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IP Audits: What are they and why should businesses conduct them?

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Intellectual Property (IP) is an essential part of most businesses. Whether a business owns IP or is subject to an IP-related agreement (such as being the recipient of software or technology services from a provider), it is a good idea to regularly conduct an IP audit.

In brief, an IP audit involves determining the IP assets the business owns, uses or has an interest in, and analyzing the portfolio to determine how to maximize the benefits and reduce the risks, losses and inefficiencies associated with the IP.

IP audits are conducted with a view to:

1. Identifying the IP assets the business owns, uses or has an interest in. Examples include trademarks, business names, copyrights, patents, trademarks, trade secrets, industrial designs, technology, domain names and confidential information. Confidential information includes, but is not limited to, data, results of research and development, and methodologies.

It is also a good idea to review IP-related agreements and documents such as trademark licenses, whether licensed in or licensed out, and policies. Although tracking IP-related agreements should be part of an overall contract management process, doing so allows the business to focus on the connections between the IP-related agreements, the business and its IP.

If, for example, the business relies on licensed-in software, it may wish to consider whether to renew the relevant agreement and, if it is unable to renew (whether due to cost or the vendor's no longer offering the services after termination, or otherwise), plan how the business should move forward.

2. Determining priority. Some IP assets are worth protecting or improving sooner rather than later. Since resources and finances are limited, it is important for the business to determine the priority in which its IP must be protected and whether resources need to be reallocated to improve or better protect key IP.

3. Determining the scope of protection and utility of an IP asset.  A periodic IP audit requires the business to evaluate whether the scope of IP protection needs to be expanded (e.g. registration in jurisdictions where the business wishes to expand) or contracted (e.g. de-registering in jurisdictions where the business is no longer operating – continued registrations cost money). It also requires the business to evaluate other aspects of the IP portfolio, such as whether certain IP are still worth bringing to market.

4. Evaluating ownership and interests. Keeping track of ownership and control is essential. There are various ways in which these may not actually vest in the business. If, for example, a business hires a software developer to develop proprietary software for the business, and the software developer indiscriminately uses open-source code, there may be a risk that the business must make the source code publicly available (open-source codes are subject to licenses, some of which require source code to be disclosed to the public). It is also important to keep track of rights that affect the IP, such as secured interests.

5. Risks. If a business intends to acquire or use IP (whether its own or that of a third party), the business should determine whether the IP is infringing a third party’s IP rights or if the rights to the subject IP are being infringed. The business should also evaluate issues faced to-date, the associated business risks such issues may continue to present (e.g. counterfeiting), and measures it may intend to take to reduce such risks. Such measures may include implementing policies or reviewing existing policies.

The above are only some of the objectives of an IP audit.

The following are some benefits of regularly conducting an IP audit:

1. Marketability. This is the biggest benefit to a business. A prospective licensee of the IP or purchaser of the business or its IP will inquire into whether the business can validly give to the licensee/purchaser what it is paying for. By taking steps to ensure that it owns what it sells or licenses out, and that the rights in the IP can be validly enforced, businesses increase the likelihood of “sealing the deal.”

2. Maximizing the utility of the company’s IP assets and resources. As indicated above, an IP audit requires the business to consider how it uses its IP and whether such use is financially feasible or continues to be desirable at all.

3. Improved Management. By considering all of the IP and how they work together, in the broader context of the business, the business is better situated to refine and consider its procedures. For example, it may wish to consider if it needs certain personnel to manage certain IP or issues, or whether certain policies need to be implemented.

4. Reduced Risks. By taking reasonable steps to ensure that its IP is protected and that the IP it uses is not infringing, risks such as competition, lawsuits, and loss of control can be reduced.

It is never too late to undertake an IP audit. The sooner a business starts the audit, the easier it will be to manage the IP and enter into sale, licensing, or other IP-related agreements. Being proactive about IP can be the difference between a deal and a no-deal.

An IP audit can be gradually implemented into a business’ activities, for regular review, and is best done collaboratively by the business and IP and technology professionals.

Fillmore Riley’s Intellectual Property and Technology Practices

The lawyers in the Intellectual Property and Technology practices at Fillmore Riley LLP can help you get the most out of your intellectual property. Contact one of our lawyers to learn more about conducting an IP audit. 

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