IP Audit: Way of assessment of the intangible assets

Bindu Sharma, Origiin IP Solutions LLP

Intellectual Property (IP) has gained more importance than ever before in India as well as around the world. Creation of IP requires huge financial investments along with tremendous human efforts. This is the reason it has become increasingly important for companies to keep track of the extent, quality, and use of their intangible assets, as well as to have processes  and procedures in place to create, inventory, perfect and use intellectual property rights associated with those assets.

 One traditional definition of an intellectual property audit is, “the cataloguing of an organization's intellectual property assets” but practically IP audit has a wider meaning and may be defined as, “a systematic review of the IP owned, used or acquired by a business”. Its purpose is to uncover under-utilized assets, to identify any threats to a company's bottom line and to enable business strategists to devise informed strategies that maintain and improve their company's market share and brand equity.

The processes and stages in which audit is carried out varies from organization to organization depending upon their business goals and areas of business. Patents may be important for one organization wherein for the other organization copyright or industrial designs may be critical. The process of IP audit includes review of IP processes within the organization, identification of trade secrets and providing best solutions to secure it by advising on the various methodologies necessary to maintain security and confidentiality.

IP audit starts from the reviewing of an area of business and the goals that a company wants to achieve. This reveals the kind of IP a company needs to focus upon. The aim of audit typically is to examine and evaluate strengths and weaknesses in the procedures that are used to protect each intangible asset, secure appropriate intellectual property rights, to develop additional processes and to make improvements to existing processes. Most of the times, companies have a particular reason for the requirement of audit. The reason could be acquisition or merging of the company or it may be because the company has undergone some misappropriation of IP and by means of audit; it wants to identify the reason of such misappropriation and flaws in the agreements, security processes or sensitization level among employees. It’s essential to define scope of the audit. After getting the requirements and reasons for audit, the proper plan will be devised and then the executed in best possible manner.

The typical components of audit are: reviewing and documentation of existing intellectual property, registered, to-be-registered or not-to-be registered. Registered IP shall be checked for its validity; review of agreements such as Non-Disclosure Agreement (NDA), Employment agreement, agreements with contractors, license agreement etc, to ensure that agreements are sufficiently binding on the employees and contractors to secure proprietor IP interview of employees to assess IP awareness level; monitoring of the processes in the company to ensure confidentiality and security of IP; monitoring systems in R & D wing such as maintaining record book, general practices, IP disclosure forms etc.

Based on the observation and information collected, the final report will be prepared and presented to the key people in the organization. The report might reveal strengths and weaknesses of the organization and it may also suggest remedies to rectify the flaws in the processes.