IP Due Diligence on a Start-up

Article  \  8 Dec 2013

Most start-ups are at a very early stage of their IP development. Quite often they are seeking capital to pay for the costs involved in securing their IP and they haven't yet carried out typical IP-related searches that help them fully understand their IP position. So the usual IP due diligence questions that you would ask a mature company may not be the same as those you ask a start-up.

For example, a freedom to operate (FTO) search typically costs more than $15,000, so it's understandable why some start-ups may not have commissioned one yet – or they may have taken the alternate route and conducted a 'quick and dirty' by searching for IP owned by direct competitors only.

A report on the strength of patent protection that a start-up may be able to secure for their technology is more likely to exist, especially if a patent application has been lodged. So this is something you would reasonably ask a start-up about. Such a report can be very telling of the degree of IP-driven market exclusivity the technology can achieve.

A good patent attorney will be able help potential investors establish a start-up's IP position by working through an appropriate IP due diligence process. How comprehensive this needs to be will depend on the amount being invested and the nature of the start-up's technology and business. For example, are they a 'me-too' repackaging ubiquitous technology or have they developed something quite unique?

As part of the IP due diligence process, an IP specialist will typically run through a checklist that seeks to answer the following questions:

One: Exclusivity


Who owns the IP? For example: is it the target company you are investing in or a separate IP holding company? Perhaps the target is merely a licensee of the IP? What does the license agreement look like?

Who is the inventor? Were they an employee or a contractor when the invention was created? Did they work for anyone else prior on the same technology?

Other ownership claims. For example:

  • Has security for debt finance been given in the IP?
  • Is there a co-developer of the technology not part of the target?
  • Was the technology a commissioned development?
  • Is the IP owned by the target, isolated from trading risks?

Are there obligations in place not to sublicense or cross license or license to others? Do any others agreements exist? For example:

  • License and cross licenses
  • R&D contracts
  • JV agreements
  • Escrow agreements
  • Franchise
  • Distribution
  • Non-competition
  • Non-disclosure agreements
    • Settlement agreements
    • Undocumented terms
    • Co-ownership or licensing terms by virtue of the R&D having been funded from a government grant


  1. In which countries is there protection?
  2. In which countries is it important to stop use or sale or manufacture?
  3. Can additional countries still be added?
  4. Are there patents or patent applications and how long to expiry?
  5. Are there trade marks?

Subject Matter

  1. Do the patents cover what you intend to market?
  2. Do the patents have broader application than for that which you intend to market thereby offering cross fields licensing opportunities?
  3. Do the patents cover alternative constructions?
  4. How important is know-how and confidential information to the success of the technology and is this locked down?


  1. Review (or commission) patentability searches/opinions.
  2. Review patent office examination reports/responses.
  3. Were any applications abandoned?
  4. Consider prior art against the patents to determine scope.
  5. Review prior art so as to immediately know what the patent can never cover.

Two: Freedom to operate

Can the technology be made and sold in light of the IP of others? Freedom to Operate is a topic I will cover off in a future article.

Bottom line: the decision to invest in a start-up can be significantly enhanced by carrying out a comprehensive IP due diligence process. As always, we recommend seeking expert advice from a patent attorney or other IP specialist.

*This was originally posted on The Icehouse website.