Master’s in Intellectual Property Law

Semester :3

Course :9 Commercialisation of Intellectual Property

Block :5 Management of IP as a Business Tool

Learning Objectives

After you go through this material, you should be able to:

• Understand the concept of intellectual asset management;

• Understand the concept of an intellectual property audit;

• Understand the strategic importance of an intellectual property audit; and

• Understand how intellectual asset management can be used as a tool to create

wealth.

Introduction
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A company or a business entity owns intellectual property in various forms. Intellectual

property rights (“IP rights”) such as patents, trademarks, and copyrights, as well as other
proprietary rights like databases and customer lists, are crucial for the success of a
company. However, the variety of such IP rights sometimes makes it difficult for
businesses to optimise the use of individual rights. This is why it is important for a
business to take stock of its intellectual property rights and evaluate them for a proper
understanding of these rights and to gain commercial leverage out of them.

Intellectual Asset Management

It is a well-known fact that the market value of a business can be far beyond its book
value or its physical assets. Therefore, owners across business entities are always
evaluating ways to develop, manage, and capture the commercial value of their
intellectual assets.

Intellectual asset management refers to the process of identifying IP rights or knowledge

and capturing and managing these to make them commercially viable. The knowledge so
recorded should be maintained over time, and it is desirable that it is added to periodically.

Intellectual asset management provides for a more organised approach to IP rights. It

streamlines the use of intellectual assets, in order to increase their commercial viability.

The steps to look at whilst considering a systematic management of intellectual assets are
usually as follows:

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• Identifying a company’s intellectual assets; and

• Prioritising assets based on a company’s vision and strategy.

Developing an intellectual asset strategy is desirable because it establishes specific

norms in managing intellectual property assets.

Once intellectual assets have been identified, and the intellectual asset management
strategy has been established for a company, these facts will have to be conveyed to
employees, potential investors, or prospective purchasers.

Intellectual Property Audit

The increasing value of intellectual property in modern day businesses has resulted in a
proportional rise in litigation pertaining to infringement, especially among the corporate
class. This is where the issue of protection becomes important. As seen earlier,
intellectual asset management defines or marks out a business’ intellectual assets. The
next step would obviously be to safeguard and protect these assets. With regard to the
protection of its IP rights, a business would need to evaluate the following aspects, among
others:

• Whether or not the mode of protection is adequate;

• Whether or not the organisation has a procedure in place, to decide what rights it
should register;

• Whether or not the organisation has established a system to minimise the risk of
infringement by third parties;
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• A proper record of the rights licensed out, and an evaluation of these rights;

• Creating a system of protecting trade secrets from divulgence by employees; and

• The necessity for creating back-up intellectual property assets, for instance, a
‘back-up mark’

It is important to note that no statute mandates an intellectual property audit (“an IP

audit”). It is carried out by a business entity in its own interests, and this makes it self-
driven. Since intellectual property is still, by and large, a poorly understood subject, an
organisation, whilst taking stock of its intellectual assets and strategy, needs to set up a
system that not only establishes and protect its IP rights, but also exploits them
commercially.

An IP audit would involve a team of experts comprising professionals in the relevant fields.
The audit should be used to then set up a system, including the checks required to be put
in place to safeguard intellectual property and associated rights. An IP audit evaluates the
following aspects, which would have remained unknown, but for such an audit:

• Rights owned by an organisation:

Intellectual property rights are varied, and it is important for an organisation to
classify, or better still, to categorise these rights. We know that IP rights can be in
the form of patents, copyrights, industrial designs, trademarks, integrated circuits,
or geographical indications. In addition to such concrete and more easily definable
rights, a business entity also possesses intangible assets like marketing methods,
customer lists, manufacturing practices, and distribution networks. The first step in
protecting a right is to know and be aware of one’s rights.

• The nature of protection accorded to a business’ IP rights:

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Once a right is established, it is important for an organisation to register these
rights. Here, legal and professional help should be sought, because there may be
some rights that should be registered in one’s own state or country, whilst others
need to be registered in an overseas market. This is not as simple as it seems,
because before a right is established in an overseas market, it is important to
evaluate a cost-to-benefit analysis. If a business chooses not to register a right,
then it may have to consider making the choice between maintaining it as a trade
secret or disclosing it publicly. A business usually chooses the latter to mark its
ownership of the right. A business choosing not to register a right should be
mindful of a very important reality; namely, that any form of third party use or
infringement of the right would do away with the right owner’s monopoly.

• Transfer of IP rights:
A venture may have registered rights that it no longer utilises. Since maintaining a
right is an expense by itself, an organisation may consider selling these rights.
This makes more commercial sense than maintaining a right for the sake of
keeping it.

• The trade secret policy:

A business’ intangible assets, as discussed earlier, and trade secrets need to be
protected from employee misuse. A policy on trade secrets addresses issues such
as anticipating possible methods of misuse, preventing misuse, and generally,
protecting trade secrets.

• Protecting and monitoring assigned rights:

Every contract of assignment or license should be carefully worded, because it is
the terms of such agreement that determine the extent of a licencee’s right on the
relevant intellectual property. A badly-drafted contract will create loopholes for
infringement of the assigned or licensed right.
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• Minimising risks of infringing third party rights:

While it is definitely important for a business to safeguard its own rights, it is
equally important for a right holder to ensure that the rights of a third party are not
infringed. Any kind of an infringement of a third party right, whether knowingly or
inadvertent, can have huge repercussions for the infringing business, including
damaging its reputation. A good way to minimise this risk is to have a set of
procedures that should be followed before a business undertakes a new venture,
or launches a new product.

The Strategic use of an IP audit

Periodic audits ensure that a company’s intellectual property is protected, and help
formulate a company’s strategy for its intellectual property.

To maximise the benefit of an IP audit, the focus of an IP audit should be on the following:

• Identifying new products, processes, versions and features, and taking stock of
already existing inventions (patents), trade marks, trade secrets, and copyrights;
• Identifying and prioritising the registration of patents, trade marks, and designs,
and identifying copyrightable material and trade secrets that need protection;
• Reviewing technology agreements such as licensing agreements and
maintenance agreements;
• Reviewing employment and consultancy agreements, including ascertaining the
ownership of intellectual assets, and non-compete agreements;
• Identifying the status of registration of the IP rights that the business owns, as well
as reviewing the renewal status of these rights; and
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• A comprehensive study of known and unknown intellectual assets.

Business contracts relating to technology and licence agreements should be evaluated

taking into account the technology currently used by a business. It is important that a
business’ rights and interests in current technology be in tandem with its long-term plans.
Though it is desirable that IP audits be held periodically, there are certain situations that
warrant the immediate conduct of an audit of intellectual assets. Though not restricted to
these, an IP audit is especially beneficial in the following scenarios:

• Before the acquisition of a business, a technology, or a product, or the making of a

monetary investment in another business;
• At the time of formation of a technology or technology-based company, an
intellectual property due diligence aids in setting up of systems and procedures
that enable classification and protection of IP rights; and
• By an already established business, before it launches a major new product or
process.

Intellectual Asset Management as a tool for creating wealth

As a general rule, the terms ‘wealth’ and ‘revenue’ when used in relation to intellectual
property, are synonymous with licensing. Traditional, or what is known as ‘classic’
licensing involves forcing infringers to pay royalties or to purchase the patented invention.
This applies largely to technology-based companies. For non-technology-based
companies, the strategy is for a business to collect royalties from other manufacturers
who may want to the use business’ brand.

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Unlike in the case of tangibles, the sharing and using of intangibles does not result in their
depletion.

Alliances and cooperation between players in the same industry and a pooling of their
knowledge and intellectual property helps to create industry standards that promote
growth and which are mutually beneficial. Cooperation among competitors results in open
sharing of knowledge and technology, which in turn helps an industry maximise its
potential.

Brand adoption is seen as a strategic tool for capturing market attention and increasing
sales. Manufacturers of products use the component parts of well-known brands, in a
strategic partnership to increase their own market visibility. The practice of identifying the
component parts of the end product to consumers has vastly increased sales in many
industries.

Conclusion

IP audits have come a long way from being used as a method to evaluate the assets of a
target company, that is, a company being either acquired, sold, or merged. An IP audit
and intellectual asset management are now seen as crucial in helping to strengthen a
company’s intellectual property holdings, to protect a company against liability, to reduce
costs, and to favourably affect the value of a future asset.

© Rainmaker Training and Recruitment Private Limited, 2010. Any unauthorised use or reproduction of this material
shall attract all applicable civil and criminal law remedies.
  

 
 

© Rainmaker Training and Recruitment Private Limited, 2010. Any unauthorised use or reproduction of this material
shall attract all applicable civil and criminal law remedies.