What IP due diligence should a startup be ready for before fundraising

Question

My startup is raising a funding round and investors want to review our intellectual property before closing the deal. What I am unsure about is the procedure — where the application goes, what it costs, and how long startup ip due diligence matters usually take. A plain explanation of the steps, in order, would help more than a general answer.

MyVakeel Legal Desk · Accepted Answer

The law that applies to startup ip due diligence here is Copyright Act, 1957, Section 17, Patents Act, 1970, Section 68 and Trade Marks Act, 1999, Section 45. The detail below matters, because Copyright Act, 1957, Section 17 draws the line differently depending on what your documents show.

Investors typically require confirmation that all core intellectual property — code, brand, designs, patents — is validly owned by the company and not by individual founders, contractors or a former employer of a founder, since Section 17 of the Copyright Act, 1957 vests default ownership in the actual author absent an assignment, meaning unassigned contractor or founder-created IP is a common and material gap found in diligence.

Section 68 of the Patents Act, 1970 requires every assignment of a patent to be in writing and duly executed, and to be registered with the Controller under Section 69 to be admissible as evidence of title, so investors will specifically check whether founder or employee-invented patents have been properly assigned and recorded in the company's name, not left in an individual's name.

Section 45 of the Trade Marks Act, 1999 similarly requires registration of any assignment of a trademark with the Registrar for it to be effective against third parties, so diligence checklists commonly flag brand names, logos and domain names registered in a founder's personal name rather than the company's name as a red flag requiring cleanup before closing.

A standard startup IP diligence exercise also reviews open-source software licence compliance, since certain copyleft licences can create obligations to release proprietary code, along with confirming that all employees and contractors have signed IP assignment and confidentiality agreements and that no key IP depends on a former employer's undisclosed trade secrets.

In practice, in this order: 1) Audit all patents, trademarks, copyrights and domains for correct company ownership; 2) Ensure every employee and contractor has signed an IP assignment agreement; 3) Register any pending assignments with the Patent and Trade Marks Registry before diligence begins; 4) Review open-source licence obligations affecting the product codebase.

Timing matters here: Copyright Act, 1957, Section 17 works on limitation periods, so a startup ip due diligence claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in intellectual property.