Escrow for Intellectual Property (IP) in M&A Deals –
When a tech startup gets acquired for $50 million, what’s really being bought? Often, it’s not just the team or revenue—it’s the intellectual property (IP). Patents, trademarks, copyrights, and trade secrets can be a company’s most valuable assets.
But what happens if:
✔ The IP ownership transfer hits legal snags?
✔ Undisclosed licensing agreements surface post-deal?
✔ The seller fails to properly assign key patents?
That’s where IP escrow comes in. At Secured Trust Escrow, we specialize in securing IP assets during M&A deals. Here’s how it works.
What Is IP Escrow?
IP escrow is a protective mechanism where:
1. Critical IP assets (patents, source code, trademarks) are verified and documented
2. Purchase funds are held in escrow until the IP transfer is legally complete
3. Funds release only after confirmed assignment to the buyer
This prevents scenarios where buyers pay millions only to discover they don’t fully own what they bought.
Real-World Example
A pharmaceutical company acquired a biotech startup for its drug patent portfolio. After closing, they discovered:
– One key patent wasn’t properly assigned
– A research university had partial rights
Because they used IP escrow, 30% of the purchase price was withheld until these issues were resolved—saving the buyer $12 million in disputed value.
Types of IP Protected by Escrow
| IP Type | Risks Mitigated | Escrow Duration |
| Patents | Invalid assignments | 6-18 months |
| Trademarks | Opposition filings | 3-12 months |
| Copyrights | Unregistered works | 3-6 months |
| Trade Secrets | Leaks, improper NDAs | 1-3 years |
| Software Code | Open-source contamination, licensing issues | Until audit completion |
The IP Escrow Process: Step-by-Step
1. Pre-Deal IP Audit
– Buyer’s legal team verifies:
✔ Chain of title for all patents/trademarks
✔ Existing licenses/encumbrances
✔ Pending litigation risks
2. Escrow Agreement Terms
Key clauses include:
– Release Conditions (e.g., “Funds release upon USPTO assignment recording”)
– Dispute Resolution (mediation vs. arbitration)
– Cure Periods (time allowed to fix transfer issues)
3. Post-Closing Verification
– Escrow agent confirms:
✔ All assignments filed with relevant agencies
✔ No last-minute liens or claims
✔ All necessary third-party consents obtained
Common IP Escrow Scenarios
🔹 Patent-Heavy Acquisitions
Problem: A medtech buyer discovers the seller never properly assigned key inventions from employees.
Solution: 20% of funds held until all patent assignments are confirmed with USPTO.
🔹 Software Company Buyouts
Problem: Open-source code found in proprietary software after closing.
Solution: Escrow covers indemnification costs up to agreed amount.
🔹 Brand/Trademark Purchases
Problem: Seller’s former partner claims co-ownership of trademark.
Solution: Funds held until trademark dispute resolution.
Why Choose Specialized IP Escrow?
Generic escrow agents often miss critical IP nuances. At Secured Trust Escrow, our expertise includes:
✔ USPTO/Filing Office Coordination – We track assignment recordings
✔ Software Code Audits – Detect licensing/OSS compliance issues
✔ Global IP Experience – Handling multi-jurisdictional transfers
Costs & Timeline
– Typical Fees: 0.5-1.5% of escrowed amount
– Duration: 3 months (simple trademarks) to 2+ years (complex patent portfolios)
– Speed Tip: Start IP due diligence early to avoid escrow delays
Case Study: The $90M App Acquisition That Almost Failed
A Fortune 500 company acquired a mobile app developer. Post-signing, they discovered:
– The “proprietary” algorithm contained copied code
– Key developers hadn’t signed IP assignment agreements
Thanks to a 25% IP escrow holdback:
1. The buyer had leverage to renegotiate terms
2. $22.5M remained protected during fixes
3. The deal ultimately closed with proper protections
When IP Escrow Isn’t Necessary
Escrow may be overkill for:
❌ Asset-light businesses (consulting firms, some service companies)
❌ Small deals with thorough pre-closing IP verification
❌ Transactions where the buyer assumes all IP risk
Key Takeaways
1. IP is often the crown jewel in M&A—protect it like one
2. Escrow periods should match IP transfer complexity
3. Specialized agents matter for patents and tech assets
Protecting Your IP Transaction?
📞 Contact Secured Trust Escrow—California’s trusted M&A IP escrow experts.
