March 27, 2024 By: Craig Zawada, K.C.

Some words instantly evoke unpleasant thoughts. Leaving aside those like “colonoscopy,” another one that almost nobody gets excited about is “audit”. Ironically, as unpleasant as they both can be, colonoscopies and audits each can provide a longer-term benefit beyond short term discomfort.

This is especially the case for an intellectual property audit. Although they cost some money and time, and might uncover uncomfortable facts, that latter point is one of the goals of an IP audit: to discover issues with a business’s knowledge assets so corrective steps and better processes can be implemented.

An IP audit is a systematic review of the intellectual property owned, used or acquired by a business. Its purpose is to uncover risks, gaps, opportunities and value those assets. Although IP might be the most valuable property an organization owns, too often it is not recognized, for many reasons.

Take brand value, for instance. Businesses with well-established name recognition hold immense value through trademarks and goodwill. Often this value is all or partially off the balance sheet, but that does not mean it is worthless. Often the opposite. Consider famous trademarks like “Coca-Cola”, with brand value that is almost incalculable and probably dwarfs every other asset they own.

But a brand is not the only valuable IP which a business might own. We might think of patents or copyrights as important components – and they are – but much of an organization’s IP value is often tied up in unregistered assets, or not even documented. Know-how is a great example. Operating history and experience lead to all sorts of useful information, much of which simply exists in employees’ brains. Yet that information often creates cost efficiencies and opportunities which are highly valuable.

It does not help that we tend to underappreciate our own knowledge. Since we rely on it implicitly and often, we subconsciously think that the little things we have learned over time are not valuable, or do not think about them at all. This often arises in mature, traditional industries. While high-tech companies are often focused on IP due to the nature of their operations, traditional businesses which are based on long-standing principles forget about their knowledge advantages. Mining might be an example of this. Humans have excavated for thousands of years, and have settled on many tried and true techniques to extract resources. But every mining company discovers tricks and new methods which save money, increase yields, or provide other advantages. That know-how is IP, and has value.

An IP audit can identify that worth. But there are other rewards beyond gaining competitive advantages by exploiting existing knowledge. One is to ensure the business controls the IP assets which are strategic to its goals and has the necessary rights to use them. Identifying ownership or licenses is part of this.

Audits also help avoid or minimize infringement or third-party IP rights which could result in legal actions and damages. Most infringements do not result from a deliberate taking of property; more often they arise from internal development of knowledge that just happens to violate an existing right elsewhere. An IP audit can help identify these early when corrective measures are easier.

And while there are other advantages, IP audits can also help optimize spending. A business can eliminate costs or identify under-utilized assets to enhance IP budgets.

There are plenty of reasons to conduct an IP audit. What are the downsides? There are a few:

• IP audits can be time consuming and costly, depending on the size and complexity of the business, and its IP portfolio.
• They require cooperation from various stakeholders, including employees, managers, customers, and investors.
• Care must be taken to protect confidential and sensitive information disclosed that could be misused or leaked.

There are some others, but none of these drawbacks are insurmountable. Some reflect a value balance. Sure, there are costs to an IP audit, but if done properly, it can provide value which exceeds the cost.

I am going to be biased, but hear me out. There are advantages to hiring an experienced IP law firm to conduct the audit. The IP understanding helps, and of course there are non-lawyers with experience. But an IP lawyer can help explain the legal aspects of knowledge creation, protection and exploitation. They can also help correct defects in IP rights or ownership, along with identifying infringement of third-party rights and how to resolve them.

A big advantage to a lawyer conducting the IP audit relates to confidentiality. Lawyers are, of course, accustomed to keeping materials private. More importantly, they have legal obligations around that, and those commitments extend to other venues. An example is solicitor/client privilege, which can legally mandate information to be kept confidential, even when others are trying to access it. This privilege is not unlimited, but it is often an advantage which a lawyer-conducted IP audit can offer.

IP audits are one of those things that may not have a specific value which jumps out at you, like a tax avoidance scheme, but that does not mean they are not valuable. We have helped many clients identify their IP positions through an audit, and in virtually every case they came out of it with superior value or new opportunities that positively impacted their bottom line. There are many different ways of conducting an audit, and they can be tailored to circumstances and budgets. Feel free to reach out to us to discuss how an IP audit might benefit your business.

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topics discussed in this article.