Intellectual Property Due Diligence in M&A Transactions

Why IP due diligence determines M&A deal value

For businesses whose competitive advantage comes from intangible assets, deal value is tightly linked to intellectual property rights — and errors in IP due diligence translate directly into money: purchase price reductions, adjusted payment mechanisms, or worse, buying an “empty shell” when the key intellectual property does not actually belong to the target company.

The reference legal framework is the 2005 IP Law, amended and supplemented by Law No. 07/2022/QH15 (effective from 01/01/2023), together with Decree 65/2023/ND-CP on industrial property and Decree 17/2023/ND-CP on copyright. IP due diligence is a module within the overall legal due diligence, interacting closely with labour due diligence (employee-created IP), contracts (licences, distribution) and compliance (pending disputes).

Scope of due diligence: building a complete IP inventory

The first step is requesting the seller to provide a complete IP inventory, then independently verifying each item: trademarks (registered, pending, famous trademarks); patents, utility solutions, industrial designs, layout designs; copyright (software, packaging, catalogues, website content); trade secrets (formulas, processes, customer lists); domain names; and subject matter in registration or complaint processes.

Experience shows seller-prepared inventories are often incomplete: forgetting pending applications, omitting assets titled in the founder’s personal name but used by the company, or verbal agreements on shared brand use within the group. The diligence team must cross-check with independent sources: searching at the IP Office, physically inspecting use on products, packaging and websites, and interviewing key personnel.

Checking certificate validity and chain of title

Each certificate in the inventory must be checked for validity status: still within the protection term (patents 20 years, utility solutions 10 years, designs 5 years renewable up to 2 times, trademarks 10 years renewable many times — Article 93 of the IP Law); maintenance and renewal fees fully paid; and any decisions terminating or cancelling validity. The most common case in M&A is a certificate terminated for non-payment of fees (Article 96) — a trademark may be re-registered, but in the gap a third party may have filed a similar application, creating a priority dispute.

Next is tracing the chain of title from the origin: for patents and designs — who was the original author, by what document the registration right was transferred to the company, whether the assignment contract was registered at the IP Office (under Article 148, an assignment contract takes effect only upon registration). For copyright — labour contracts, work assignment decisions, transfer contracts with freelancers. For trademarks — the history of assignments, mergers, company name changes “following” the correct subject. Any undocumented link is an ownership gap to be fixed before deal closing or reflected in the purchase price.

Reviewing licence agreements and third-party commitments

Many important intellectual property assets are used by the target company under licences from third parties (core technology, platform software, franchised brands). For each material contract, answer: is the granted scope sufficient for post-M&A operations (exclusive or not, territory, term, sub-licensing rights); royalties and adjustment mechanisms; and termination clauses — especially clauses allowing the licensor to terminate upon change of control.

A change of control clause is a “ticking time bomb”: the buyer completes the M&A and immediately afterwards the core technology licensor announces termination. Early detection allows renegotiation or written consent before deal closing. The legal framework on licence agreements is covered in intellectual property licence agreements.

Employee- and contractor-created IP

This is one of the largest and hardest-to-detect risk sources. Check: whether the model labour contract contains IP clauses; whether confidentiality agreements exist with personnel accessing trade secrets; whether the author remuneration policy under Article 135 of the IP Law has been implemented (the obligation lasts throughout the protection term and may become a significant payable after M&A); and whether there are any disputes with former employees over ownership.

For contractors and freelancers: review all software development, design and technical consulting contracts to confirm IP rights were transferred in writing. Note: Clause 2 Article 39 of the IP Law sets a default rule favouring the party contracting with the author (owner of economic rights, unless agreed otherwise), and point b Clause 1 Article 86 has a similar rule for industrial property subject matter in “hire for work” cases — but in M&A due diligence, the buyer must still require clear written transfers, because the default rule does not cover moral rights, is easily disputed on scope, and chains of transfer through multiple subcontractors are often broken. For in-depth analysis see employee-created IP ownership.

Pending disputes and third-party infringement risks

A complete list is needed of IP disputes and complaints in which the target company is a party: infringement lawsuits in court; complaints against decisions refusing certificate grants; oppositions to trademark applications; procedures to cancel or terminate certificate validity; and warning letters received. For each matter, assess the win/lose likelihood, impact on core assets, legal costs and resolution time — a lawsuit where the company is the defendant, if lost, may lead to an injunction halting the flagship product line.

Alongside is a freedom to operate (FTO) assessment: whether the target company’s business operations are infringing others’ rights — a risk not shown on the balance sheet but capable of turning into a production-halting lawsuit at any time. FTO focuses on key markets and products: searching competitors’ patents, comparing product features with claim scope. For exporting businesses, FTO must also be conducted in destination markets. Results directly affect deal structure: conditions precedent, indemnity clauses, or grounds to terminate the deal.

IP in capital contributions and asset recognition

Article 34 of the 2020 Enterprise Law allows capital contributions in the form of intellectual property rights. When the target company’s IP was formed from capital contributions, check: whether valuation was conducted properly; whether the ownership transfer to the company has been completed (assignment registration at the IP Office for industrial property rights); and whether the book value is realistic.

IP valuation is the hardest part: there is no clear “market price” like real estate. Also, check whether IP rights are mortgaged: if the core trademark or patent secures a bank loan, the buyer must handle the release within the deal’s payment structure.

Buyer protection clauses in the M&A contract

IP due diligence results are “translated” into buyer protection clauses in the purchase agreement. The first group is the seller’s representations and warranties: the IP inventory is complete and accurate; the company is the lawful owner, free of disputes; the certificates are valid; no infringement of third-party rights; material licence agreements remain in force. Each representation must be drafted specifically, avoiding vague statements that are hard to enforce.

The second group is indemnity for issues discovered but not yet remediable before closing (pending disputes, unpaid author remuneration obligations) — with scope, limits, claim periods and escrow/holdback mechanisms commensurate with the risk level. The third group is pre-closing obligations: the seller must fix remediable defects (registering supplemental assignment contracts, renewing certificates, signing supplemental copyright transfers with freelancers), and conditions precedent on material IP issues.

Checklist of IP documents the seller must provide

The buyer should request a standard document set from the start: a complete IP inventory (certificate numbers, filing dates, grant dates, validity terms, fee status); copies of certificates and copyright registration certificates; all related assignment and licence contracts (including drafts under negotiation); model labour contracts, confidentiality agreements, author remuneration policies; lists of disputes, complaints and warning letters; trade secret protection process documents; domain name lists; and IP valuation reports (if any).

For technology companies, additionally: lists of open-source licences in use; contracts with all software development and outsourcing partners; lists of key personnel holding core knowledge. See the IP portfolio management checklist to assess readiness, and trademark registration in Vietnam for trademark validity issues found in due diligence.

Frequently asked questions