Legal IP diligence checks registered rights such as trademarks and patents, and looks for claims by founders' former employers or universities over work the company relies on.
10 min read · Level 3
The founders I worry about least on IP are the ones who raise their former employer's contract before I ask. It shows they understand the risk and would rather resolve it than hope nobody notices, which tells you something useful beyond the IP itself.
Beyond confirming that contributors assigned their work, legal diligence covers:
Registered rights
Right Protects Check Trademark names, logos registered in key markets? conflicting marks? Patent inventions granted or pending? who owns it? where does it apply? Domain web addresses owned by the company, not a founder
Prior claims
Former employer Did a founder develop the idea while employed, under a contract assigning inventions to the employer? University Was the technology developed using university resources, triggering university ownership or licensing terms? Co-developers Did anyone outside the team contribute to the core invention?
Infringement risk
Has the company received letters claiming infringement? Are there dominant patents in its field held by competitors?
Because a company can build a valuable brand or product on rights it does not securely hold. A trademark conflict can force a rebrand after years of marketing; a former employer's claim can threaten the core technology.
These problems are much cheaper to resolve before investment, and some are serious enough to be deal-killers.
This is educational information, not legal advice. Rules differ by country and change — get advice from a qualified professional in your jurisdiction before acting.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Sources: U.S. Patent and Trademark Office; UK Intellectual Property Office; WIPO - Intellectual property
A former employer's claim.
Founder's previous role: senior engineer at a large company Employment contract: assigns inventions 'related to the employer's business' during employment Company's core algorithm: first prototyped in the founder's last three months there Former employer's business: adjacent product area
The investor's lawyer advises there is a credible risk of a claim. Options include seeking a written release from the former employer, restructuring the technology, or declining the investment. The investor asks the founder to approach the former employer for a release before proceeding.
Checking only whether a trademark or patent application exists, without confirming ownership, coverage and the absence of prior claims.
Confirm ownership and look for conflicting rights in key markets.
Ensure key domains belong to the company.
Review relevant contracts for invention assignment clauses.
Request copies of any claims or letters received.
During diligence on companies whose value depends on their brand or technology.
Do not reach conclusions on infringement or ownership disputes without a qualified IP lawyer.
Courts in several jurisdictions have heard high-profile disputes in which companies alleged that former employees took confidential information or inventions to start or join competing ventures, sometimes resulting in injunctions, settlements or significant damages.
Where a founder's previous job overlaps with the startup, prior claims deserve direct investigation.
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