Intellectual Property Audit and Management

• Author: Russell L. Parr
• Profession: President of Intellectual Property Research Associates
• Pages: 352-371

CHAPTER 23

INTELLECTUAL PROPERTY AUDIT

AND MANAGEMENT

Peter Ackerman

Chief Executive Ofcer,Innovation Asset Group, Inc.

It has become increasingly important for companies to keep track of the extent, quality,and

use of intangible assets. It has become equally important to have processes and procedures

in place to create, inventory,perfect, and use intellectual property (IP) rights associated with

those assets. Not only is this critical from an operational, performance, and competitive

standpoint, but investors and creditors must have a reliable mechanism to determine own-

ership, scope, and status of the intellectual property rights—the backbone of most corporate

value these days.

A majority of executives believes that focusing on short-term results inhibits the

development of sophisticated processes for managing intellectual property. A majority

of executives also believes that intellectual property management is too often treated as a

purely legal issue at the expense of the larger-picture business strategy. Since companies

already have docketing systems in place (in-house or through outside counsel) to handle

the classic legal issues, the longer-term, more strategic issues are put off. The focus on

short-term results causes intellectual property, and related corporate performance, to

remain somewhat behind.

It is also simply the case that if you don’t know what you’ve got, you won’t know

what you’re missing. This is important not only in terms of improving the management

of intellectual property and accounting for it, but in a world where misappropriation of

trade secrets and other IP assets is rampant, basic and instantly accessible inventories are

crucial. Corporate leaders face increased risks of liability from their own shareholders for

wasting, exposing, and losing key assets.

Given the reality of an increasingly competitiveworld fueled by rapid innovation, greater

corporate awareness of these dynamics is putting intellectual property closer to the center

of the table.

WHY IS AN INTELLECTUAL PROPERTY AUDIT IMPORTANT?

HOW CAN IT HELP?

There are several reasons for conducting an IP audit. Some are strategic, and some

necessitated by particular events (discussed in greater length ahead). In either case, just as

a tree can seem healthy by virtue of its living leaves and fruit and yet be hollowing and

supported by an unhealthy root system, so, too, can any company be withering without

352

What Will an Intellectual Property Audit Produce? 353

much awareness until it’s too late. An IP audit can expose weaknesses as well as strengths.

A company can choose to focus on either or both.

In addition, intellectual property is a wealth driver in the post-industrial information

economy. Focused attention on IP identication and management builds current and future

corporate value. An aggressive and vigilant approach to IP will help ensure investor con-

dence. Coordination of IP protection with appropriate and well-timed public disclosures

will also help position a company as a leader in its eld. A company is also more likely to

maximize revenue streams derivedfrom innovation if it maintains awareness and repeatable

processes around its intellectual property.

It also makes little sense to have a company strategy with supporting goals and tactics

and an unconnected approach to the IP that drives its value. Companies collectively spend

millions of dollars tracking and managing their tangible assets: inventory,work in progress,

real estate, equipment, computers, and so on—millions of dollars to manage just 15% or so

of their corporate value.1As with tangible assets, intellectual property has to be identied,

protected, and well managed. Arguably it is more important to take these steps with intel-

lectual property assets as they account for a disproportionate share of a company’s value.

The common denominator is that intellectual property should be viewed and treated as

a valuable business asset, not just a collection of legal rights that only lawyers care about.

An intellectual property audit (or assessment) is frequently the rst step on the path toward

aligning IP strategy with business strategy. It should be undertaken with that context in

mind. Generally speaking, it is an inspection of the intellectual property owned, used, or

acquired by a business as well as a review of its management, maintenance, exploitation,

and enforcement. An IP audit is also the process through which a company understands

the breadth and depth of the intellectual property assets it owns or controls. It facilitates a

greater understanding of how these assets relate to the core business. As importantly, the

audit uncovers assets that do not contribute to the nancial well-being of the company and

unnecessarily consume valuable corporate resources. Depending on the scope of the audit,

it may also include a look at embryonic ideas and ongoing innovation. In other words, the

audit can identify and inventory potential intellectual property. This in turn can lead to

improved innovation management processes and revelation of hidden value.

In addition to simply an inventory, the intellectual property audit helps to quantify the

value of the intangible assets to the extent that such value depends on the legal rights sup-

porting those assets. The audit examines and evaluates the strengths and weaknesses in the

procedures used to protect each intangible asset and secure appropriate intellectual property

rights.

Where necessary,the audit provides tools to develop additional processes, take corrective

measures to help ensure that future intellectual property rights are captured and third-party

rights are accounted for, and manage IP in real time with greater speed and efciency.

WHAT WILL AN INTELLECTUAL PROPERTY AUDIT PRODUCE?

The short answer is that an IP audit can reveal opportunities to save money, create new

revenues, increase efciencies, and improve competitiveness.

IP audits will vary depending on the need. Still, it is instructive to understand the output

of a comprehensive audit. With such an understanding, one can then more knowledgeably

implement in phases or choose particular portions.

1See “Ocean Tomo 2015 Annual Study of Intangible Asset Market Value,” http://www.oceantomo.com//blog/

2015/03–05-ocean-tomo-2015-intangible-asset-market-value/