06 Feb 2017

Importance and the need for IP Audit

Intellectual Property is the lifeline of every company, more so for the companies dealing with technology. Intellectual Property Rights (IPR) encompass patents, trademarks, copyrights, and trade secrets, amongst others, which prove to be instrumental for safeguarding the brand and keeping the unfair competition at bay. As an example, Trademarks help in protecting the brand value of the company, the trade secrets keep the company’s position monopolistic in the market, and Industrial Designs safeguard the aesthetic design of the product. While almost all forms of IPRs are vital for the business, patents are crucial for protection of technical innovation for example, technical features/technology of the product, that make the product more desirable to the consumer or business process more economical.

In the not so distant past, only tangible assets were considered as key business strength of company, which could drive the valuation of the company north, while intangible assets (IP) were recorded in the company’s manual, perhaps to be forgotten, or to be used as a mere marketing gimmick. However, globalization of the economy and changing regulations, like TRIPS compliance, have changed the game completely. More and more companies are focussing of building up huge IP portfolios including, thousands of patent and even more number of Trademarks that protect the brands the company owns.

As the IP is only as good as its enforceability, with increasing number of patents, and trademarks, Industrial Designs and other kinds of IP in the portfolio, it becomes extremely important to perform timely Audits of the entire IP portfolio. The primary factor driving the need is – there are a variety of dates, and processes that need to be complied with once you file an application for a patent or a trademark. An IP audit ensures that all such processes are complied with, and ensures that the company’s IP, which is crucial to the business, is alive. According to industry estimates, more than 62{e376cc23ceea11f30dfb577cba2b5547d047ebb7628b6ef4583aa3e610522d69} of the companies perform a timely audit of their IP assets.

Auditing the patent portfolio

A Patent portfolio audit is a systematic review of company’s patents by analysing and validating the patents. Patent portfolio audit starts with checking a variety of information associated with the patents such as ownership, filing dates, due date for annuities, patent family information, etc. As an example, there is a continual obligation for an applicant of a patent to disclose all the relevant prior art known to him, which includes disclosing all the patents cited across all the family members of the patent across the world, failing which, the patent may be revoked after grant. Patent portfolio audit unearths all such instances, which might prove detrimental to the patent eventually.

However, a good Patent portfolio audit rarely stops at ensuring the health and wellness of the patents. In the recent times, the companies have started to go way beyond the simple tasks such as validation of dates of the patents and identifying the ownership of the Patents. Patent portfolio audit, nowadays, is performed to answer a variety of questions – such as, Which assets provide core strength to a company’s business? Which assets are of no value, maybe due to a paradigm shift in the technology, or for other reasons?
A strategically performed Patent portfolio audit helps the company to assess the strength of the portfolio, identify risk associated with their products or services that can infringe another company’s patents, and to make informed decisions related to IP protection, development, licensing, and exploitation. Mentioned below are some of the specific needs that can trigger a Patent portfolio audit:

  • Taking a stock of the portfolio, to check the enforceability of the patents
  • Mitigating the risk of expiration of patents
  • Optimizing costs by identifying not so valuable patents
  • Assess the in-licensing or out-licensing opportunities
  • Assess the strength of the IP rights and risk involved before launch of new product in a geography
  • Identifying key assets crucial to the core business focus of the company
  • Improving a company’s value in case of Merger or Acquisitions, Joint Venture, Sale, etc.
  • Assess and estimate the consequences of expiration of IP rights, and plan for the same.

Conducting an IP audit is not only of utmost importance for large corporates having big portfolio sizes but also for SMEs and even start-ups, which have relatively smaller patent portfolios. To sum up, IP audit can be a daunting task for the company but it helps to understand the current market value of existing IP and generate ways to enhance the value of IP.

Companies can conduct IP audit either themselves, or through an external agent such as a Law firm or an Offshoring company. However, an audit partner must be chosen carefully. The partner must have a deep understanding of the business of the company, and should be able to understand and differentiate difference between the core assets and the non-core assets. More often than not, an audit performed by an offshoring company is much more cost effective, and can provide significant cost savings.

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