The Importance of Federal Intellectual Property Due Diligence in Mergers and Acquisitions

For M&A teams: Are you involved in merger and acquisition transactions? Have you noticed an increase in the amount and importance of intellectual property owned by merging entities? 

Why federal IP due diligence matters alongside UCC, liens, and litigation searches: Public record due diligence has long been a cornerstone of merger and acquisition transactions. Law firms have relied on a well‑established checklist to search for UCC financing statements, federal and state tax liens, judgment liens, litigation, and bankruptcy records to assess potential legal and financial risk.

Federal IP Due Diligence

Today’s transactions require more. Many professionals have come to recognize that IP is likely the most valuable business asset that a company may possess. This is why it’s crucial to incorporate federal intellectual property (IP) due diligence on your checklist, in addition to the standard lien, litigation and bankruptcy due diligence package.

Searching for IP at the Federal Level

Based on the definition in Section 9-102(a)(42) of the Uniform Commercial Code, IP is considered a “general intangible”. While patents and trademarks may be pledged as collateral and may be included as collateral on UCC financing statements, relying on central level UCC searches is not enough for IP due diligences purposes. Further, Article 9 of the UCC permits a general collateral description making it unclear if IP is within the scope of the collateral being secured or not since specifically identifying the IP properties in the collateral description is not required.

The United States Patent and Trademark Office (USPTO) provides a federal process to initiate and manage patents and trademarks, and grant security interests in those properties. It is necessary to search the USPTO for patent and trademark records, in addition to UCC central indexes, as without these additional USPTO searches, you may miss critical information affecting your transaction.

Keep in mind that IP due diligence searches are not limited to USPTO records. Searches for copyrights should also be conducted at the U.S. Copyright Office (USCO) and Library of Congress. Perfection of security interest for registered U.S. copyrights is accomplished by filing with the USCO, therefore a search of the copyright office should not be overlooked.

What Does IP Due Diligence Determine?

Uncovering and/or confirming basic IP information is every bit as important as conducting the traditional UCC, lien, litigation and bankruptcy searches that have long been standard due diligence practice. IP searches should seek to answer the following questions:

• Determine and/or confirm intellectual property ownership. Is the chain of title (history of ownership) in order?
• Has the IP been maintained?
• Have renewal filings been made or are they coming due?
• Have any liens been granted on the IP assets?
• Are intellectual property assignments necessary?

Like traditional UCC searches, establishing the federal IP chain of title and checking if any liens are filed against IP allows parties to execute closing responsibilities without last-minute, unexpected disasters. Or worse yet, trying to make changes to IP public records after the deal closes.

Intellectual property is often taking center stage as one of the most important asset classes for many business entities. With this shift, federal intellectual property searches should be considered a standard practice of thorough public record due diligence.

Still curious about IP due diligence? Check out this piece from Holland and Knight.

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.