Chronicle Editor
Aleck Ncube
IN the previous instalment the writer introduced the topic of Intellectual Property (IP) Audits for SMEs. This week I explain the process of conducting an IP Audit and the key steps to be followed. There is no hard and fast rule as to who should conduct such an audit. However, for an audit to be effective, it is best done by a team that includes expertise in IP and representatives of the relevant technical areas of the company as may be appropriate for ensuring maximum effectiveness.
The IP audit team should have a basic understanding of the product lines, the relevant business environment and the future plans of the company so that the audit remains focused on IP assets of maximum business relevance. The audit team may or may not include external expertise. If it does, then before starting an IP audit, all external members in the audit team as well as all the internal staff members on the audit team should sign nondisclosure agreements.
Preparing for an IP Audit
Before the actual conduct of an IP audit, it is a necessary precondition that it is clearly understood by all concerned why the audit is being conducted. In addition, the amount of time and money available for conducting an audit will have a bearing on the manner in which the audit is conducted and its eventual outcome. Once the purpose of the audit and the available resources for its performance are clear, a major preparatory step for conducting the audit is to understand the company, what it does and where it wants to go.
Background research
It involves gathering as much information as possible on the company and its way of doing business. Background research will be the basis of the audit and will provide the auditor(s) with the required background information for preparing a plan for conducting an audit that is comprehensive, focused, timely, and cost effective. The major issues in a background research look at internal and external relations and interactions for example, who does the company regularly interact or intend to interact with: such as its employees, vendors, customers, consultants, independent contractors, joint venture partners, competitors, etc., and what role(s) actually IP assets play or would play in these interactions? How does the company do its business? Does it have written policies in place concerning key aspects of the business? Does it follow a certain business model? Does it, for example, engage in e-commerce and, if so, how does it fit in with its overall business strategy?
Importance of IP Assets
The overall importance of IP assets to the business will have a bearing on the audit. Where IP assets are relatively unimportant to the nature of the business as a whole, it might be sufficient merely to confirm that registered IP rights are in good standing and are held in the name of the company. Where the company’s principal assets are IP, it may be necessary to conduct a more thorough assessment of the company’s IP portfolio and IP based activities.
Status of IP management
What is the company’s overall approach to IP management? Does it have an in-house intellectual property manager or department and/or does it rely on outside IP expertise? Does it have an IP policy or strategy? How well informed are its staffs on IP matters? Are the IP assets of the company tied to the financing of the company?
Having done the necessary background research, the next step is to prepare the audit plan. This sets out the purpose, the scope, how long it is expected to take, the budget, and who will be responsible for which area of the audit plan. Generally it deals with the following:
-The specific area(s) of the business to be covered e.g., divisions, lines of business, affiliated or non-affiliated agency operations
-The scope of the audit e.g, only registered assets or a broader scope
-The time table for the audit
-The responsible person for each part of the audit
-The form of the final audit report to be produced
Conducting the actual IP Audit
An IP auditor normally starts work from a detailed checklist, which is modified for the type and size of the company’s business, relevant IP laws of the relevant countries, desired purpose(s), and the desired outcome(s) of the audit. A good checklist minimises the chances of leaving out one or more relevant steps from the process. To produce a comprehensive company IP audit report reflecting the entire development and decision-making process for each of the company’s products and processes, the audit team should collect, review, and organise not only the IP information but also all the agreements that may affect the IP portfolio of the company.
A key part of an IP audit is to identify and assess the adequacy of relevant provisions in all agreements that concern the protection of IP. These may include the following agreements:
a. Licensing agreements
Review all licensing agreements to ensure that the company is continually in compliance with the terms of such licences and whether they further the current and future business plans of the company.
b. Assignment agreements
Review assignments to determine whether the company was granted an assignment from every inventor or author of a work.
c. Joint Venture & Collaboration agreements
When a company enters into various types of arrangements with suppliers, vendors, or customers to jointly develop or update the company’s technology, the following must be kept in mind:
-Who owns the IP assets pre-dating or created through the joint venture or collaboration?
-Define a system for identifying protectable intellectual property resulting from the cooperation
-Identify who pays for any application for registration of IP rights and any subsequent defence of the IP rights
-Determine which IP rights can be used by whom when the joint venture or collaboration ends.
Auditing IP assets
After auditing agreements, the IP Auditor starts to audit the IP assets of the company. There are four steps for this stage.
1. Identifying and recording IP assets
It is the basic stock taking exercise that will serve to create or update the intangible asset portfolio of a company. It serves to inform the company of its IP assets, which may or may not be used or used differently depending on the goals of the business.
2. Determining ownership and legal status of the IP assets
The assets will be evaluated as to whether they are owned by the company and if so, whether they are or should be, protected as IP rights.
-It includes assets created by the company itself, and those that are acquired or used with or without the express consent of third parties.
-It enables the company to see where, if any, ownership problems exist, why they exist and what should be done to prevent or solve such ownership issues.
-It reveals whether adequate systems are in place to protect these assets or, alternatively, whether and what internal obstacles exist to their protection, and whether and how these may be overcome.
3. Detecting infringement of IP rights
This step reviews a company’s policies with respect to the enforcement of its IP rights as well as its own systems for respecting the legal rights of others.
-If the assets are owned by the company then an audit may provide information as to whether they are infringed by others.
-The IP audit provides information as to assets that the company thinks it owns but in reality it does not and could give rise to problems of third party infringement.
4. Taking necessary steps for creating and maintaining IP assets
-An IP audit reveals where there have been lapses in the administrative, legal and regulatory procedures necessary for creating and maintaining IP assets.
-An IP audit provides the necessary impetus to take care of such requirements by creating or improving the relevant in-house policies, procedures and management practices.
-Aleck Ncube is an Intellectual Property Scholar. He can be contacted on [email protected] or follow me on Twitter: @aleckncube
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