A periodic IP audit would help to explore and exploit many of the intangible assets, the company may have or periodically develop.

One has often heard of tax or financial audits, which are normally carried out by companies. A company engaged in creative, ingenious and resourceful in-house research and development activities with large intellectual interest should consider conducting an audit of Intellectual Property (IP), which covers patents, copyright and trademark. A periodic IP audit would help to explore and exploit many of the intangible assets, the company may have or periodically develop, which can be a good source of income and capital in a well-policed IP regime.

An audit of IP should focus on three particular areas of potential risk:

First, an audit should analyze the adequacy of intellectual property protection for existing products.

Second, it should anticipate claims of intellectual property infringement.

Third, an audit should cover a review of all relevant documents related to employee contracts, copyrights and licenses.

Intellectual Property Rights (IPRs) are increasingly becoming recognized as vital assets of the business and protecting IPRs are critical in the successful running of a business. The fast-changing landscape is demanding of corporates and nations to continuously build and extract maximum value from their intellectual assets. Proper management of intellectual assets has been hampered by the marked absence of standardized and systematic tools for their valuation. Lack of appreciation of IPRs at the organizational level and its pivotal link with business processes are the key reasons for IPRs not figuring in the priority agenda of managements. This will need urgent and orchestrated attention.

A lot of companies, which set up R&D centers, develop great quantities of R&D data. However, patent awareness or consciousness leaves a lot to be desired. It bears to emphasize that more training regarding IP rights is requisite in order to form a new mentality about IP rights and their importance. Once the importance of IP in companies that carry out R&D activities is better appreciated, policies and procedures for "harvesting inventions", as very aptly the Japanese call it, should be established.

Issues

Due Diligence of existing IPRs: Companies should carry out due diligence of existing IPRs and analyze the adequacy of IP protection for existing products. A company’s best efforts to safeguard its assets cannot always prevent others from stealing or damaging them. Periodic patents and trademark searches should be carried out. If the company’s IPRs are infringed upon, the company would need to protect its rights through litigation, as failing to litigate could waive its exclusive rights to those assets. Litigation can be used to enjoin infringement and to challenge anti-competitive behavior resulting from the misuse of IP by a competitor.

Registration of IPR: For every new product, process or literary work developed by the company, the company can secure its legal rights to these assets by registering the IPRs emanating from such assets.

Licensing agreements: A company may wish to allow others to use its IP, but would want to retain both its ownership and ultimate control over its use. In such an event a company may consider a licensing agreement.

Maximizing Business Value

i) Patents: A company should review its patent portfolio from time to time. Income from licensing of patents can be a source of sizeable revenue. The company should identify the patents that are of value to the company’s core business. Those that have no value as marketable concepts in the near future should be abandoned. A periodic review benefits the company, as it would help reduce renewal fees and boost licensing revenues. Probably, few things are as frustrating, or embarrassing, or potentially career-threatening as creating, or having created for you, a valuable piece of intellectual property, only to find that you lost it or, perhaps worse, don’t own it—it is owned by someone else.

ii) Trademarks: Trademarks are valuable assets of the company. The company should carry out policing and monitoring activities of others in the trade to ensure that there is no improper use by another trader of a deceptively similar mark. The company should review advertising, packaging and other documentation before distribution, in order to ensure compliance with trademark rules and practice. The company should also assess the status and value of marks owned by the company. Most times the marks are valued only when it is being considered for sale. The company should also consider whether its mark is worth renewal and maintenance if it is not being used.

Entering into Contractual Agreements: A company would do well to protect its IPRs by executing agreements with employees and contractors. These agreements include:

i) Confidentiality Agreements: In IT and in biotechnology related contracts, confidentiality is an important factor. Employees should be prohibited from disclosing or using private company information. Whether it is a separate agreement or part of a larger employment contract or invention assignment agreement, employees at all levels should be made to sign a confidentiality agreement promising that they will not use or disclose the company’s confidential information without authorization and will exercise care to prevent the unauthorized use or disclosure of such materials by others.

When hiring employees who once worked with a competing company or otherwise had access to a competitor’s trade secrets, it is essential to inform that employee that he or she must not disclose or use any of the competitor’s trade secrets. Where possible, a company should obtain a copy of any nondisclosure agreement between the new hire and his or her former employer.

ii) Non-Compete agreements: The biotechnology industry is a highly competitive industry in which companies often poach employees and expertise from their business partners in order to better their own commercial prospects. Companies should enter into non-compete agreements with its employees and contractors. Contractually, the parties are bound to agree to refrain from engaging in any activity that may be construed as being competitive with that of the other party during the term of the contract. Such restrictions may be imposed on the parties during the term of the agreement.

Internal Procedures: To protect its non-registered trade secrets the company needs to have internal procedures in place to prevent access to that trade secret information beyond those that need to know. A company should adopt the common procedures:

The developers of IP should keep daily records of what is being developed.

• The company should ensure that a consistent message is used and inadvertent disclosure is avoided. In addition to requiring employees to sign the appropriate agreements, it is helpful to find creative ways to make employees aware of the importance of protecting company secrets and to demonstrate how easily trade secrets can be inadvertently disclosed. As with all company policies, trade secret policies should be reviewed and acknowledged by employees annually.

• One should make sure that intellectual property is available only to those who are authorized, and is protected from loss and corruption.

So every company owns and uses intellectual property. IP due diligence is a vital part of any business transaction and should be given the same level of attention as reviewing financial information, tax documentation, and real estate documentation. Companies must realize that the continued operation of their business may depend on obtaining the proper and necessary IP. Unfortunately, not every company recognizes the importance of fully protecting these assets. By following the above guidelines, a company may be able to avoid some of the pitfalls facing intellectual property owners.

Kirit Javali
Partner
Law Offices of Jafa & Javali