USE CASE · US INVESTOR DUE DILIGENCE
US Investor Due Diligence + IP Ownership Review
In the case of technology-focused start-ups, the question of who actually owns the core technology is regularly one of the key issues in an investor’s due diligence process. US investors want to be able to verify whether patents, software, know-how and other intellectual property rights are validly held by the company and whether any third parties hold rights to them.
We prepare companies for the legal and IP due diligence carried out by a US investor. The focus is on the chain of title from founders, employees, freelancers, universities and collaborative partners right through to the current company.
The case at a glance
Background
A US investor begins the due diligence process or requests documentation relating to the IP portfolio and the chain of title.
Objective
Assess IP ownership, key contracts and any apparent gaps in a robust manner ahead of the investor Q&A.
Support
German-speaking contacts coordinate the IP review, the data room and the responses to investors’ queries with the relevant teams.
Your situation
IP issues often have historical roots. The first prototype was developed before the company was founded; a freelancer wrote parts of the code; or the core know-how originated from a university or a research collaboration. Such circumstances can lead to gaps in the chain of title if transfers or licences are not fully documented.
In the case of software companies, open-source components and the rights of external developers are also a factor. For deep-tech and life-science companies, the focus is often on employee inventions, research projects, inventors’ rights and university licences.
Our support
We carry out a targeted IP ownership review and examine which documents actually substantiate the chain of title. Missing assignments, unclear licence rights or other issues are prioritised and – where possible – resolved before or during the due diligence process.
The results will be structured in such a way that they can be used for the data room and investor Q&A. For patent-driven companies, we can combine the ownership review with an assessment of the patent portfolio and the US IP strategy.
Check the IP chain of title prior to investor due diligence
Please provide details of the current funding status, core technology and the structure of the intellectual property rights to date. We will determine which documents are required for a targeted ownership review.
Preparing IP ownership for investor due diligence
The scope of the review depends on the technology, its development history and the investor’s specific questions. Typical areas of focus are as follows.
Founder, employee and contractor IP
Document the chain of title from the time of creation to the company.
Core technology is often developed by founders, employees or external developers. We check whether relevant inventions, software and other work outputs have been effectively assigned to the company and whether the necessary documents are in place.
In the case of German employee inventions, we take the specific legal provisions into account; for freelancers and consultants, it usually depends on the specific terms of the contractual assignment of rights.
Patents, software and open source
Consider formal ownership and technical dependencies together.
For patents and patent applications, we examine ownership, assignments and portfolio structure. In the case of software, our focus is on source code rights, external contributions and open-source components.
The aim is not to carry out an abstract, comprehensive review of all technical assets, but rather to identify the points that may be of material significance to the investor or that require a clear explanation in the data room.
Universities, spin-offs and partnerships
Clarify background IP, licences and further developments at an early stage.
In the case of spin-offs or research collaborations, core intellectual property may be held by a university, a research institute or a collaboration partner. In such cases, exclusivity, fields of use, sub-licensing, further developments and publication rights are particularly relevant.
We review the key licence and cooperation agreements and assess which rights are actually available to the company for its business model and any future transaction.
Data Room, Remediation and Investor Q&A
Address and explain any gaps identified in a systematic manner.
An ownership review should not merely identify problems. Where necessary, missing assignments can be rectified, gaps in documentation filled, or outstanding licensing issues clarified.
We also provide support with the structured provision of documentation and with responding to IP-related queries from the investor or their US lawyers.
Your points of contact
Dr Raphael Tautz and Matthias Schuhmacher coordinate German-language client support and combine expertise in patents, technology and transactions. Depending on the area of focus, the relevant members of the US Corporate and IP practice groups are brought in.
Partner · STEM Practice Group
Your contact in Munich
Partner · STEM Practice Group
Your contact in Munich
Frequently Asked Questions
Typically, an assessment is carried out to determine which intellectual property rights are essential to the business model, who owns them, how they came into the company’s possession, and whether any third parties hold rights to them.
Code, prototypes or inventions may have been created before the company was incorporated. Without a clear transfer of ownership, a gap in the chain of title may become apparent during the due diligence process.
That should not be assumed. The scope of the rights depends on the applicable law and the specific terms of the contract. Contractor agreements and IP assignments are therefore reviewed on a regular basis.
Core IP may be owned by the university and merely licensed out. In such cases, exclusivity, the field of use, sub-licensing, further developments and how the IP is handled in the event of funding or an exit are particularly relevant.
Yes. Even if not every historical gap can be fully resolved straight away, outstanding issues can be prioritised and often documented or rectified before the investor Q&A.
Further information
US Investor Term Sheet
Review the financial and compliance-related conditions of a US funding round.
Intellectual Property
Provide strategic management of patents, software and other intellectual property rights.
Primary sources / Legal basis
Selection of primary and original sources particularly relevant to this use case:
- 35 U.S.C. § 261 – Ownership; assignment – US primary legislation governing the assignment of US patents and patent applications.
- U.S. Copyright Act, 17 U.S.C. §§ 201 and 204 – primary legislation on copyright ownership, works made for hire and the written assignment of rights.
- Employees’ Inventions Act (ArbnErfG) – the primary German source of law on employees’ inventions, in particular sections 5 to 7 and section 42.
- Section 69b of the German Copyright Act (UrhG) – Authors in employment and service relationships – German primary source for computer programmes.
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