How Mage Identified IP Assignment Gaps Before Closing

A strategic buyer was acquiring a software company for its proprietary technology platform. Due diligence was proceeding smoothly until Mage flagged a critical issue: four of the target's key engineers had never executed proper IP assignment agreements.

The Situation

The target company had developed a specialized analytics platform used by enterprise customers in the financial services industry. The buyer, a larger software company, was acquiring the target primarily for its technology and engineering team.

The target had grown from 5 founders to 45 employees over 3 years, hiring aggressively to keep pace with customer demand. The HR function was lean—a single HR manager handling recruiting, onboarding, and administration for the entire company.

The data room contained the standard HR documentation: offer letters, employment agreements, and confidentiality agreements for all current and former employees.

The Discovery

During the employment agreement review, Mage extracted IP assignment provisions from all employee documents. The analysis compared actual assignment language against the target's standard template, flagging any deviations.

The results revealed a troubling pattern:

| Document Type | Count | IP Assignment Status | |--------------|-------|---------------------| | Full employment agreement with IP assignment | 38 | Complete | | Offer letter only (no separate agreement) | 4 | Missing | | Contractor agreement (converted to employee) | 3 | Complete |

Four employees had only offer letters on file. While these letters referenced IP assignment, they stated: "You will be required to sign our standard Confidentiality and Invention Assignment Agreement." None of the four had ever signed that agreement.

Why This Mattered

The four employees without valid IP assignments were not administrative staff. Mage cross-referenced the incomplete assignments against the target's organizational chart and code repository contributors:

• Engineer A: Lead backend architect, 2.5 years tenure, authored core data processing engine
• Engineer B: Senior engineer, 2 years tenure, built key customer-facing API layer
• Engineer C: Machine learning engineer, 1.5 years tenure, developed proprietary analytics algorithms
• Engineer D: DevOps lead, 2 years tenure, designed infrastructure architecture

These four engineers had contributed substantially to the core product. Without valid IP assignments, the target arguably did not own clear title to significant portions of its technology.

The Investigation

The deal team worked with the target to reconstruct what had happened:

The Timeline:

• Months 1-8: Founding team plus early hires, all properly onboarded with full agreements
• Months 9-14: Rapid hiring phase, 12 new employees in 6 months
• Month 12: HR manager on parental leave, CEO handling onboarding directly
• Months 9-14: Four engineers hired using outdated offer letter template

The outdated template had been used briefly during the CEO's temporary HR duties. It referenced the IP assignment agreement but did not include the assignment itself. The CEO had intended to follow up with the full agreement but never did.

The four engineers were unaware of the gap. They believed their standard employment arrangements were in place.

The Resolution

With 2 weeks remaining before the scheduled closing, the deal team moved quickly:

Week 1: Employee Outreach

The target's CEO personally contacted each of the four engineers to explain the administrative oversight and request execution of the standard IP assignment agreement.

Three of the four engineers signed immediately, understanding the situation was a paperwork error rather than an attempt to extract additional rights.

The fourth engineer—the lead backend architect—was more cautious. He wanted to understand what he was signing and consulted with a personal attorney.

Week 2: Negotiated Resolution

The lead architect's attorney raised concerns about signing away rights to work he had already created. After negotiation, the parties agreed to:

1. A modest signing bonus acknowledging the engineer's contributions
2. Accelerated vesting of his existing equity upon closing
3. Execution of a standard IP assignment agreement effective as of his original hire date

All four assignments were obtained before the scheduled closing.

The Outcome

The deal closed on schedule with clean IP title. The buyer's investment thesis remained intact—the technology and team they were acquiring came with clear ownership rights.

Post-closing, the four engineers all remained with the combined company. The lead architect later acknowledged that the signing bonus and accelerated vesting made him feel valued rather than exploited.

Key Metrics

| Metric | Value | |--------|-------| | Employees analyzed | 45 | | IP assignment gaps identified | 4 | | Time to discover issue | 4 hours | | Days before closing | 14 | | Engineers with core IP contributions | 4 of 4 | | Assignments obtained pre-closing | 4 of 4 |

Lessons Learned

Employment diligence is IP diligence. In technology acquisitions, the IP assignment provisions in employment documents are as important as the patents themselves. Clear title to employee-created IP requires valid assignments from every contributor.

Rapid growth creates gaps. The target's IP assignment gap occurred during a period of rapid hiring when normal processes broke down temporarily. Companies that grow quickly often have documentation inconsistencies that only surface during diligence.

Early discovery enables solutions. With 2 weeks to work, the parties had time to engage employees constructively and obtain valid assignments. The same discovery at closing would have forced a delay or walkaway.

Systematic extraction matters. A manual review might have noted the offer letters were shorter than other agreements but might not have identified the specific missing IP assignment language. Mage's provision-level extraction made the gap immediately visible.