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Thinking of licensing or selling your IP? If so, is your company ready for an IP audit?

Nortel sold its patent portfolio for $4.5 billion. Microsoft paid $1 billion for the majority of AOL’s patents. It is undeniable that intellectual property is often a company’s most valuable asset.

If you are considering exploiting your IP, then you should be prepared for an IP audit by potential buyers, investors or licensees. The purpose of an audit is to probe for potential weaknesses or vulnerabilities in your IP which can affect its value. Potential buyers, investors or licensees may want to ensure that you own and have the right to exploit all of the IP that they are interested in. In addition to reviewing patents and other documents that grant IP rights, an audit can include a review of assignments, licenses and other contracts, and documents related to ownership and validity of your IP assets.

To prepare for an IP audit, you should have well-organized records showing that proper steps were taken to acquire, protect and maintain your IP rights. Conducting your own mini-audit in advance can help by providing advance warning of issues that may arise. Here are a few things you can do to help ensure a smooth IP audit:

Maintain a list of your IP assets

These assets can include trademarks, patents, copyrightable works, designs, domain names and trade secrets. The IP rights may be generally worldwide (e.g. copyrightable works) but are more typically limited to the specific countries in which the rights are granted. The list of IP assets should be reviewed and updated periodically. Your IP lawyer or agent should be able to provide status reports upon request for the applications and registrations that they are handling for you.

Identify all persons who took part in creating your IP assets

Absent suitable agreements, employees, contractors, inventors, authors, joint venture partners and others who develop IP assets through their work for or with you may have claims to rights in those assets. You can avoid potential headaches by having clear written agreements in advance, such as original assignments and appropriate waivers signed by all such persons.

Non-disclosure agreements

Trade secrets are only protected if they remain secret. You may lose rights to a patent if your inventions are disclosed before your application is filed. Non-disclosure agreements can protect against an inadvertent loss of IP rights.

Document disclosures of inventions

In general, to obtain valid patent protection, an application must be filed before any non-confidential disclosure of the invention. In a few countries (including Canada and the US), valid patent protection for an invention may still be obtained if the application is filed within one year after the earliest non-confidential disclosure of the invention. It is important to record dates of non-confidential disclosures and offers for sales as these dates can determine when an application must be filed.

Document your IP use

Your right to use your IP is subject to certain laws and regulations. Depending on the jurisdiction and type of IP, you may need to exercise care and control over others’ use of your IP, mark your goods and services to bring notice of your IP rights, or use your IP in trade to prevent a loss of rights. For example, failure to mark patented products in the US can limit your ability to collect damages for patent infringement. For trademarks, failure to exercise care and control over licensees’ use of the trademark (by way of a properly drafted license agreement, for example) can result in non-distinctiveness of the trademark, which negates its registrability. You should ensure that you are properly using and marking your IP, and compile records related to or showing use of the IP by you and/or your licensees.

Keep an organized collection of all IP-related agreements

Such agreements may include licensing (in or out), non-disclosure, employment, consulting, joint venture, product development, funding and security agreements and any other agreements referred to above. These agreements may contain terms and conditions that affect ownership and/or validity of your IP assets. The agreements should be compiled and organized so that it is easy to locate and review the agreements of interest.

By Amy M. Fong and Henry N. Bian

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