Intellectual Property: January 2010
Intellectual Property Audit
Intellectual Property Audit - A "How to" Guide.
“If you don’t measure it, you can’t manage it”.
Perhaps the above-mentioned expression is the single most compelling reason for any company, particularly an SME, to conduct an intellectual property (IP) Audit. But what should be measured and how can we begin the process?
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.
In many cases SME’s do not have the resources to conduct a full audit of all its IP and will find it difficult to put a value to each of the components making up an IP portfolio. Putting aside these difficulties, and at the risk of reducing the exercise to the “too-hard basket” it is important for every business to document and value what is, in many cases, its most important intangible assets.
An Example of an IP Audit
At the very least an IP Audit should identify just what IP assets are owned by a business and just how important those are to the firm. As an example, let’s take the mythical Company, Aglaia. Aglaia is an SME employing 50 staff and has both import and export potential for its patented tea-tree formulations and associated health products. The company has been reasonably successful but faces stiff competition in the niche “Natraceutical” market. The Company has a house brand and a number of product brands.
The first step in the Audit process is to identify the readily identifiable IP. Assets falling into this category will include any registered trademarks, copyrights, designs or patents owned by the business, any licenses to third parties and any licenses from third parties, including cross-licenses. Also included in this category are things such as in-house work manuals, databases, recipes, franchise agreements, publications and product/process know-how. Once identified the IP’s are then scrutinized to determine who owns them, whether they have not lapsed (remain registered) and enforceable and whether they are being effectively used. The Individual components are also given an importance rating – by looking at factors such as whether or not they are embodied to core technologies, the life expectancy of the underlying IP in the said technology and the potential or actual exclusivity of the technology.
The second step is to itemize what might be termed external or market influences. These will include the company brand, product brands, company and product get-up, goodwill, product certification, export certifications, regulatory approvals, distribution and raw material networks, client lists, and marketing and advertising programs.
In trying to estimate the value of any of these items, a good question to ask is how much will it cost to replace the item if it were lost, what is the expected income, e.g. in the next five years, that can be generated by the underlying IP assets and how is it being used. Several IP valuation methods can be used to establish the value of an underlying IP asset.
To conclude, an IP Audit makes sound business sense. Not only can an Audit identify company strengths and weaknesses, it is also an extremely useful tool that can be used to bring together all of the different departments within an organization. All departments have an interest in some shape or form as to how a product is made, what goes into the product, how it is packaged, marketed and the price at which it is placed on the shop shelf – and as stated at the beginning -
“if you don’t measure it, you can’t manage it”.
