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IP AuditIP Audit

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In the knowledge economy intangiblesIn the knowledge economy intangibles

have taken center stagehave taken center stage

By the turn of the Millennium, the relativeBy the turn of the Millennium, the relativevalue of tangible and intangible assets hasvalue of tangible and intangible assets has

essentially reversed so that approximatelyessentially reversed so that approximately

threethree--quarters of a typical companysquarters of a typical companys

assets are intangible assets.assets are intangible assets.

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Changing Scenario of IPChanging Scenario of IP

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Important for companiesImportant for companies track thetrack the

extent, quality & use of IP assetsextent, quality & use of IP assets

Processes & procedures toProcesses & procedures to create,create,inventory, perfect and use IPRsinventory, perfect and use IPRs

associated with these assetsassociated with these assets

Investors and creditorsInvestors and creditors ownership,ownership,

scope & status of IPRsscope & status of IPRs

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What is IP AuditWhat is IP Audit

IP auditIP audit is a review involving theis a review involving the

identification of the IP owned, used oridentification of the IP owned, used or

acquired by a business for itsacquired by a business for itsmanagement, maintenance, exploitationmanagement, maintenance, exploitation

and enforcementand enforcement

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What is..What is..

Identification of IPIdentification of IP Ascertain and confirmAscertain and confirmits existenceits existence

IP Ownership and rights: Confirm that it isIP Ownership and rights: Confirm that it isavailable to be exploitedavailable to be exploited

Technical Validation of IPTechnical Validation of IP -- Confirm that itConfirm that itworksworks

Business Validation of IPBusiness Validation of IP -- Formulate aFormulate astrategy to realise economics benefitsstrategy to realise economics benefits

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What is..What is..

AnAn intellectualintellectual propertyproperty auditaudit

providesprovides anan assessmentassessment ofof thethe intangibleintangible assetsassets

ofof aa companycompany helpshelps toto quantifyquantify thethe valuevalue of of thethe intangibleintangible

assetsassets toto thethe extentextent thatthat suchsuch valuevalue dependsdepends ononthethe legallegal rightsrights toto thosethose assetsassets

examinesexamines andand evaluatesevaluates thethe strengthsstrengths andandweaknessesweaknesses inin thethe proceduresprocedures usedused toto protectprotecteacheach intangibleintangible assetasset andand securesecure appropriateappropriateintellectualintellectual propertyproperty rightsrights

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What is.What is.

IP AuditIP Audit

Provides tools to develop additionalProvides tools to develop additional

processes, make improvements to existingprocesses, make improvements to existingones, take measures to ensure capture ofones, take measures to ensure capture of

future IPRsfuture IPRs

Provides tools & processes to minimizeProvides tools & processes to minimize

issues involving third party rightsissues involving third party rights

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Importance of IP AssetsImportance of IP Assets

The overall importance of IP assets to theThe overall importance of IP assets to the

business will have a bearing on the audit.business will have a bearing on the audit.

Where IP assets are relatively unimportantWhere IP assets are relatively unimportant --might be sufficient merely to confirm thatmight be sufficient merely to confirm that

registered IP rights are in good standing andregistered IP rights are in good standing and

are held in the name of the company.are held in the name of the company.

Where the companys principal assets are IP, itWhere the companys principal assets are IP, it

may be necessary to conduct a more thoroughmay be necessary to conduct a more thorough

assessment of the companys IP portfolio andassessment of the companys IP portfolio and

IP based activities.IP based activities.

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When to do an IP auditWhen to do an IP audit

General purpose IP auditGeneral purpose IP audit

Event driven IP auditEvent driven IP audit

Limited purpose focused auditsLimited purpose focused audits

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General Purpose IP AuditGeneral Purpose IP Audit

Before establishing a new company.Before establishing a new company.

It is always important for a startIt is always important for a start--up companyup companyto be aware of intangible assets it owns orto be aware of intangible assets it owns orneeds to protect.needs to protect.

When a business is considering implementingWhen a business is considering implementingnew policies, standards, or procedures relatingnew policies, standards, or procedures relatingto IP.to IP.

When a business is considering implementing aWhen a business is considering implementing a

new marketing approach or direction, or isnew marketing approach or direction, or isplanning a major reorganization of the company.planning a major reorganization of the company.

When a new person becomes responsible for IPWhen a new person becomes responsible for IPmanagementmanagement

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Event Driven IP AuditEvent Driven IP Audit

An event driven IP audit is often called IP dueAn event driven IP audit is often called IP duediligence when done to assess the value and riskdiligence when done to assess the value and riskof a target companys IP assetsof a target companys IP assets

IP due diligence is a part of a comprehensive dueIP due diligence is a part of a comprehensive duediligence audit that is done to assess thediligence audit that is done to assess the financial,financial,commercialand legalcommercialand legal risks linked to a targetrisks linked to a targetcompanys IP portfolio, typically before it is boughtcompanys IP portfolio, typically before it is boughtor invested inor invested in

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Event driven.Event driven.

It can provide detailed informationIt can provide detailed information

that may affect the price or other keythat may affect the price or other key

elements of a proposed transaction orelements of a proposed transaction oreven aborting the furthereven aborting the further

consideration of the proposedconsideration of the proposed

transactiontransaction

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Event driven.Event driven.

Before entering into a financial transactionBefore entering into a financial transaction

involving IPinvolving IP

Buying or selling a division or a product lineBuying or selling a division or a product line

LicensingLicensing

IP DisputesIP Disputes

OutsourcingOutsourcing

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Limited purpose focused auditsLimited purpose focused audits

Personnel turnoverPersonnel turnover Before a major personnel turnover of inBefore a major personnel turnover of in--househouse

R&D or marketing staff, especially if they areR&D or marketing staff, especially if they aredisgruntled employees.disgruntled employees.

Foreign IP filingsForeign IP filings Before a company takes up an aggressiveBefore a company takes up an aggressive

program of filing IP applications in otherprogram of filing IP applications in othercountries for entering a new market abroad orcountries for entering a new market abroad orexpanding overseas through offexpanding overseas through off--shoring/outsourcing.shoring/outsourcing.

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Limited purpose..Limited purpose..

Before having an Internet presenceBefore having an Internet presence

helps it to identify the needs of ehelps it to identify the needs of e--

commerce and registration of appropriatecommerce and registration of appropriatedomain names, etc.domain names, etc.

Significant changes in IP law and practiceSignificant changes in IP law and practice

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Who Should Do the Audit?Who Should Do the Audit?

TheThe designationdesignation ofof anan auditaudit teamteam dependsdepends ononthethe naturenature andand scopescope ofof thethe auditaudit..

AA companyscompanys ownown personnelpersonnel

BecauseBecause ofof thethe inherentlyinherently legallegal naturenature ofof ananaudit,audit, aa companyscompanys inin--househouse legallegal counselcounselshouldshould bebe involvedinvolved inin thethe auditaudit..

IfIf thethe companycompany personnelpersonnel dodo notnot havehave thethe timetimeoror expertiseexpertise toto performperform aa fullfull--scalescale auditaudit --

outsideoutside counselcounsel

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Who should.Who should.

If outside counsel involved:If outside counsel involved:

Experience in IP auditsExperience in IP audits

Expertise in technology involvedExpertise in technology involved Experience in procuring IP rightsExperience in procuring IP rights

Experience with obtaining remedies forExperience with obtaining remedies for

any legal defectsany legal defects Litigation skillsLitigation skills

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How to do an IP Audit?How to do an IP Audit?

Define an audit planDefine an audit plan

Define a schedule for the auditDefine a schedule for the audit

Define responsibilities among the auditDefine responsibilities among the auditteamteam

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Audit PlanAudit Plan

TheThe plan should:plan should:

Define the areas of inquiry of the auditDefine the areas of inquiry of the audit

Scope of the inquiryScope of the inquiry The scheduleThe schedule

Fix responsibilityFix responsibility

Define documents to be reviewedDefine documents to be reviewed Personnel to be interviewedPersonnel to be interviewed

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Audit PlanAudit Plan

Prepare a check list:Prepare a check list: the type and size of the companys businessthe type and size of the companys business

IP lawsIP laws

purpose and desired outcome of the auditpurpose and desired outcome of the audit

Include a list of the documents to be reviewedInclude a list of the documents to be reviewed

license agreements, distribution agreements,license agreements, distribution agreements,government contracts, employee andgovernment contracts, employee and

consultant agreements, journal articles,consultant agreements, journal articles,published papers, competitive analysispublished papers, competitive analysisdocuments, marketing files, patents, labdocuments, marketing files, patents, labnotebooks, assignmentsnotebooks, assignments

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Audit Plan.Audit Plan.

The specific areas of the business to beThe specific areas of the business to becoveredcovered

Define the personnel to be interviewedDefine the personnel to be interviewed

Attorneys, Brand managers, thoseAttorneys, Brand managers, thoseresponsible for websites, R & Dresponsible for websites, R & DPersonnel (employment agreementsPersonnel (employment agreements

and policies), Graphic designersand policies), Graphic designers Prepare questionnairePrepare questionnaire

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Initial Information GatheringInitial Information Gathering

SubstantialSubstantial initialinitial informationinformation requiredrequired::

InformationInformation concerningconcerning thethe naturenature ofof thethe

assetsassets Important to give the auditors a thoroughImportant to give the auditors a thorough

demonstration of the technology and productsdemonstration of the technology and products

Overview of the history of technologyOverview of the history of technology

Relevant product brochures, advertisementsRelevant product brochures, advertisements

and release notesand release notes

Transaction related auditTransaction related audit details of thedetails of the

transactiontransaction documents like draft purchasedocuments like draft purchase

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Background researchBackground research

Initial background research to increase theInitial background research to increase the

efficiencyefficiency

There may be issues peculiar to a countryThere may be issues peculiar to a country IPIP

lawslaws

Complex technologyComplex technology patents at stakes orpatents at stakes or

issues of inventorshipissues of inventorship

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DatagatheringDatagathering

Someone at the companySomeone at the company designated todesignated tocoordinate the gathering of documents andcoordinate the gathering of documents andinformation relevant to the subject matterinformation relevant to the subject matter

As many documents as possible should beAs many documents as possible should bereviewedreviewed

DocumentsDocuments maintenance agreements,maintenance agreements,distribution agreements, governmentdistribution agreements, governmentcontracts, registrations, employeecontracts, registrations, employeeagreements, consultant agreements,agreements, consultant agreements,materials referred during the developmentmaterials referred during the developmentprocess, journal articles, published papers,process, journal articles, published papers,competitive analysis documents andcompetitive analysis documents andmarketing filesmarketing files

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Logistics ofaccessLogistics ofaccess

To investigate the history ofTo investigate the history of a producta product bothboth

active and archived files need to beactive and archived files need to be

developeddeveloped

Relevant documentsRelevant documents located in regional orlocated in regional orinternational officesinternational offices

Special means required to gain access toSpecial means required to gain access to

documentation stored on computer mediadocumentation stored on computer media

If audit a secretIf audit a secret after office hours or in aafter office hours or in a

special designated placespecial designated place

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Written Report of Results of the AuditWritten Report of Results of the Audit

TheThe reportreport shouldshould discussdiscuss thethe

developmentdevelopment historyhistory ofof thethe technologytechnology atat

issueissue

describedescribe andand evaluateevaluate intellectualintellectual propertyproperty

defectsdefects uncovereduncovered inin thethe auditaudit

proposepropose andand describedescribe specificspecific remedialremedial actionaction

thatthat needsneeds toto bebe takentaken oror thatthat hashas beenbeen takentaken respondrespond toto anyany other other specificspecific needneed for for

informationinformation thethe partiesparties commissioningcommissioning thethe

auditaudit maymay havehave..

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Written Report of Results of the AuditWritten Report of Results of the Audit

IfIf thethe auditaudit isis conductedconducted inin thethe contextcontext ofof anyany

acquisitionacquisition transaction,transaction, thethe reportreport shouldshould

provideprovide thethe informationinformation necessarynecessary toto decidedecidewhetherwhether thethe rightsrights availableavailable areare thethe rightsrights

requiredrequired byby thethe acquiringacquiring partyparty

provideprovide aa basisbasis forfor valuingvaluing thethe rightsrights toto bebe

acquiredacquired..

NecessaryNecessary remedialremedial actionaction cancan bebe

implementedimplemented eithereither beforebefore or or after after thethe

transactiontransaction isis completedcompleted..

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Written reportWritten report -- FilingsFilings

The audit may uncover IP not protected byThe audit may uncover IP not protected by

appropriate filingsappropriate filings

E.g. patent protection might be available forE.g. patent protection might be available for

some aspects of technologysome aspects of technology cost & benefitcost & benefitanalysisanalysis

May need to file copyright and trademarkMay need to file copyright and trademark

applications or user affidavitsapplications or user affidavits

May put in place a systematic procedure toMay put in place a systematic procedure to

ensure that future IPRs are properly protectedensure that future IPRs are properly protected

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Written ReportWritten Report Ownership IssuesOwnership Issues

May need to cure defects in title to IPs that areMay need to cure defects in title to IPs that arediscovereddiscovered

Assignment of ownership from consultantsAssignment of ownership from consultants

EmployeeEmployee independent inventionindependent invention rightsrightssecuredsecured

License rights for derivative worksLicense rights for derivative works

Third parties who may claim joint ownershipThird parties who may claim joint ownership

Any errors in disclosures of patents or trademarkAny errors in disclosures of patents or trademarkor copyright filingsor copyright filings reported to the appropriatereported to the appropriateofficeoffice

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Written ReportWritten Report Infringement IssuesInfringement Issues

Potential infringement of third partyPotential infringement of third party

patentspatents license to be sought or productlicense to be sought or product

redesigned to get around a patentredesigned to get around a patent

Copyrighted work of another may beCopyrighted work of another may be

removed or redevelopedremoved or redeveloped

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Written ReportWritten Report other issuesother issues

Retention of key personnelRetention of key personnel offer incentivesoffer incentives

If not able to retain key personnelIf not able to retain key personnel -- consultingconsulting

agreements, NDAs or nonagreements, NDAs or non--compete agreementscompete agreements

Prospective legal, marketing and research andProspective legal, marketing and research and

development strategies, e.g. if early version of adevelopment strategies, e.g. if early version of a

software product in public domainsoftware product in public domain no copyrightno copyright

later versions can be copyrightedlater versions can be copyrighted

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After an AuditAfter an Audit

After an IP audit, the management matchesAfter an IP audit, the management matchesits newly established inventory of IP assets toits newly established inventory of IP assets to

its strategic business objectivesits strategic business objectives..

A possible technique is to divide:A possible technique is to divide:

Techniques, innovations, and ideas that areTechniques, innovations, and ideas that are

essential to your products and services, and toessential to your products and services, and to

the markets your company has decided tothe markets your company has decided to

serveserve

Intellectual assets of real potential but not toIntellectual assets of real potential but not toyour companyyour company

Assets that seem, on balance, to have no greatAssets that seem, on balance, to have no great

value to your company or to anyone elsevalue to your company or to anyone else

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Businessstrategy formulationBusinessstrategy formulation

How would the assets that have beenHow would the assets that have been

identified as essential to the business of theidentified as essential to the business of the

company be better utilized in marketing itscompany be better utilized in marketing its

goods and services in the relevant marketsgoods and services in the relevant markets How would the assets with potential be usedHow would the assets with potential be used

What would one do with the other `assetsWhat would one do with the other `assets

The results of the IP audit may add a newThe results of the IP audit may add a new

dimension to its strategy discussions and maydimension to its strategy discussions and may

lead to new business strategieslead to new business strategies

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From IP audit to IP assetFrom IP audit to IP asset

managementmanagement

The audit team could evolve into aThe audit team could evolve into a

permanent IP asset management teampermanent IP asset management team

overseen by a senior executive andoverseen by a senior executive andcharged with managing the knowledgecharged with managing the knowledge

portfolio.portfolio.

The team could be composed ofThe team could be composed ofmanagers from various disciplines whomanagers from various disciplines who

understand the firms intellectual assets.understand the firms intellectual assets.

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Create an IP cultureCreate an IP culture

Respect for IPRespect for IP Training on IP best practices for allTraining on IP best practices for all

staffstaff

Training programs to includeTraining programs to includecontent on IP asset managementcontent on IP asset management

Review the existence andReview the existence andadequacy of IP assetadequacy of IP assetmanagement policies, proceduresmanagement policies, proceduresand practices within a companyand practices within a companyand verify that they are effectivelyand verify that they are effectively

communicated to all thecommunicated to all the

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Building value through IP managementBuilding value through IP management

IP asset creation.IP asset creation.

Reducing costs of thirdReducing costs of third--party IP claims.party IP claims.

Building value from product markets using IP assets.Building value from product markets using IP assets.

Creating nonCreating non--core revenue streams.core revenue streams.

Creating additional revenue through core businessCreating additional revenue through core business

licensing.licensing.

Reducing costs of unused IP assets.Reducing costs of unused IP assets.

Receiving tax deductions for IP asset donations.Receiving tax deductions for IP asset donations.

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Building value.Building value.

Reducing new product development costsReducing new product development costs

Evaluating the IP assets of an acquisition orEvaluating the IP assets of an acquisition or

investment target (due diligence).investment target (due diligence).

Assessing business direction and strength.Assessing business direction and strength.

Discovering unclaimed business opportunities.Discovering unclaimed business opportunities.

Discovering business expansion opportunitiesDiscovering business expansion opportunities

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Consequences of not managingConsequences of not managing

IP assetsIP assets Failing to protect assetsFailing to protect assets

Infringing others assetsInfringing others assets

Duplication of efforts to redevelop existingDuplication of efforts to redevelop existingneedsneeds

Loss of potential benefits (revenue,Loss of potential benefits (revenue,

reputation, industry development) fromreputation, industry development) from

failing to commercializefailing to commercialize

Low morale and stifle innovationLow morale and stifle innovation

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Regional IP OfficesRegional IP Offices

African IntellectualAfrican Intellectual Property Organization (OAPI)Property Organization (OAPI) 1616member states; Head Officemember states; Head Office -- CamerounCameroun BeninBenin Burkina FasoBurkina Faso CameroonCameroon Central AfricaCentral Africa CongoCongo Cote d'IvoireCote d'Ivoire Equatorial GuineaEquatorial Guinea GabonGabon GuineaGuinea

Guinea BissauGuinea Bissau MaliMali MauritaniaMauritania NigerNiger SenegalSenegal ChadChad TogoTogo

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African Regional IntellectualAfrican Regional Intellectual

Property OrganizationProperty Organization

16 member states16 member states

Head OfficeHead Office HarareHarare

Botswana, Gambia, Ghana, Kenya,Botswana, Gambia, Ghana, Kenya,Lesotho, Malawi, Mozambique, Namibia,Lesotho, Malawi, Mozambique, Namibia,Sierra Leone, Somalia, Sudan, Swaziland,Sierra Leone, Somalia, Sudan, Swaziland,Tanzania, Uganda, Zambia, ZimbabweTanzania, Uganda, Zambia, Zimbabwe

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Arab StatesBroadcasting UnionArab StatesBroadcasting Union

21 member states; Head Office21 member states; Head Office -- TunisiaTunisia

Algeria, Bahrain DjiboutiAlgeria, Bahrain Djibouti , Egypt, Iraq,, Egypt, Iraq,

Jordan, Kuwait, Lebanon, Libya,Jordan, Kuwait, Lebanon, Libya,Mauritania, Morocco, Oman PalestineMauritania, Morocco, Oman PalestineQatar Saudi Arabia, Somalia, Sudan, Syria,Qatar Saudi Arabia, Somalia, Sudan, Syria,Tunisia, UAE, YemenTunisia, UAE, Yemen

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Benelux Organization forBenelux Organization for

Intellectual PropertyIntellectual Property

3 member States; Head Office: La Haye3 member States; Head Office: La Haye

Belgium, Luxembourg, NetherlandsBelgium, Luxembourg, Netherlands

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Interstate Council on theInterstate Council on the

Protection of Industrial PropertyProtection of Industrial Property

Head Office : MoscowHead Office : Moscow

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European Patent OrganisationEuropean Patent Organisation

Head Offices : Munich, Berlin, The HagueHead Offices : Munich, Berlin, The Hague35 member states35 member states

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International Union for theInternational Union for the

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International Union fortheInternational Union forthe

Protection of New Varieties ofProtection of New Varieties of

PlantsPlants Head Office: Geneva; 67 member statesHead Office: Geneva; 67 member states

Patent Office of the CooperationPatent Office of the Cooperation

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Patent Office of the CooperationPatent Office of the Cooperation

Council forthe Arab States of theCouncil forthe Arab States of the

GulfGulf

5 Member States; Head Office : Riyadh5 Member States; Head Office : Riyadh

States of United Arab Emirates, KingdomStates of United Arab Emirates, KingdomofBahrain, Kingdom of Saudi Arabia,ofBahrain, Kingdom of Saudi Arabia,Sultanate of Oman, State of Qatar, andSultanate of Oman, State of Qatar, andState of KuwaitState of Kuwait