When purchasing a business, buyers often focus on financial statements, physical assets, and existing liabilities. But some of the business’s most valuable assets may be its brand, website, software, customer-facing content, and other intellectual property.

For a buyer, the question is therefore not only what that intellectual property is worth, but also whether the business actually owns and can transfer the rights the buyer expects to acquire.

Why Intellectual Property Ownership Matters

Imagine a buyer acquiring a successful technology company whose value lies in its customer relationships, revenue, recognizable brand, and proprietary software. The purchase price reflects the buyer’s expectation that it will acquire and continue to benefit from these assets. However, during the due diligence process, the buyer discovers that the company’s core software was developed by an independent contractor who never assigned the copyright to the company and its principal trademark is registered in the founder’s name.

Suddenly, what appeared to be a straightforward acquisition raises important questions about what the buyer is actually purchasing. Does the company own the intellectual property that underpins its value? Can the buyer continue using and commercializing it after closing? Can these ownership issues be addressed before the transaction proceeds?

This hypothetical illustrates why IP due diligence can be critical in an M&A transaction. The value of these assets to a prospective buyer depends on the rights the buyer will acquire. Confirming that the target owns, or has the necessary rights to use and transfer, its key IP is therefore important to assessing the acquisition and identifying risks before closing.

Identifying the Target Company’s Intellectual Property

The first step in IP due diligence is identifying the intellectual property the target owns, uses, or relies on. This may include trademarks protecting its name and branding, copyright in software, website content, and marketing materials, patents protecting inventions or technologies, and trade secrets or other commercially valuable know-how.

Not all IP, however, will be registered or readily identifiable. Copyright, for example, generally arises automatically and does not depend on registration. A purchaser should therefore consider both registered and unregistered rights, focusing on those central to the target’s operations and value.

Confirming Ownership: Does the Company Actually Own Its IP?

Identifying a company’s intellectual property does not necessarily mean that the company owns it. A purchaser should therefore examine the chain of ownership for key IP, including registrations, assignments, licences, and agreements with founders, employees, and independent contractors.

A. Copyright. As a general rule, the author of a work is the first owner of copyright. An important exception applies to works created in the course of employment, where the employer is generally the first owner, absent an agreement to the contrary. By contrast, paying an independent contractor to create a work does not necessarily transfer copyright ownership to the company. Copyright assignments must generally be in writing and signed by the copyright owner. Agreements with developers, designers, consultants, and other third-party creators are therefore particularly important.

B. Trademarks. Trademark rights may be registered or unregistered. Registration provides the owner with the exclusive right to use the trademark across Canada in association with the registered goods and services and serves as evidence of ownership. Rights may also arise through use of an unregistered trademark, although their scope and enforcement differ from registered rights. A purchaser should therefore review the target’s key marks and confirm that any registrations are held by the appropriate entity.

C. Patents. Patents protect inventions and provide the patent owner with the exclusive right to make, construct, use, and sell the patented invention. Because inventions may originate with founders, employees, or third-party developers, a purchaser should confirm that rights in material inventions and patent applications have been properly assigned to the target.

D. Trade Secrets. Unlike other forms of IP, trade secrets are not registered in Canada. Their protection generally depends on maintaining the confidentiality of commercially valuable information, making measures such as confidentiality agreements, access restrictions, and other safeguards particularly important.

Confirming ownership can uncover gaps that may need to be addressed before closing.

Understanding Third-Party Licences and Restrictions

A business does not need to own all the IP it uses. It may instead rely on rights licensed from third parties, including software, technology, content, or other IP essential to its operations. Unlike an assignment, which transfers ownership, a licence permits specified uses of IP without transferring ownership.

A purchaser should therefore review material IP licences and other agreements to understand the scope of the target’s rights and whether they will continue after the transaction. This includes reviewing restrictions on assignment, change-of-control provisions, and any requirements to obtain third-party consent. These provisions should be considered in light of the transaction structure, as an asset purchase may require the assignment of a licence, while a share purchase may trigger change-of-control restrictions.

In addition to restrictions arising under third-party licences, a purchaser should consider whether moral rights may affect its intended use of copyrighted works. Even where a company owns the copyright in a work, moral rights generally remain with the author and cannot be assigned, although they may be waived in whole or in part by the author. An assignment of copyright does not, by itself, constitute a waiver of moral rights. Depending on how the purchaser intends to use or modify the work after closing, any moral rights waivers may therefore be relevant to the diligence review.

For example, if a business relies on licensed software to provide its services and the licence cannot be transferred, or the transaction triggers a consent requirement, the purchaser may be unable to continue using technology essential to the business. Identifying these restrictions before closing allows the parties to obtain necessary consents or address continued access in the transaction documents.

Addressing IP Risks in the Purchase Agreement

Identifying an IP issue during due diligence is only part of the process. Diligence findings should inform how the transaction is negotiated and documented. Depending on the issue, a purchaser may require outstanding IP assignments or third-party consents before closing, negotiate representations and warranties concerning IP ownership, use, and infringement, or address specific risks through indemnities, closing conditions, or other contractual protections.

The appropriate response will depend on the nature and significance of the IP to the business. The purchase agreement can be tailored accordingly to address identified risks and help ensure that the purchaser receives the rights it expects to acquire.

Conclusion: Protecting the Value of the Acquisition

IP may represent a significant part of a business’s value, but identifying it is only the first step. A thorough diligence review can reveal ownership gaps, contractual restrictions, and other issues that may affect the purchaser’s ability to use and benefit from these assets after closing.

By identifying and addressing these risks before completing the transaction, purchasers can better protect the value of their investment and reduce the likelihood of unexpected IP-related issues after closing.

This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.

¹ Corporate and Practice Manual for Charities and Not-for-Profit Corporations, Burke-Roberston, Carter and Man, Release No. 5, August 2026
² Ibid. This excludes the common law applicable to charities, which may take precedence if there is a conflict with not-for-profit corporate legislation (not discussed in this article).
³ S.O. 2010, c. 15.
⁴ S.C. 2009, c. 23.
⁵ Jane Burke-Roberston, Primer for Directors of Not-for-Profit Corporations (Industry Canada, 2002).
⁶ ONCA, s. 21 and CNCA, s. 124
⁷ Jane, supra, note 5.
⁸ Corporate, supra, note 1.
⁹ Corporate, supra, note 1.
¹⁰ ONCA, s. 43(1) and CNCA, s. 148(1).
¹¹ ONCA, s 43(2) and CNCA, s. 148(2).
¹² Corporate, supra, note 1.
¹³ Ibid.
¹⁴ ONCA, s. 44 and CNCA, s. 149 (1).

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