What IP issues should be reviewed in a technology M&A transaction?

Technology IP diligence should cover four areas: ownership verification (confirming clean assignment chains from founders, employees, and contractors), freedom-to-operate analysis (identifying potential infringement claims), IP protection adequacy (patent, trademark, and trade secret programs), and open source compliance (ensuring open source components do not create copyleft obligations that affect proprietary code). Each area can reveal deal-altering risks that affect valuation and deal structure.

How do software license agreements affect technology acquisitions?

Software license agreements create three categories of risk in M&A: the target's inbound licenses (software the target uses to operate its business), the target's outbound licenses (software the target licenses to its customers), and open source licenses embedded in the target's products. Change-of-control provisions in inbound licenses can restrict the buyer's ability to continue using critical software. Audit rights in those same licenses can expose the target to true-up payments or penalties.

What data privacy issues arise in technology M&A?

Data privacy diligence in technology M&A should assess the target's compliance with applicable privacy laws (GDPR, CCPA, state laws), the scope and sensitivity of personal data collected and processed, data processing agreements with vendors and partners, consent mechanisms and privacy policy commitments, cross-border data transfer mechanisms, and breach history. Post-closing, the buyer inherits these compliance obligations and any liability for prior violations.

Why is open source compliance important in technology acquisitions?

Open source compliance matters because certain open source licenses (particularly copyleft licenses like GPL) require that derivative works be distributed under the same license terms. If the target's proprietary software incorporates GPL-licensed components, the buyer may face an obligation to release proprietary source code. A thorough software composition analysis during diligence identifies these dependencies before they become post-closing surprises.

Technology M&A Due Diligence: Software Licenses, IP Chains, and Data Privacy

Technology M&A due diligence is the process of evaluating the intellectual property, software assets, customer contracts, and regulatory compliance posture of a technology target. It differs fundamentally from traditional corporate diligence because the core asset being acquired is often intangible: software code, patents, customer data, and the contractual relationships that monetize them. Getting the IP and license analysis wrong can mean acquiring a business whose primary assets are encumbered, unprotectable, or worth less than the purchase price assumes.

IP Ownership and Assignment Chains

The foundational question in technology diligence is whether the target actually owns what it claims to own. IP assignment chains must trace from initial creation to the target entity with no gaps.

Employee and Contractor Assignments

Every person who contributed to the target's technology must have executed an IP assignment agreement. This includes:

Founders who may have developed initial technology before the company was formed
Employees who should have invention assignment provisions in their employment agreements
Independent contractors whose work product is not automatically owned by the hiring party under copyright law
Consultants and advisors who may have contributed to product development

Gaps in the assignment chain are common and consequential. A contractor who built a critical module without executing an IP assignment owns the copyright to that code. A founder who developed the initial product before incorporating may retain personal ownership absent a written assignment.

Structured extraction across the target's employment and contractor agreements can identify which agreements contain IP assignment provisions and which are missing them. The deal team then focuses investigation on the gaps rather than reading every agreement from start to finish.

Freedom to Operate

Beyond ownership, the buyer needs confidence that the target's products do not infringe third-party IP rights. Freedom-to-operate analysis should cover:

Patent landscape review in the target's technology domain
Existing licensing obligations that constrain how the technology can be used
Cease-and-desist history and any ongoing IP disputes
Indemnification obligations in customer contracts related to IP infringement claims

Software License Diligence

Technology targets rely on licensed software for operations and embed licensed components in their products. Both categories require careful review.

Inbound Licenses (Software the Target Uses)

Review all material software licenses for:

Change-of-control provisions that could allow the licensor to terminate or require consent upon a transaction
Scope restrictions that may not cover the combined entity's intended use
Audit rights that expose the target to true-up payments if license counts have been exceeded
Transferability and assignment limitations that could prevent the buyer from continuing to use the software
Pricing and renewal terms that affect the go-forward cost structure

Enterprise software agreements with vendors like Oracle, SAP, Microsoft, and Salesforce frequently contain change-of-control provisions. A target running its business on an enterprise platform that the licensor can terminate or renegotiate upon acquisition represents a material operational risk.

Outbound Licenses (Software the Target Sells)

For targets that license software to customers, review the customer agreement portfolio for:

License grant scope and any usage restrictions that could create customer disputes
Service level commitments and remedies for breach
Indemnification obligations for IP infringement, data breaches, or service failures
Limitation of liability provisions including any contracts with uncapped or inadequately capped liability
Termination and data portability rights that could allow customers to exit post-closing
Revenue recognition implications of license structure (perpetual vs. subscription, on-premise vs. SaaS)

For SaaS businesses, the customer agreement portfolio is the revenue base. Contracts with favorable customer termination rights, unlimited data portability, or uncapped liability directly affect the target's recurring revenue valuation.

Open Source Compliance

Open source software is ubiquitous in technology products. The risk is not that the target uses open source. The risk is that it uses open source with obligations it has not identified or complied with.

Copyleft licenses (GPL, LGPL, AGPL) require that derivative works be distributed under the same license terms. If the target's proprietary software is considered a derivative work of a GPL-licensed component, the buyer may face an obligation to release proprietary source code under the GPL.

Permissive licenses (MIT, Apache, BSD) have fewer restrictions but still require attribution and disclaimer notices.

Due diligence steps:

Obtain a complete software bill of materials (SBOM) identifying all open source components
Run a software composition analysis (SCA) to identify components and their licenses
Evaluate whether copyleft-licensed components are isolated from proprietary code
Review the target's open source policy and compliance procedures
Assess whether any open source license obligations have been breached

Data Privacy and Security

Data privacy has moved from a secondary diligence item to a primary risk area in technology acquisitions. The regulatory landscape has expanded significantly, and enforcement has become more aggressive.

Privacy Law Compliance

Assess the target's compliance with applicable privacy laws based on the jurisdictions in which it operates and collects data:

GDPR (if the target processes personal data of EU residents)
CCPA/CPRA (if the target processes personal information of California residents)
State privacy laws (Virginia, Colorado, Connecticut, and an expanding list of states)
Sector-specific regulations (COPPA for children's data, HIPAA for health data, GLBA for financial data)

Data Inventory and Processing Activities

Understand what data the target collects, how it processes it, and with whom it shares it:

Categories of personal data collected
Purposes for processing and legal bases (for GDPR compliance)
Data sharing with third parties and data processing agreements
Cross-border data transfer mechanisms (for international operations)
Data retention policies and practices
Consent mechanisms and privacy policy commitments to users

Security Assessment

Security incident and breach history
Security certifications (SOC 2, ISO 27001)
Vulnerability management practices
Encryption practices for data at rest and in transit
Access control and authentication mechanisms

Customer Data Considerations

For SaaS businesses, customer data is held in trust. Review the target's customer agreements for data ownership provisions, data processing obligations, and data return or deletion requirements upon termination. Post-closing, the buyer inherits these obligations and must maintain compliance continuity.

Structuring Technology Diligence for Efficiency

Technology targets typically generate more documents for diligence than targets in other industries. The combination of customer agreements, vendor licenses, employment and contractor agreements, IP filings, and privacy documentation creates a volume challenge.

The most effective approach is parallel workstreams with technology-assisted document review:

IP workstream: Assignment chains, patent portfolio, freedom-to-operate
License workstream: Inbound software licenses, open source compliance, audit exposure
Revenue workstream: Customer agreement portfolio, SaaS metrics, churn and renewal analysis
Privacy workstream: Compliance assessment, data inventory, security posture

AI-powered contract review accelerates the document-intensive portions of each workstream. Extracting assignment provisions, change-of-control triggers, liability caps, and termination rights across hundreds of agreements simultaneously gives the deal team structured data to analyze rather than raw documents to read.

The judgment calls remain with the attorneys. Whether a particular open source license creates copyleft exposure, whether a customer concentration poses revenue risk, whether a privacy compliance gap is remediable before closing. But those judgment calls are better informed and faster when they start from structured data rather than stacks of unorganized PDFs.