James E. Longwell
Partner
Patent Agent, Trademark Agent
Article
Published14 October 2020
IP audits: What's in your IP portfolio?
Increasingly in knowledge intensive businesses, intellectual property (IP) assets are key drivers to market success and valuation. Fundamental to the development of a robust IP strategy is a thorough understanding of the business' IP portfolio, which may include patents, trademarks, copyrights, trade secrets, domain names, and industrial designs. An IP audit provides just such an insight.
What is an IP Audit?
An IP audit is a systematic review of the IP owned and/or used by an entity. It involves identifying IP assets and assessing their nature and scope to evaluate potential risks and opportunities. Extensive audits also include reviewing third party rights. In many ways, an IP audit is similar to a due diligence review for an M&A deal.
An IP audit is guided by specific objectives. Where a business is more focused on a particular type of IP asset or line of business, the IP audit may be directed at those priorities rather than on the business' entire IP portfolio. Similarly, the comprehensiveness of the review can be adjusted to meet any financial constraints.
Establishing a well-defined audit scope provides a framework within which to create a tailored document checklist to guide the review. Relevant documents include those that define the scope and ownership of an IP right including any limitations or encumbrances. Documents include, for example:
- Registrations and applications for rights (i.e. domestic and international registrations and pending applications for patents, trademarks, copyrights, industrial designs and domain names, etc.)
- Agreements (i.e. licensing agreements, assignment agreements, settlement agreements, joint venture agreements, confidentiality and non-disclosure agreements, employee and contractor agreements, security agreements, etc.)
- Other IP-related documents (i.e. legal opinions, clearance searches, threat letters, litigation proceedings, company policies and procedures, etc.)
While documents form the major source of information for an audit, it is imperative to have assistance from knowledgeable personnel with sufficient authority to ensure an audit progresses smoothly, on time and on budget.
Why Conduct an IP Audit?
Below are four common reasons for an IP audit:
1) Identify potential anomalies
Ownership inconsistencies between what is believed to be owned by an entity and what is reflected in public records are often identified. An IP owner can take measures to clean up title inaccuracies.
A review of policies and procedures can identify systemic issues and provide an impetus to adopt best practices.
2) Identify potential gaps in IP protection
Mapping is the process of associating IP rights with specific aspects of the business. Mapping shows where the business is covered and where it is not. Steps may be taken to resolve the gaps or boost coverage.
3) Identify potential cost-savings and efficiencies
The maintenance of registered IP rights often comes at a cost through maintenance fees. Mapping also identifies those assets that are unused, under-utilized or otherwise no longer valued. Allowing those registered rights to lapse saves unnecessary expenses for re-allocation elsewhere, driving higher value. Such rights may provide an opportunity for sale or license to others.
Opportunities to improve the management of the portfolio can be identified. If different representatives (attorneys or agents) are responsible for different portfolio assets, there may be inefficiencies in coordinating and managing the portfolio. Consolidating management to fewer representatives can improve efficiency and lower costs.
4) Identify potential risks
Agreement review may reveal compliance issues. For example, undertakings given in a settlement agreement or the terms of a licensing agreement may restrict a business' rights to use an IP asset. Reviewing operational activities can ensure that the business is in compliance with its agreements to avoid infringement or breach of contract.
Certain IP assets may be susceptible to being extinguished. For instance, registered trademarks may be cancelled for non-use and use may be resumed in an effort to preserve the registration.
Conclusion
For businesses that have invested in the development or acquisition of IP assets, conducting an IP audit can help provide valuable insights and opportunities. Once audited, a business will be in a better position to strengthen its IP portfolio and harness its value.
James: Hello. My name's James Longwell. I'm a partner in the Canadian offices of Gowling WLG. The topic we're going to explore today is IP Audits: What is in your IP Portfolio? By way of overview we're going to look at three main questions. What is an IP audit? Why conduct an audit? How do you conduct an audit?
So what is an IP audit? Well, it's a rigorous systematic review of the IP that's owned or used by a particular entity. It identifies intellectual property. Assesses its nature, scope and ownership. It reviews internal intellectual property policies and procedures and even in an extensive audit one can look at the rights of third parties. In many contexts, in many ways, an IP audit is similar to a due diligence review in an M&A deal.
Why does one conduct an IP audit? Well, there's four main reasons. You can identify potential anomalies, for example, ownership anomalies on a public record may be inconsistent. You can identify potential gaps in intellectual property protection. Mapping is a process of associating intellectual property rights with aspects of a particular business, showing where the business is covered and where it is not. Steps may be taken to resolve the gaps and boost one's coverage. Potential cost savings and efficiencies are often also identifiable. Mapping can show those assets that are unused, under utilized or otherwise no longer valued. These assets may be dropped, sold or licenced. Opportunities can be identified to improve the management of one's portfolio. For example, consolidating management might improve efficiency and lower costs. Potential risks are often also identifiable. Agreements can be reviewed and show where compliance issues may arise. Certain intellectual property assets may be susceptible to being extinguished. For example, trademarks require use in a particular jurisdiction to maintain that registration.
How does one conduct an IP audit? Well, it's important to establish good practices at the beginning and that starts with establishing a solid team. Particularly having assistance from knowledgeable personnel with sufficient authority to ensure that an audit progresses smoothly, on time and on budget. Outside personnel should have knowledge of one's business as well. It's important to have an audit scope at the beginning. The team gets together, discusses what the specific objects are of the business and tailors the scope appropriately. Where a business is more focused on a type of IP asset or as a particular line of business, for example, that it wants to review, possibly because it was a recent acquisition, the priorities can be established accordingly.
How do you conduct an IP audit? Well, there's lots of approaches to be taken but I think, in general, it's very important to create a tailored checklist that guides the review of the audit. It can establish what type of IP and documents and so forth that can be reviewed as well as questions that should be addressed to each of those. A particular agreement, for example, may have different kinds of issues than other kinds of agreements. When compiling and reporting the findings it's important to be clear. Have a great summary of what the findings are and what the potential issues may be. Analysis can be performed and recommendations generated. And then, finally, from those recommendations a cost estimate is prepared, prioritizations of the various requirements may be taken, and then finally action is directed.
In summary, for businesses that have invested in the development or acquisition of intellectual property assets, conducting an IP audit provides valuable insights and opportunities. Once audited, a business will have a better position to strengthen its IP portfolio and harness its value. I recommend, if you have an opportunity, to visit our remaining portfolio of information and videos and so forth at our GoXL platform and to reach out to any of our Gowling professionals if you have any questions.
Thank you.
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