Intellectual property audits – what are they and why should you care?

January 2019 | SPECIAL REPORT: INTELLECTUAL PROPERTY

Financier Worldwide Magazine

January 2019 Issue

All businesses create, own or licence some form of intellectual property (IP), whether they know it or not. The term itself covers a wide variety of rights including copyright, trademarks, design rights and patents, to name a few. It is often misunderstood, but IP can be one of the most important assets a business owns.

How much IP a business has will depend on the business in question, but, generally speaking, those with a technology focus or creative element will have a significant amount. Understanding what IP an organisation creates, owns or licences should be a key priority for any business to enable the enforcement of those rights, and to protect its market and profits. It also enables a business to understand where possible risks may arise and to give them a chance to take steps to minimise those risks.

Furthermore, a business which understands what, how and where its IP is used will often be in a much better position with regard to talking to and attracting potential buyers and investors, as IP is invariably a key area which draws questions from buyers and investors. Prospective buyers and investors will be keen to know that the IP is owned correctly and that the business has all the required permissions from relevant third-party rights holders. In addition, their confidence will be bolstered if the business can show there are policies and procedures in place to ensure that IP is captured, maintained and understood.

For those businesses which have not considered the topic of IP in detail before, or have not turned their attention to it for a while, an IP audit is highly recommended. Alternatively, a business may have particular questions about a certain product or service it sells or uses which they would like to understand more fully and confirm that all IP rights are appropriately owned, protected and licensed. Again, an IP audit is highly recommended.

In short, an IP audit is a systematic review of the assets owned, used or acquired by a business. It allows a company to gain a clear picture of its IP portfolio and associated risks, if any, and may uncover underutilised IP which can then be used and capitalised on by the business going forward. An IP audit also enables a business to devise or improve policies and procedures to ensure key IP is captured, maintained and improved.

A common example of where issues over IP may arise is when a business has commissioned a third party, often an independent contractor, to do some work, such as a design for a website or logo. In this scenario, it is wrong to assume the business will own the IP in the commissioned work, as unless contractually provided for, it will belong to the designer.

IP audits can come in many different shapes and sizes but will often involve the same basic steps which result in a tailored report for the business.

In our experience, the first step is the most crucial, as not all IP audits are done for the same reasons. At this stage, the following key initial considerations should be discussed and agreed upon: (i) scope – it is important to establish which organisations or business units should be covered by the IP audit, whether one particular product or service offered by the business should be focused on, and whether all or only some areas of IP should be covered; (ii) key contacts – who will be the main point of contact and who will be involved with answering questions (identifying individuals with relevant knowledge can be difficult); and (iii) cost – the cost will vary depending on the size of the organisation and the amount of assets or IP to be reviewed and is tied directly to scope.

The second step is to identify the IP rights owned and used by the business. We often find this is best accomplished by working through a questionnaire geared toward understanding how IP is generated or used by the business, identifying any possible IP ownership issues and clarifying what IP policies and procedures have been put in place by the business, if any. The aim of this is to capture all readily identifiable IP, such as registered and unregistered rights, review any relevant licences used or granted by the business and flag whether there are any problems that need addressing or disputes that need resolving. Any relevant contractual arrangements that are mentioned should be reviewed carefully to see how the IP under that contract is dealt with. To ensure this step runs smoothly, working closely with the key contacts identified during the first step is important as it allows parties to ensure that the questions being posed are clearly understood.

The final step is to produce a written report setting out key findings and recommendations tailored to the business. In particular, the report should clearly list what IP rights are owned, the strengths and weaknesses of each, and include recommendations on how the business can improve its position. It will make suggestions as to what remedial actions are required, if any, to fix any imperfections in the IP. The report should also suggest any policies and procedures to be created or improved upon.

IP audits should be performed regularly and periodically as no successful business stands still and so its IP will change and evolve with it. An IP audit enables a business to take a snapshot of itself at a particular point in time with regard to the IP it creates, owns or licences.

A business which understands its IP is often in a far better position to seek relevant protection for it (for example, through the filing of relevant IP rights), avoid infringement of third-party IP rights (by knowing it has the right permissions or licences to use certain IP or that the creative process relating to the IP is original, for example), and maintain and commercialise its IP. A business which has a clear understanding of its IP position is also more able to attract buyers and investors since it can answer more capably the inevitable questions concerning what IP rights it owns and other related matters.

Phil Bilney is a solicitor at Cripps. He can be contacted on +44 (0)1732 224 046 or by email: philip.bilney@cripps.co.uk.

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