A Guide To IP Audits

Author:Mr John McKeown
Profession:Goldman Sloan Nash & Haber LLP

In a previous article we discussed the importance of carrying out IP audits. In this article we outline the steps that need to be carried out in order to complete an audit. It is now well-established by business valuators that the intellectual property constitutes, on average, 75% of the saleable asset value of twenty-first century corporations. So IP auditing is an important management tool.

Identification of Intellectual Property ("IP")

The first objective is to locate relevant IP, including inventions, trademarks, material subject to copyright, designs, know-how and confidential information. Licenses and any other royalty arrangements granted to or by the company should be included. In most cases, the competencies and time required for this step may best be addressed by the engagement of outside counsel and valuation experts.

Identification of Existing Registrations and Pending Applications

The next step is to determine what existing registrations or protection exist for the IP that has been identified and whether they are current and in good standing. In some cases it will be easier than in others to determine whether registrations or pending applications exist.

Unprotected IP

Once the above steps have been carried out, IP may be identified that has not been protected but it is nonetheless a significant corporate asset. For such IP, the scope of the right to use and exploit it, and to stop others from using or exploiting it, should be considered. Consideration should also be given to protecting it. For example, if the company has spent substantial time and effort in having third party developers create software for it, in the absence of an assignment of copyright, there may be problems.

Consideration should be given to the corporate processes or physical security that protect against abuse or theft of IP. Computerized files are an obvious object of such protective measures. Are they protected by passwords...

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