IP Audit

 In the knowledge economy intangibles

have taken center stage
 By the turn of the Millennium, the relative
value of tangible and intangible assets has
essentially reversed so that approximately
three-quarters of a typical company’s
assets are intangible assets.
Changing Scenario of IP
 Important for companies – track the
extent, quality & use of IP assets
 Processes & procedures to – create,
inventory, perfect and use IPRs
associated with these assets
 Investors and creditors – ownership,
scope & status of IPRs
 Like tangible assets IP has to be identified,
protected and maintained to
 maximize its value and

 minimize the potential for third party abuse

 prevent inadvertent loss

 ensure freedom to operate

 What is IP Audit
 IP audit is a review involving the
identification of the IP owned, used or
acquired by a business for its
management, maintenance, exploitation
and enforcement
 What is…..
 Identification of IP – Ascertain and confirm
its existence
 IP Ownership and rights: Confirm that it is
available to be exploited
 Technical Validation of IP - Confirm that it
works
 Business Validation of IP - Formulate a
strategy to realise economics benefits
 What is…..

 An intellectual property audit

 provides an assessment of the intangible assets
of a company
 helps to quantify the value of the intangible
assets to the extent that such value depends on
the legal rights to those assets
 examines and evaluates the strengths and
weaknesses in the procedures used to protect
each intangible asset and secure appropriate
intellectual property rights
 What is….
 IP Audit
 Provides tools to develop additional
processes, make improvements to existing
ones, take measures to ensure capture of
future IPRs
 Provides tools & processes to minimize
issues involving third party rights
 3. Why do an IP audit
 Enables a company to identify its IP assets
 Make decisions with respect to those
assets;
 whether rights have been or should be acquired
for them,
 whether they are or should be maintained,
 how best they could be exploited,
 are there any redundancies,
 threats to those rights, infringements of others
rights etc..
 Importance of IP Assets

 The overall importance of IP assets to the

business will have a bearing on the audit.
 Where IP assets are relatively unimportant -
might be sufficient merely to confirm that
registered IP rights are in good standing and
are held in the name of the company.
 Where the company’s principal assets are IP, it
may be necessary to conduct a more thorough
assessment of the company’s IP portfolio and
IP based activities.
 When to do an IP audit
 General purpose IP audit
 Event driven IP audit
 Limited purpose focused audits
 General Purpose IP Audit
 Before establishing a new company.
 It is always important for a start-up company to
be aware of intangible assets it owns or needs
to protect.
 When a business is considering implementing
new policies, standards, or procedures relating to
IP.
 When a business is considering implementing a
new marketing approach or direction, or is
planning a major reorganization of the company.
 When a new person becomes responsible for IP
management
 Event Driven IP Audit
 An “event driven” IP audit is often called IP due
diligence when done to assess the value and risk
of a target company’s IP assets

 IP due diligence is a part of a comprehensive due

diligence audit that is done to assess the
financial, commercial and legal risks linked to a
target company’s IP portfolio, typically before it is
bought or invested in
 Event driven….
 It can provide detailed information
that may affect the price or other key
elements of a proposed transaction or
even aborting the further
consideration of the proposed
transaction
 Event driven….
 Before entering into a financial transaction
involving IP
 Buying or selling a division or a product line
 Licensing
 IP Disputes
 Outsourcing
 Limited purpose focused audits
 Personnel turnover
 Before a major personnel turnover of in-house
R&D or marketing staff, especially if they are
disgruntled employees.
 Foreign IP filings
 Before a company takes up an aggressive
program of filing IP applications in other
countries for entering a new market abroad or
expanding overseas through off-
shoring/outsourcing.
 Limited purpose…..
 Before having an Internet presence
 helps it to identify the needs of e-

commerce and registration of appropriate

domain names, etc.
 Significant changes in IP law and practice
 Who Should Do the Audit?
 The designation of an audit team depends on
the nature and scope of the audit.
 A company’s own personnel
 Because of the inherently legal nature of an
audit, a company’s in-house legal counsel
should be involved in the audit.
 If the company personnel do not have the time
or expertise to perform a full-scale audit -
outside counsel
 Who should….
 If outside counsel involved:
 Experience in IP audits
 Expertise in technology involved
 Experience in procuring IP rights
 Experience with obtaining remedies for
any legal defects
 Litigation skills
 How to do an IP Audit?
 Define an audit plan
 Define a schedule for the audit
 Define responsibilities among the audit
team
 Audit Plan
 The plan should:
 Define the areas of inquiry of the audit
 Scope of the inquiry
 The schedule
 Fix responsibility
 Define documents to be reviewed
 Personnel to be interviewed
 Audit Plan
 Prepare a check list:
 the type and size of the company’s business
 IP laws
 purpose and desired outcome of the audit

 Include a list of the documents to be reviewed

 license agreements, distribution agreements,
government contracts, employee and
consultant agreements, journal articles,
published papers, competitive analysis
documents, marketing files, patents, lab
notebooks, assignments…
 Audit Plan….
 The specific areas of the business to be
covered
 Define the personnel to be interviewed
 Attorneys, Brand managers, those
responsible for websites, R & D
Personnel (employment agreements
and policies), Graphic designers
 Prepare questionnaire
 Initial Information Gathering
 Substantial initial information required:

Information concerning the nature of the assets
 Important to give the auditors a thorough
demonstration of the technology and products
 Overview of the history of technology
 Relevant product brochures, advertisements and
release notes
 Transaction related audit – details of the transaction –
documents like draft purchase or license agreement
 Background research
 Initial background research to increase the
efficiency
 There may be issues peculiar to a country – IP
laws
 Complex technology – patents at stakes or
issues of inventorship
 Data gathering
 Someone at the company – designated to
coordinate the gathering of documents and
information relevant to the subject matter
 As many documents as possible should be
reviewed
 Documents – maintenance agreements,
distribution agreements, government
contracts, registrations, employee
agreements, consultant agreements,
materials referred during the development
process, journal articles, published papers,
competitive analysis documents and
marketing files
 Logistics of access
 To investigate the history of a product – both
active and archived files need to be
developed
 Relevant documents – located in regional or
international offices
 Special means required to gain access to
documentation stored on computer media
 If audit a secret – after office hours or in a
special designated place
 Written Report of Results of the Audit

 The report should discuss the

 development history of the technology at issue
 describe and evaluate intellectual property
defects uncovered in the audit
 propose and describe specific remedial action
that needs to be taken or that has been taken
 respond to any other specific need for
information the parties commissioning the audit
may have.
Written Report of Results of the Audit

 If the audit is conducted in the context of any

acquisition transaction, the report should
 provide the information necessary to decide
whether the rights available are the rights required
by the acquiring party
 provide a basis for valuing the rights to be
acquired.
 Necessary remedial action can be implemented
either before or after the transaction is completed.
 Written report - Filings
 The audit may uncover IP not protected by
appropriate filings
 E.g. patent protection might be available for
some aspects of technology – cost & benefit
analysis
 May need to file copyright and trademark
applications or user affidavits
 May put in place a systematic procedure to
ensure that future IPRs are properly protected
 Written Report – Ownership Issues
 May need to cure defects in title to IPs that are
discovered
 Assignment of ownership from consultants
 Employee – independent invention – rights
secured
 License rights for derivative works
 Third parties who may claim joint ownership
 Any errors in disclosures of patents or trademark
or copyright filings – reported to the appropriate
office
 Written Report – Infringement Issues

 Potential infringement of third party

patents – license to be sought or product
redesigned to get around a patent
 Copyrighted work of another may be
removed or redeveloped
 Written Report – other issues
 Retention of key personnel – offer incentives
 If not able to retain key personnel - consulting
agreements, NDAs or non-compete agreements
 Prospective legal, marketing and research and
development strategies, e.g. if early version of a
software product in public domain – no copyright
– later versions can be copyrighted
 After an Audit
 After an IP audit, the management matches
its newly established inventory of IP assets to
its strategic business objectives.
 A possible technique is to divide:
 Techniques, innovations, and ideas that are
essential to your products and services, and to
the markets your company has decided to serve
 Intellectual assets of real potential but not to
your company
 Assets that seem, on balance, to have no great
value to your company or to anyone else
Business strategy formulation
 How would the assets that have been
identified as essential to the business of the
company be better utilized in marketing its
goods and services in the relevant markets
 How would the assets with potential be used
 What would one do with the other `assets’
 The results of the IP audit may add a new
dimension to its strategy discussions and may
lead to new business strategies
 From IP audit to IP asset
management
 The audit team could evolve into a
permanent IP asset management team
overseen by a senior executive and
charged with managing the knowledge
portfolio.
 The team could be composed of
managers from various disciplines who
understand the firm’s intellectual assets.
 Create an IP culture –
 Respect for IP
 Training on IP best practices for all
staff
 Training programs to include content
on IP asset management
 Review the existence and adequacy of
IP asset management policies,
procedures and practices within a
company and verify that they are
effectively communicated to all the
employees.
 Building value through IP management

 IP asset creation.
 Reducing costs of third-party IP claims.
 Building value from product markets using IP assets.
 Creating non-core revenue streams.
 Creating additional revenue through core business
licensing.
 Reducing costs of unused IP assets.
 Receiving tax deductions for IP asset donations.
 Building value….
 Reducing new product development costs
 Evaluating the IP assets of an acquisition or
investment target (due diligence).
 Assessing business direction and strength.
 Discovering unclaimed business opportunities.
 Discovering business expansion opportunities
Consequences of not managing
IP assets
 Failing to protect assets
 Infringing others assets
 Duplication of efforts to redevelop existing
needs
 Loss of potential benefits (revenue,
reputation, industry development) from
failing to commercialize
 Low morale and stifle innovation
 Regional IP Offices
 African Intellectual Property Organization (OAPI) – 16
member states; Head Office - Cameroun
 Benin
 Burkina Faso
 Cameroon
 Central Africa
 Congo
 Cote d'Ivoire
 Equatorial Guinea
 Gabon
 Guinea
 Guinea Bissau
 Mali
 Mauritania
 Niger
 Senegal
 Chad
 Togo
 African Regional Intellectual
Property Organization
 16 member states
 Head Office – Harare
 Botswana, Gambia, Ghana, Kenya,
Lesotho, Malawi, Mozambique, Namibia,
Sierra Leone, Somalia, Sudan, Swaziland,
Tanzania, Uganda, Zambia, Zimbabwe
Arab States Broadcasting Union
 21 member states; Head Office - Tunisia
 Algeria, Bahrain Djibouti , Egypt, Iraq,
Jordan, Kuwait, Lebanon, Libya,
Mauritania, Morocco, Oman Palestine
Qatar Saudi Arabia, Somalia, Sudan, Syria,
Tunisia, UAE, Yemen
 Benelux Organization for
Intellectual Property
 3 member States; Head Office: La Haye
 Belgium, Luxembourg, Netherlands
 Eurasian Patent Organization
 9 member States; Head Office : Russia
 Russia, Tajskistan, Turkmenistan, Belarus,
Kazakhastan, Azerbaijan, Kyrgyz, Moldova
Armenia
 Interstate Council on the
Protection of Industrial Property

 Head Office : Moscow

 European Patent Organisation
 Head Offices : Munich, Berlin, The Hague
35 member states
 Office for Harmonization in the
Internal Market (Trade Marks and
Designs)
 27 member states – all countries of EU;
Head Office: Spain
 International Union for the
Protection of New Varieties of
Plants
 Head Office: Geneva; 67 member states
 Patent Office of the Cooperation
Council for the Arab States of the
Gulf

 5 Member States; Head Office : Riyadh

 States of United Arab Emirates, Kingdom
of Bahrain, Kingdom of Saudi Arabia,
Sultanate of Oman, State of Qatar, and
State of Kuwait