Hardware companies build physical products, but the IP exposure often lives in the contracts nobody reviewed when the design was being built. Gurpreet S. Bal has advised on hardware company transactions where IP ownership issues — in ODM relationships, reference designs, and component-level patents — surfaced during M&A diligence with no clean resolution available. "Hardware companies keep discovering IP exposure during M&A diligence that should have been caught years earlier — by the time a deal is on the table, there's no good way to fix it," he says.
Bal's practice covers hardware-focused transactions across IoT, consumer electronics, industrial technology, and the semiconductor supply chain, with particular focus on IP ownership and supply chain licensing risk.
The line between an OEM relationship (where the brand company owns the design and contracts manufacturing) and an ODM relationship (where the design and manufacturing house owns the design and licenses it to the brand company) is one of the most consequential distinctions in hardware IP. In an ODM arrangement, the design files, firmware, mechanical drawings, and component selection belong to the ODM — not the brand company. The brand company has a license to manufacture and sell the product under its name, but it may have no independent right to take those designs to a different manufacturer, to modify them substantially without the ODM's cooperation, or to transfer them in a sale. Hardware companies frequently describe their products as proprietary without fully understanding that their ODM relationship means the actual design is owned elsewhere. In M&A transactions, this distinction determines whether the acquirer is buying a product or a contract.
Chip vendors — Qualcomm, MediaTek, NXP, and others — distribute reference designs to accelerate product development. These reference designs come with license agreements that restrict how the design can be modified, whether it can be used as the basis for multiple product lines, and what happens to the design if the chip relationship changes. A company that built its product on a chip vendor's reference design and customized it may have inadvertently created a derivative work of the reference design — which can mean the chip vendor has license rights in the resulting product. The restrictions are often found in exhibit schedules to chip supply agreements rather than in prominently negotiated terms, and engineering teams rarely review them with IP counsel at the time of product development. Understanding the scope of reference design restrictions is foundational diligence for any hardware acquisition.
A hardware product that includes wireless connectivity — cellular, Wi-Fi, Bluetooth — is exposed to standard-essential patent royalties at the product level, even if the connectivity is provided by a component purchased from a third party. The exhaustion doctrine, which holds that patent rights are exhausted when a licensed product is sold, should in theory pass SEP licenses down the supply chain through licensed component sales. In practice, major SEP holders do not always grant licenses at the component level that create effective exhaustion at the end-product level. Avanci, the 5G patent pool for cellular IoT, licenses directly to device makers rather than chipmakers, which means the SEP royalty burden sits with the product company regardless of which chipset is used. For connected hardware companies, the cellular royalty stack needs to be modeled per unit and included in product economics — it is not automatically resolved by purchasing a licensed chip.
Hardware products ship with firmware, and firmware frequently incorporates open source components. The GPL family of licenses carries copyleft obligations: if GPL-licensed code is incorporated into firmware that is distributed with a product, the distribution may trigger an obligation to release the complete corresponding source code. This matters enormously for hardware companies whose competitive advantage is embedded in proprietary firmware. GPL compliance analysis — determining what open source is in the firmware, under what licenses, and whether copyleft obligations have been triggered — is standard diligence in hardware M&A but is often skipped by the target company itself. Beyond GPL, hardware products that implement standard interfaces and protocols may bundle firmware components licensed under terms that restrict commercial redistribution without attribution or royalty. An open source bill of materials review should be a standard part of every hardware company's annual legal hygiene.
Hardware containing advanced semiconductors, encryption technology, or controlled sensing capabilities is subject to export controls under the Export Administration Regulations. The EAR classifies hardware by Export Control Classification Number (ECCN), and products with certain ECCNs require export licenses for shipments to controlled countries or end-users. The U.S. entity list and the Foreign Direct Product Rule extend U.S. export jurisdiction to foreign-made items produced with U.S.-origin technology or equipment — which affects supply chains that never touch the United States directly. For hardware companies shipping globally, an export control compliance program is not optional; the penalties for violations include criminal liability, denial of export privileges, and civil fines. Hardware companies selling into markets with restricted end-user populations need to conduct end-use screening as part of their sales process, not as an afterthought.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.