➜ Structure deal protections (escrows, indemnities, or price adjustments for identified risks).
➜ Create an integration business plan on how to manage and leverage the IP post-transaction.

Intellectual property due diligence checklist

The previous steps were more like general guidelines, and now this checklist covers specific areas to explore during IP due diligence.

Due Diligence Area	Key Process and Documents to Review
Information gathering	Pin down all the IP assets (patents, trademarks, copyrights, trade secrets, domain names). Get a clear picture of the ownership structure. Have a look at the organizational documents and see how they handle IP stuff. Identify the key players who’ve been creating and managing IP.
Ownership verification	Make sure you’ve got a clear chain of title for all the registered IP. Look through employment agreements to see if they’ve got the right clause for IP assignment. Verify that any contractors or consultants have signed off on the IP assignment. Sort out any implications with university or government funding. If there’s IP developed in partnership, review those agreements. Check out the IP that the founders had on the go before the company was formed.
Patent due diligence	Make a list of all the patents. Include numbers, jurisdictions, and when they’re due to expire. List all the patent applications that are still pending. Have a look at the prosecution histories and office actions. Check that the company is up to date with maintenance fees. See how the claims are looking in terms of scope and enforceability. Review any prior art to make sure that patents are still novel. Check the freedom-to-operate analysis. Identify any ongoing oppositions, reexaminations or litigation.
Trademark due diligence	Make a list of all registered trademarks and the registration numbers. List all the trademark applications that are still pending. Verify that the company is actually using the trademarks in commerce, and that they’re distinct from other brands. Check the geographical coverage and see if there are any international registrations. Check for any potential conflicts or infringement risks.
Copyright review	Identify the significant copyrightable works (software, documentation, content, etc). Review those copyright registrations. Make sure the company owns the software code and that it is compliant with any open source requirements. Review the licenses for any third-party copyrighted materials.
Trade secret protection	Identify the key trade secrets and know-how. Review confidentiality policies and procedures. See if all employees have signed on the dotted line with confidentiality and non-disclosure agreements. Evaluate the physical and electronic security measures to make sure they’re secure. Review any third-party confidentiality agreements.
Contracts and agreements	Review all IP licenses (in-bound and out-bound). Break down the joint development and collaboration agreements. Figure out the research and development agreements & what they mean. Go over material transfer agreements. Review non-compete and non-solicitation agreements carefully.
Litigation and disputes	Identify past, current, or threatened IP litigation. Review cease and desist letters received or sent. Assess dispute resolution mechanisms in agreements. Evaluate any injunctions or court orders that affect IP. Review arbitration or mediation proceedings.
Regulatory and compliance	Verify compliance with data privacy regulations affecting IP. Assess export control considerations. Review regulatory exclusivities (pharma/medical devices). Evaluate compliance with industry-specific regulations.
IP strategy and management	Review IP budget and resource allocation. Assess internal IP management processes. Evaluate IP insurance coverage. Review IP valuation reports or assessments. Analyze competitive landscape and patent landscaping.
Gap analysis and risk assessment	Find out what vulnerabilities there are in our core assets. See where IP might be exposed in different parts of the world. Check for dependencies on third-party IP. Evaluate transfer restrictions and change of control provisions.
Documentation review	Collect all IP registrations and certificates. Gather all IP-related agreements. Obtain invention disclosure records. Review IP policies and procedure manuals. Collect opinions of counsel regarding IP matters.

Canadian IP rights: What changes in due diligence?

The first thing to know is that Canada updated its trademark laws, with new rules taking effect April 1, 2025. These changes affect how trademark oppositions work and introduce things like cost awards and confidentiality orders. So, when doing due diligence now, the buy-side needs to look more carefully at potential opposition risks and understand how these new procedures might play out.

The Canadian Intellectual Property Office (CIPO) has also been making some improvements. It now reviews IP applications faster and lets companies include more industrial designs in one filing. It also offers fast-track design reviews without extra fees.

Beyond these procedural updates, there are some fundamental things about Canadian IP rights in M&A and other deals you can’t ignore. Canada uses a first-to-file system for both patents and trademarks, and here’s the critical part: U.S. rights don’t automatically carry over into Canada.

That means that businesses need separate Canadian registrations and absolutely must do local searches. You can start by searching CIPO’s databases to see what’s on file. Then, verify ownership and make sure classifications are correct. And don’t forget to confirm that everything complies with the new procedural rules that just went into effect.

This is too sensitive information to go through. That’s why businesses use secure data rooms to collect and share IP data securely.

Where a data room helps most during the IP due diligence review

A virtual data room (VDR) keeps all IP-related info in one secure place and helps both sides stay organized and efficient. Here’s where a data room solution adds the most value during IP due diligence:

Problem	Data room solution	Result
IP documents scattered across emails and drives	All patents, licenses, and agreements are in one place	Saves time. No hunting for documents
Sharing sensitive IP feels risky	Control who sees what. Ability to restrict access, add watermarks, track downloads	Reduces risk. Only right people see sensitive info
Lawyers spend hours digging through PDFs	Search everything at once to find any term across all documents instantly	Find issues in minutes, not days
Arguments later about what was shared	Automatic tracking who viewed/downloaded each file and when	No disputes. Clear record of what was available
Multiple reviewers working separately	Central Q&A & notes keep all conversations organized in one place	Better teamwork as everyone stays on the same page
Confusion over which document is final	Single source of truth. Only current, approved versions in the room	Fewer mistakes and decisions based on correct info

The IP due diligence folder structure in a virtual data room

An organized due diligence data room structure mirrors the categories in the due diligence checklist. With a data room, it is much easier for reviewers to explore the documents without asking the seller for guidance. The structure below works for most IP-heavy transactions:

Granted patents (organized by jurisdiction, with grant certificates and file histories)
Pending applications (with prosecution correspondence and office actions)
Maintenance fee records and annuity payment receipts

Registered marks (certificates, specimens, renewal confirmations)
Pending applications (filing receipts, examiner responses, opposition notices)
Common-law use evidence (advertising, sales invoices, product packaging)

Registration certificates
Deposit copies or representative works
Correspondence with copyright offices

Confidential process documentation
Customer lists (redacted if privacy laws require)
Formulas, algorithms, or technical specifications marked confidential

Founder and employee IP assignment agreements
Contractor and consultant work-for-hire clauses
Corporate resolutions documenting IP transfers

Inbound licenses (software, patents, trademarks)
Outbound licenses (reseller, distribution, sublicensing agreements)
Open-source license compliance reports

Invention disclosure forms
Lab notebooks, design files, source code snapshots
Contributor lists with employment dates

Court filings, dockets, and settlement agreements
Cease-and-desist letters and responses
Opposition or cancellation proceedings

Export control classifications
CIPO correspondence for Canadian filings
Privacy impact assessments for datasets included in IP

What an IP due diligence report should cover

An IP due diligence report should give a clear picture of what IP exists, who owns it, and how it affects the deal:

Executive summary of findings
Ownership confirmation and gaps
Freedom-to-operate assessment
Infringement risk analysis
Contractual obligations summary
Litigation exposure evaluation
Recommendations for remediation
Valuation considerations

A great report is a risk-informed business analysis. It tells the three key things:

Here’s what you’re getting,
This is what could go wrong.
Here’s exactly what you need to do about it.

Conclusion

IP due diligence is what helps companies get a real handle on all the intellectual property that a target company is actually claiming to own, and what the potential risks are. That’s why digging deeper into patents and trademarks is so important. After all, no one wants to be stuck with something that turns out to be worthless.

And if you’re operating in Canada or planning to expand up there, this step is especially key. Canadian IP rules can differ from just about everywhere else, so if one overlooks them, they could end up with fines or reputational damage.

In this context, a well-organised data room helps to keep the whole process on track and secure. Whether you’re planning a sale or advising on a purchase, having an IP due diligence checklist and a data room sorted is what gives you the foundation you need to feel confident about what’s next.