IP Audit: What is it all about?

Intellectual Property (IP) has been gaining prominence around the world. The major impact that IP is making in the market is unfathomable. Probably with the large trend of IP awareness the companies are becoming more and more diligent in strictly making safeguarding their IP to the fullest. Effective and timely registration of IPs is now what the company strives for. They cannot take any risk when it comes to their IPs, since it is the IP that derives profit for the company. In one of the documents released by WIPO, it stated some of the surprising facts which reiterate the prime concern of how important the IP audit can be. Some facts were:

• In the US, nearly 40% of the market value of an average company is absent from its balance sheet.
• In the EU more than half of all large companies leave IP outside the scope of internal audits.
• In 2005, Qualcomm generated about 58% of its $5.7 billion in revenue from the sale of Qualcomm‐designed wireless chips, which are manufactured by third parties under contract.
• Since 1993, IBM has been making some US$1 billion per year from licensing non‐core technologies, which otherwise would have remained (http://www.signonsandiego.com/articlelink/fallbrook2/fallbrook2.html)
• In Europe, 36% of patents are not used.
• In 2002, Korea exported technology worth US$0.6 billion and imported technology worth US$2.7 billion through licensing R&D sharing, and Joint Ventures.
• Since 2002 Korea has increased its R&D expenditure from 2.6% of GDP in 1998 to 3.4% in 2004.
• In New Zealand, SMEs account for 37.3% of GDP and have the highest profits per employee, but most SMEs are unaware of the value of their IP or the fact that there is a good chance that it is being infringed.
• The Coca‐cola brand is estimated to be worth US$80 billion.
• US companies have a fiduciary responsibility to manage IP rights and to report actual company value rather than just book value under the Securities Exchange Act 1934.

The above facts/details are taken from here.

Basics of IP Audit

A business owns, acquires, or uses IPs in various fields which require systematic review. The review of IPs in a company is generally what is known as an IP audit. This audit helps in structuring and assessing any risk involved in taking IP forward. The audit clarifies any such risk which the company can take a note of and structure the remedy that can be required. The audit firm will review all the policy and compliance procedures which will further help the business to structure their IP and analyze them. A few of the pertinent questions that might get answers are: what IP is owned by the company and what is acquired? How much of them are in use? Is there any IP that is infringing others’ IP? How much of them are in use? All such answers will make the company more efficient, in terms of its decision-making process. IP strategies are the most important aspect for the company. This IP strategy can be more structured and focused through an efficient IP audit, making the business owner in a much better position to decide the future of the company.

Types of IP audit

In general, we have three types of IP audit which are general-purpose IP audit, event-driven IP audit, and limited purpose IP audit.

A general-purpose IP audit can be done at various instances such as at the time of establishing the company, or at the time when the company is implementing new policy or marketing strategies. In such a way, the general-purpose IP audit is more sufficient in all such circumstances. The results will help the company to get a better direction and approach, in case if the company is new or planning major reorganization.

In few cases, the company requires that the IP audit must be done focusing on particular target IPs. This is mostly done to assess the benefits of that IP and risks if any. This generally comes under Event-Driven IP audit, where the scope of such audit will be determined by the event in question, thereby depending upon the time and resources.

Finally, the limited purpose IP audit is done for such situations where there is a constraint schedule. Such audits are done for a purpose, mostly for substantiating the position of the company with regards to a particular IP.

Author: Saransh Chaturvedi a Legal Associate at IIPRD,  in case of any queries please contact/write back us at [email protected].