Executing an Intellectual Property Audit: Assessing Intangible Assets Before a Cross-Border Acquisition (Philippines)

In a cross-border acquisition involving a Philippine target company, intangible assets often carry a large part of the purchase price—especially trademarks, patents, software-related rights, and online identifiers such as domain names. An intellectual property (IP) audit is the buyer’s structured review of whether the target actually owns, controls, and can validly transfer (or continue using) these rights after closing. This matters because Philippine law generally treats trademark ownership as a matter of valid registration, while also recognizing limited protection for prior users in good faith in specific situations. Supreme Court decisions and Philippine regulatory practice therefore make it essential to test both (a) the documentary chain of title and (b) the commercial realities of use, licensing, and enforcement history.

Governing Philippine law and why it matters for acquirers

Intellectual Property Code of the Philippines (Republic Act No. 8293, 1997) is the main statute governing trademarks and patents, and it also establishes the Intellectual Property Office of the Philippines (IPO) as the central agency for registration and related proceedings. The statute’s definitions are broad enough to cover the major categories of IP rights that typically surface in M&A due diligence, including trademarks and patents, and it also recognizes licensing and assignment transactions through the concept of “technology transfer arrangements.” (Republic Act No. 8293, 1997)

On the doctrinal side, the Supreme Court has repeatedly emphasized that, under the IP Code, trademark ownership is acquired through valid registration, not merely by prior use. This is discussed in Emzee Foods, Inc. v. Elarfoods, Inc.(G.R. No. 220558, 2021) and reaffirmed in Medina, et al. v. Global Quest Ventures, Inc. (G.R. No. 213815, 2021). However, the Court also recognizes that a prior user in good faith may, in certain circumstances, be protected from infringement liability and may continue using the mark for the same business—points discussed in Zuneca Pharmaceutical, et al. v. Natrapharm, Inc. (G.R. No. 211850, 2020).

From a corporate and valuation standpoint, Philippine regulators also treat IP and similar rights as “intangible assets” that can be part of corporate capitalization and transfers, but typically require proof of ownership and valuation documentation in regulated settings. SEC Memorandum Circular No. 2, Series of 2014 expressly includes patents, trademarks, and technical knowledge among “intangible assets” in its asset valuation terminology. (SEC Memorandum Circular No. 2, Series of 2014)

Scope of an IP audit for a Philippine target (what foreign buyers should cover)

A buyer-side IP audit commonly has three layers: portfolio mapping (what IP exists), title verification (who owns it and what encumbers it), and transferability/continuity review (what happens at closing and post-closing).

At minimum, foreign acquirers should request and analyze the following for the Philippine target:

• Trademarks: IPO registration certificates, filing details, renewal history, declarations of actual use (as applicable), assignment and licensing documents, and enforcement records.
• Patents: patent registration documents (or applications), assignment deeds from inventors to the company, R&D funding documentation where relevant, and any licensing or encumbrances.
• Domain names: registrar records, administrative access control, proof of payment, WHOIS/registrant evidence, and agreements with third-party developers or marketing agencies that may control the domain or content.

Trademark due diligence: verifying “real” ownership under Philippine law

For trademarks, the Philippines’ current regime gives strong weight to registration. The Supreme Court states that under the IP Code, the lawful owner is the person or entity who first registers the mark in good faith, and that prior use is no longer the general basis of ownership. (Emzee Foods, Inc. v. Elarfoods, Inc., G.R. No. 220558, 2021; Medina, et al. v. Global Quest Ventures, Inc., G.R. No. 213815, 2021)

For foreign acquirers, this means your audit should not stop at “the mark is used in the market.” You must verify that the registration was validly obtained and that the registrant is the correct party in the acquisition chain (the target itself, a parent, a founder, or an affiliate).

Trademark audit checklist (ownership, validity, and risk signals)

Below is a buyer-oriented checklist used to confirm whether the target’s trademark rights are defensible and transferable:

Audit area	What to verify	Why it matters
Registered owner	IPO certificate lists the target as registrant (not a founder/affiliate/marketing agency).	Under the IP Code, ownership attaches to valid registration; misalignment creates title defects. (Emzee Foods, 2021)
Good faith and possible cancellation risk	Any evidence registration was obtained fraudulently or contrary to the IP Code (e.g., copied branding, bad-faith filing).	Registration creates prima facie ownership, but it can be challenged if obtained fraudulently/bad faith. (Medina v. Global Quest, 2021)
Prior user issues	Whether someone else used the mark earlier in good faith and could claim limited continued use protections.	Prior users in good faith may have recognized protections even under the registration-based system. (Zuneca Pharmaceutical, 2020)
Licensing and restrictions	Existing trademark licenses, distribution contracts, franchise documents, and “technology transfer arrangements” touching the mark.	Licensing can restrict transfer or require consent; it also affects post-closing operations. (Republic Act No. 8293, 1997)
Actual commercial use	How the mark is used on goods/services, packaging, advertising, online listings, invoices, and regulatory filings.	Use evidence supports enforceability and helps assess whether third parties, not the target, built the goodwill protected by unfair competition rules. (Emzee Foods, 2021)

Patents: chain of title, inventorship, and R&D funding issues

For patents (and patent applications), the practical audit question is: did the target actually acquire the rights from the inventors, and are there funding-related restrictions that affect ownership or commercialization?

Where the target’s technology was developed through government-funded research, the Philippine Technology Transfer Act of 2009 (Republic Act No. 10055, 2010) becomes relevant because it defines “Intellectual Property Rights” by reference to the IP Code and sets policy rules that may impact ownership and commercialization of IP arising from government-supported R&D activities. (Republic Act No. 10055, 2010)

Typical red flags foreign buyers look for in patent audits include: (a) missing inventor assignment deeds, (b) patents registered in the names of founders instead of the company, (c) university or government collaborators with potential ownership claims, and (d) licensing commitments embedded in R&D agreements.

Domain names: confirming control and transfer readiness

While domain names are not the same as trademarks, they are frequently treated as mission-critical business identifiers. A Philippine target may “use” a domain for years without being the true registrant or without having full administrative control. Your audit should confirm:

• Registrant identity: the domain is registered to the target (not an employee, founder, or web agency).
• Admin access: the target controls the registrar account, authentication email, and DNS records.
• Contractual ownership of related assets: website code, content, and SEO assets are owned by the target or properly licensed.

Even where the domain is in the target’s name, acquirers should still cross-check whether the domain is tied to the target’s registered trademarks (or pending applications), since trademark ownership in the Philippines centers on valid registration. (Emzee Foods, 2021; Republic Act No. 8293, 1997)

Documents foreign acquirers commonly request (Philippine target)

Below is a consolidated request list commonly used in M&A legal due diligence:

• IPO documents: trademark/patent certificates, filing details, prosecution history, renewals, and any cancellation/opposition records (if available).
• Title documents: deeds of assignment, IP assignment clauses in employment and contractor agreements, and board/shareholder approvals where required by internal governance.
• Licensing: trademark licenses, technology licenses, franchise/distribution agreements, and any “technology transfer arrangements.” (Republic Act No. 8293, 1997)
• Valuation support: where IP is booked as an asset or used in regulated filings, appraisal materials consistent with SEC’s asset valuation concepts for intangibles. (SEC Memorandum Circular No. 2, Series of 2014)
• Online assets: domain registrar records, web development agreements, and documentation of account control.

Common scenarios and how to handle them in the deal

Scenario 1: Trademark registered to a founder, not the target. A buyer usually requires an assignment to the target before closing (or direct assignment to the buyer at closing), plus representations that no third party has superior rights. This aligns with the Court’s focus on valid registration ownership under the IP Code. (Medina v. Global Quest, 2021)

Scenario 2: Target has long use, but weak or missing registrations. The buyer often conditions closing on filing applications, cleaning up use documentation, and adopting an enforcement plan. This is because market use alone does not generally establish ownership under the current rule. (Emzee Foods, 2021)

Scenario 3: Signs of bad-faith registration risk. If the target’s registration appears vulnerable to cancellation due to fraud or bad faith, the buyer may (a) adjust valuation, (b) demand special indemnities/escrow, or (c) carve out the asset from the deal if it is central to the business. The Supreme Court recognizes that the presumption from a certificate can be rebutted. (Medina v. Global Quest, 2021)

Buyer-side recommendations (deal protections that match Philippine IP rules)

Foreign acquirers typically combine legal review with transaction safeguards. Common protections include:

• Closing conditions: completion of assignments, correction of registrant information, delivery of original IP certificates, and confirmed domain transfer readiness.
• Representations and warranties: ownership, validity of registration, absence of undisclosed licenses, and no known grounds for cancellation (including bad faith or fraud issues). (Medina v. Global Quest, 2021)
• Indemnities and escrow: targeted coverage for IP disputes, cancellation proceedings, and third-party claims, especially where the brand drives revenue.
• Post-closing covenants: continued cooperation in IPO recordal actions, enforcement actions, and technology transfer compliance where applicable. (Republic Act No. 8293, 1997)

Conclusion

An IP audit for a Philippine target company should focus on valid registration-based ownership for trademarks, supported by a clean chain of title and risk screening for bad-faith or fraud vulnerabilities recognized by the Supreme Court. Patents require close attention to inventor assignments and potential complications tied to government-supported R&D. Domain names require confirmation of registrant identity and administrative control to prevent post-closing disruption. In cross-border acquisitions, buyers are best protected when the legal review is paired with deal terms that force cleanup before closing and allocate IP risk after closing.

About Nicolas and De Vega Law Offices

 Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website https://ndvlaw.com.