It is well-recognised that intellectual property (IP) has an important role to play in successful businesses. IP is an asset which can contribute significantly to a company's goal to be ahead of the competition. Strategic planning should thus be carried out to ensure that the development, protection and exploitation of the company's IP are synchronised with its business needs and plans.
Central to any meaningful business plan would be to know the assets at the company's disposal and the strength of these assets. While some companies have a robust and dynamic IP team which has good and current knowledge of their assets and corresponding rights, many others have through the years built up a considerable portfolio of IP rights which risk being undervalued or lost due to lack of proper management. For such companies, an IP audit to ensure an accurate IP inventory is an important first step to getting the management of its IP back on track.
The key objective of an IP audit is to identify a company's assets and the IP that resides in each asset. Such IP could take the form of trademarks, patents, copyright, trade secrets and confidential information. During an audit, the company would take stock of their registered IP and ensure that all deadlines are tracked. Where registrable IP has yet to be registered, decisions should be taken as to whether applications to register the IP should be filed. Factors to consider in such situations would be the importance of the IP to the business, the likely life span of the IP and the risk of third parties acquiring the information or trade secret.
An IP audit would also be a good time to review and determine whether the registered IP of the company is still relevant and important to the business. If not, the company can save resources by allowing these redundant IP to lapse, or perhaps explore the possibility of selling or licensing out such IP to generate some revenue. Licensing helps to maximise the IP's commercial potential and can also be carried out with IP which is still in use.
Title and processes
Another important aspect which would usually be flagged during the audit would be the issue of ownership. In particular, the company would have to examine whether it has clear and good title to the asset and its corresponding IP. Aside from looking at employee agreements and contracts with service providers, an audit would usually also trigger a review of internal processes and procedures. This is particularly important for the purposes of ascertaining whether information, material, documents and processes within the company can be considered confidential information or trade secrets. The confidential nature and efforts taken to maintain the secrecy of confidential information and trade secrets are critical to their value. An IP audit would help to detect defects and shortcomings in protocols and prompt improvement in processes. Regular follow-up checks should be conducted to ensure that all necessary steps and measures implemented to preserve confidentiality are being observed by relevant parties.
Culture of respect
A regular spin-off of an IP audit is heightened awareness amongst employees to the IP developed and used within the company, and gives employees greater motivation to adhere to the procedures put in place to protect them. The conduct of such an exercise sends an important message to the employees that the management recognises the importance of IP to the business. This helps to build a culture of respect for IP within the company and would hopefully also encourage innovation, research and development.
After the audit
An IP audit gives a company greater clarity of its assets, the gaps in its inventory and issues which it needs to address in order to improve the management of its IP. Once the house is in order, the company would be in a much better position to take their IP to the next level for the generation of revenue and enforcement of rights. Other than the commercialisation of the IP through its use in the business, the company can look into the following additional areas:
- Reducing the risk of infringement
Litigation costs can be crippling. Aside from knowing what resides in its own war chest, the company may decide to incorporate preventive measures in its business processes by conducting searches prior to the use of any IP developed and/or monitoring the business activities and IP development of its competitors so as to minimise the risk of infringement. Safeguards can also be put in place to ensure that new employees do not inadvertently breach obligations of confidentiality owing to their former employer(s).
- Valuing the IP
Valuation of the IP is another important follow-up to an IP audit if the latter was undertaken pursuant to a potential sale or acquisition of a company or its assets. Highly valued IP owned by the company can help to justify a higher price. On the other hand, if you are the purchaser, a low valuation of the IP inventory and/or uncertainty in the ownership of assets declared could give you reasons to bargain for a lower price or abandon the deal.
If a comprehensive review of the IP of your company has not been conducted or the management of your company's IP has taken a backseat in the last few years, the time may be ripe for this exercise. The resources for the development and protection of IP can be substantial. The IP audit is a useful tool to optimise return on investment, and we would recommend that it be conducted sooner than later.