FAQ’s on IP Audit

WHAT IS AN IP AUDIT?

As per World Intellectual Property Organisation (WIPO), an IP Audit is defined as a

systematic review of the IP assets owned, used or acquired by a business. Its purpose is to
uncover under-utilized IP assets, to identify any threats to a company’s bottom line, and to
enable business planners to devise informed strategies that will maintain and improve the
company’s market position.

Therefore, like financial internal audit, it is a fact finding exercise to know what exactly you
own, what you don’t but you still use, what are the threats and opportunities arising due to
such use or non-use and what can be done to increase value of your IP asset base.

WHY TO DO AN IP AUDIT?

The reasons can be many, some of which are the following:

• New intellectual property management

• Merger, acquisition, significant stock purchase, IPO or other corporate actions
• Transfer or assignment of interest in intellectual property
• Acquisition of new intellectual property
• In/out licensing program
• Significant change in law
• Financial transactions involving intellectual property
• New client program or policy
• Litigation
• Valuation of IP
• Building new IP strategies for the firm
• Government action
• Financial audit (internal or external); or
• Just to take a stock of things

WHEN TO DO AN IP AUDIT?

Answer to this question depends on the scope of the audit. If the audit is a specific event-
centric audit, it has to be done around that particular event, which may be one of the events
listed in ‘Why’ above. If it is a general enquiry into status of IP assets of an organisation, it
may be done whenever the management decides so. A general enquiry is generally done to
design or review the IP policies and procedures of an organisation and/or developing an index
of IP assets.

WHO DOES WHAT?

The importance of the role of an IP auditor is primary. An IP auditor is generally a person

having legal or technical background, or both. The audit team also includes representative(s)
from the management, in-house IP/legal team, if any. IP audit is a process to analyse the legal
status of the IP assets of an organisation and to assess the value of the assets. Therefore, IP
audit team must have legal, financial and if patents are involved, technical personnel.

WHAT TO AUDIT?

In order to conduct a comprehensive IP audit, one must analyse each element of company’s
inputs, resources, process, outputs and relationships. This will discover the company’s
intangible asset. Thereafter, the intangibles have to be classified into one of the protectable
intellectual property rights. These include two categories:

• Statutory: patents, copyright, designs, trademarks, plant varities, geographical

indications.
• Non-statutory/common law: know-how, technical information, confidential
information, brands, trade names, trade dress, secrets, databases, client information,
business methods and processes etc.

Another category and probably one of the most important category is the contracts which the
company has entered into with third parties. This will ascertain to a large extent as to what IP
rights does it hold and what it can use. Generally this includes following type of categories:

• Employment contracts, NDA’s and assignment contracts,

• All in-bound and out-bound IP licenses,
• Joint-ventures, M&A and other corporate transactional documents,
• Distribution agreements,
• Marketing agreements,
• Sales representative agreements,
• Original equipment manufacturer, value added reseller and other reseller agreements,
• Standard form customer agreements,
• Shrink wraps or click wraps,
• Government contracts,
• All other contracts in which there is a possibility of licensing/assigning any IP right.

AUDIT PROCESS

Audit process will generally depend on the answers to the above questions. However,
broadly, the following steps may be involved:

• Make an Audit Plan

• Collect the Relevant Information
• Analyze the Information
• Write the Audit Report
DELIVERABLES

Again, the deliverables largely depend on purpose, scope and objectives of the audit. The
deliverables broadly include the following:

• Personal meeting or calls for sensitive issues better not put in writing;
• Written report, including:

List of IP assets

History of the identified IP

Date of acquisition/creation

Creator/owner

List of actions required to maintain each asset

Any IP defects uncovered during the audit

List of filings to be pursued

Copyright, trademark and patent applications to be filed

Comment on continued use of trademarks

Discovery of potential infringement issues by self/third parties

Maintenance fees required to keep patents/trade marks in force

Procedures to be implemented

To-do list to be used as a starting point for subsequent audits

Event specific advise

© Akshat V Pande

akshat@akshatpande.com