Have you ever wondered what the asset value of your intellectual property is, asks Geethalashmi R., CEO and Managing Partner, Associated Business Attorneys.

Let’s start with answering a few questions:

Do you sell ideas?

Is your business profile service oriented?

Is your business, product, or service exclusive?

Have you identified it with a unique logo, style, design or simply a mark? Have you ever analysed how valuable an IP is?

Have you ever considered evaluating the business module, process, idea or mark, in terms of an asset value?

The real asset

Business evolution is the consequence of the simple process where a product, service, module, or process will sell. Income generated from such sale justifies the production, thereby crafting a value for what is created and thus spawning the birth of a business. Every businessperson initiates several measures to protect their business. Ever wondered what you need to do to protect the idea or intellect behind your profit?

This brings us to the crucial question – is intellectual property the actual asset?

In today’s competitive business world, there is just one single answer – yes. Intellectual properties are the most vulnerable, yet cashing asset, for every SME that always goes either under estimated or never estimated.

Intellectual property audit is the contemporary, yet critical, form of appraisal to evaluate and assess a SME’s net worth in terms of intangible asset value.

All companies insure their hard assets against loss and their company against liability, but most outdoor related businesses will not have insurance against loss of their intellectual property. So what is needed is to identify what intellectual property a company owns that is valuable to its business in terms of setting it apart from competitors and whether the company has taken the appropriate steps to retain its value and safeguard it against loss. This article will outline the some of the more obvious steps involved in this kind of audit.

Businesses should treat intangible assets like physical assets; they should make wise decisions in acquiring the assets, take steps to protect the assets, monitor the assets to ensure that they are not taken, and take action against others who attempt to steal the assets.

However, many businesses neglect their intangible assets until it is too late. Though the word “audit” brings fear to many hearts and puts people on the defensive, an intellectual property (“IP”) audit is one of the best tools available for companies to offensively develop, protect, and maximise the return on their intangible assets.

When to IP audit?

To determine whether an IP audit should be undertaken, a business should consider the following types of questions:

- Do we know what intangible assets the company owns, licenses, or controls?

- Have we taken steps to protect our IP assets?

- What is the status of the company’s known intellectual property?

- Do we know how much we are spending on IP assets?

- Do we know how much our IP assets contribute to our bottom line?

- Is a product line going to infringe a competitor’s patent, trademark or copyright?

- Is a product line protected? If not, what are the options?

- Do we know what IP assets are controlled or owned by our competitors?

- Do we know how our competitors will react to our products?

- Can our IP assets be used to obtain financing or licensed to third parties?

- Have we budgeted for potential IP litigation?

- Do we need to copyright everything? What’s really worth protecting?

- Do company policies properly secure trade secrets, confidential information and other intellectual property?

- Have we developed uniform procedures for handling intellectual property issues, including standardised agreements for use within the company and with third parties?

- Are we adequately protecting our assets and preventing unauthorised third parties from infringement our intellectual property rights?

- Are we losing valuable royalties or market share to an infringer?

- Have we identified methods to increase branding of the company’s name and to cross-promote brands?

- Have we ensured that we are in compliance with all of our licenses?

IP audit process:

SME IP portfolio analysis:

  1. Identify and assess
  2. Technology and law
  3. Market and value
  4. License and asset net worth
  5. Commercialisation and disposition

SME business analysis:

  1. Set up
  2. Legal compliance
  3. Actual IP rights

a. Trademarks, copy rights, designs, trade secrets and modules

The audit process will categorise IP assets according to type and will determine what protection, if any, exists and the scope of this protection to ensure adequate protection is achieved. Contracts are reviewed to determine whether such contracts adequately address the company’s intellectual property rights.

Inbound and outbound licensing agreements, employment agreements, employee manuals, work made for hire agreements, copyright assignment agreements, agreements with competitors, and any other agreements that may directly relate to ownership of IP assets are reviewed.

A list of names, logos, and trademarks are compiled to determine whether the marks have been registered and protected for the products where the marks are used. Also identified are quasi-trademark uses, such as domain names, trade names, and fictitious business names.

Promotional materials are reviewed to determine whether copyright registration has been obtained or are necessary. Samplings of print and online publications are reviewed to identify potential risks. Consideration must be given to whether Websites comply with laws, regulations, and sound business practices relating to privacy and data collection, terms of use, message boards, linking, banner advertising, and use of domain names and met tags.

In addition, products, publications, or Websites may contain protectable trade dress elements. Other information, such as databases, software, expansion plans, and marketing strategies may qualify for protection as trade secrets. Further, the business’ policies regarding confidential information are reviewed to ensure that trade secret protection is encouraged and enforced.

Inventions and technologies are reviewed to determine whether patent protection is appropriate. Existing patents are assessed for validity and risk of infringement.

After completing the analysis, an audit report is prepared evaluating whether the business has sufficiently protected and enforced its IP rights and recommending a prioritised plan of action for correcting deficiencies and reducing risk, and recommendations on implementation and training for key personnel.

IP audits and the employee

An IP audit helps a company educate employees on intellectual property rights, design uniform policies and procedures for protecting a company’s trade secrets and confidential information, set up a programme for the company to register and docket patents, trademarks and copyrights, and alert the company to any errors in pre-existing registrations to avoid a claim of invalidity, misuse or fraud.

Further the audit can help ensure the validity of conveyances of intellectual property rights and eliminate any gaps in the chain of title or any potential dispute over ownership rights, determine whether the scope of the rights being acquired or sold are subject to the rights of third parties, and ensure that the adoption and use of a new product, creative work, technology or trademark will not violate the rights of any third party.

Agreements protecting intellectual property

A key part of the intellectual property audit will be to identify and assess the adequacy of agreements, which should be in place to protect intellectual property. These agreements are of two types: internal agreements with employees and third party agreements.

Every company with intellectual property to protect should have employment agreements with employees having access to such property, not just key management. The employee agreements should include provisions whereby the employee recognises the ownership of the employer in the trademarks and copyrights of the company and agrees to protect its trade secrets from disclosure, both during and following the term of employment, and regardless of the circumstances under which employment terminates. The employee agreement should further acknowledge that the employer is the owner of the copyright of all work performed on the job (and in certain circumstances off the job).

For employees with broad access to trade secrets and customer relations, and perhaps for others, the employer should have in place agreements whereby employees covenant not to compete with the employer after they terminate their employment. These types of agreements must be carefully drafted because they are often challenged as unfairly restricting the liberty of a former employee to pursue employment of his or her liking and courts will give any restriction on this interest careful scrutiny.

Although different states have formulated different policies on when covenants not to compete will be enforced, most require them to be limited in time (certainly five years or less, with two years generally being safe), limited in geographic coverage to no more than the scope of the customer base and competitors, and limited in the scope of the restriction to protect only what the business is entitled to protect.

Geethalakshmi R.

One method of limitation that has been approved in some states is to prevent an ex-employee from soliciting any existing customer of the business and any prior customer of the business within a defined period of time with which the employee had contact. These covenants can be important and thus it is important that they be carefully crafted to meet the needs and circumstances of a particular business without overreaching.

Contracts with third parties should be audited as well. If the business uses independent contractors for the delivery of its services, work for hire agreements should be in place as well as several of the provisions usually put in employment agreements, such as nondisclosure provisions and covenants not to compete.

A business allowing independent contractors to have access to a company’s copyrights and the right to affiliate or represent itself as being associated with the business should be dealt with in licenses, specifying the terms and conditions under which the independent contractor is allowed to use the copyrighted materials and trademark association with the business.

About

Advocate Geethalakshmi is held in great esteem and high regard amongst her profession. She is the CEO and Managing Partner for Associated Business Attorneys FZC, UAE, ABA Management Consultants, Dubai UAE, ABA Investments LLC, Dubai UAE and Associated Business Attorneys, Bangalore India – a position which is not common for an expatriate woman in the profession. Geetha can be reached at geetha@abattorneys.com

 

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