What is an intellectual property audit and does your business need one?

In today's fast-paced business landscape, safeguarding intellectual property (IP) is paramount for sustained growth and innovation. But what exactly is an intellectual property audit, and does your business need one? 

In this article, the intellectual property solicitors at Harper James discuss what an intellectual property audit is, how often you should conduct an audit and what steps your solicitor will take to conduct an intellectual property audit.

What is an intellectual property audit?

An intellectual property audit is a comprehensive review of a business to understand what intellectual property a business owns, uses or may need to use. This includes identifying risks that could arise that might need action. 

What is the purpose of an intellectual property audit?

There are various reasons for conducting an intellectual property audit. These include:

•  To identify your existing intellectual property and what you will need to do to maintain, protect and exploit it;

•  To identify gaps in your intellectual property coverage and protection and decide how to acquire further rights;

•  To identify any risks and potential claims associated with the intellectual property that you use or want to use;

•  To be able to take action against others infringing your rights and using your intellectual property without permission;

•  To be able to use your intellectual property effectively and safely without infringing others’ rights and to educate staff and contractors on how to use your intellectual property appropriately;

•  To identify and collate the information and documentation needed to effectively maintain, protect and enforce your intellectual property rights; 

•  To identify any unused or underused assets that you may be able to exploit;

•  So that you have the information available to effectively manage your intellectual property portfolio and develop an intellectual property strategy for your business that supports and facilitates your business plan;

•  When conducting due diligence in preparation for a business or company sale or purchase or other business transactions; and/or

•  As a requirement when looking to acquire investors, lenders or other business partners.

What potential risks can an intellectual property audit uncover?

It can come as a surprise that you do not actually own the intellectual property that your business is using or even worse, that someone else does. Knowing about any such risks will allow you to take action in advance, either to adjust your branding to reduce the risk of intellectual property infringement.

Can intellectual property audits help identify potential licensing opportunities?

You may own intellectual property rights that you are not currently using, either because they do not fit with your business plan or you do not currently have the resources to expand into a new market. Instead of leaving these rights to expire through non-use, you may be able to exploit them through a licensee and gain extra revenue from them. 

When entering into a licence, you will need to know all the details of the intellectual property right that you are licensing and ensure that you have full ownership of it. 

The licence agreement will need to identify what the intellectual property rights are that are being licensed, how and where they may be used and to what extent. 

You will need to make sure that the licensing arrangement does not diminish your rights or result in loss of your exclusive ownership of the intellectual property right or result in infringement proceedings being brought against you or the licensee. You should register any currently non-registered rights, such as trade marks and design rights, with the relevant intellectual property Offices in all countries where you or the licensee will be using them. This will help to protect them and provide security to you and the licensee. For rights that are already registered, the intellectual property audit will reveal when these registrations need to be renewed and what you will need to do to maintain them. 

How often should a company conduct an intellectual property audit?

As your business changes and grows, the intellectual property rights that it owns, utilises and requires will also change. What’s more, new businesses are constantly springing up which may become potential infringers of your rights. So, you need to keep a constant eye on your own business and the market to be able to effectively manage your intellectual property portfolio. Regular, periodical audits are key, and the frequency will depend on the size of your business and the amount of intellectual property involved. An annual audit is recommended and should be incorporated into your business plan.

When should you conduct an intellectual property audit?

An intellectual property audit is recommended whenever there is a significant change in your business; for example a change in business strategy, a business restructuring or reorganisation, a new collaboration, an investment in new technology, a re-branding exercise, brand expansion, a new investor or lender, development of a new product or growth into a new market or territory. Some situations will require you to carry out an audit as a condition of the transaction, for example as part of the due diligence exercise relating to a business sale. An external event may also trigger the need for an audit such as a change in status of a competitor’s intellectual property rights or receipt of an infringement claim. 

What does an intellectual property audit include and how is it conducted?

The audit itself should include a list of all intellectual property used by the business, who this is owned by and whether you have proof of its ownership. Although an intellectual property solicitor is likely to conduct the audit, you will need to provide them with as much information and documentation as possible and you will need to know what to look for and where. For example, they may need to view your business plan, your product, supplier, contractor and customer lists, your company literature, websites, know-how, trade secrets, marketing material, packaging designs and product labels.

You may need to consult with staff members in departments such as marketing, sales, accounts and research and development and other key employees that may create intellectual property rights, to find out how they are currently using and developing the business’s intellectual property and feed this information to the solicitor. 

Once they have drawn up an inventory of all conceivable intellectual property assets in use or owned by the business, the solicitor can then check the registered status of each asset on the intellectual property registers and docket any important information relating to it, such as renewal dates, registration number, filing date and ownership details. Registration certificates should be examined to check that they comply with the information on the register. 

The intellectual property solicitor will need to review any existing intellectual property agreements to understand how any intellectual property rights covered by them are impacted. These could include licensing agreements, assignments, franchise agreements, undertakings, co-existence agreements, collaboration and joint venture agreements, loan agreements, confidentiality agreements, employment and contractor agreements and court and tribunal judgments involving the business. Any obstacles affecting the business’s intellectual property rights and how they can be used and exploited should be noted and detailed in the audit report. Any requirements on the business to pay royalties or commissions or to receive these should also be set out together with the terms of payment. 

The business’s internal documentation should be reviewed to check that it is up-to-date and accurate and sufficient to protect the business’s intellectual property assets. For example, brand guidelines and intellectual property policy documents must accurately reflect the business’ current intellectual property portfolio and detail any obstacles or restrictions on how the intellectual property rights can be used. Staff handbooks and employment contracts should contain adequate protection to ensure that any intellectual property created becomes and remains the property of the business and that confidential information and trade secrets are protected from misuse and unauthorised disclosure or theft. 

Any software and technology that the business uses should be checked to ensure that it is secure and up to date. For example, passwords should be changed regularly and confidential information should be stored safely.  

The solicitor may also ask for information about competitors and conflicting intellectual property rights in the same market that could pose a threat to the business’ freedom to use its current and desired intellectual property. They may also investigate whether someone else could be currently using the business’ intellectual property without permission. 

What happens after the intellectual property audit?

After the audit has been conducted, your intellectual property solicitor should present you with a written report containing a full rights inventory and their recommendations and advice. It may set out how best to protect and make use of your intellectual property portfolio, its strengths and weaknesses and any strategic action you will need to consider to align your intellectual property portfolio with your business plan moving forwards. 

Once you have an inventory of the current intellectual property assets in use/owned by your business, you can then improve the scope of protection that the assets currently have.

You may need to update the address and contact information on the intellectual property registers if the business has moved premises or if key staff have left since an asset was registered. 

You may need to register some rights that have not yet been registered or increase the scope of protection of an existing registration. For example, you may need to expand the type of goods and services covered by a trade mark by registering the mark in additional classes or by registering the mark in a new territory that your business has expanded into. 

You may find that your business does not own some of the assets that it is using, in which case, you will need to take legal advice to see what action to take. You could ask a third party to enter into a licensing arrangement with you or to sell their intellectual property right to you. Alternatively, it may be too risky for your business to continue use of that right and you may need to re-brand or amend your literature as quickly as possible to avoid potential litigation.

Other actions that you may need or want to take following the audit could include:

•  Updating or drawing up new contracts, licensing or franchising agreements, intellectual property assignments, terms and conditions of business, contractor agreements, and confidentiality agreements.

•  Updating your internal literature, brand guidance, staff handbooks, staff training documentation, data protection policies, and website policy.

•  Updating or purchasing new software to help protect your confidential information and store your business data and documentation safely and securely.

•  Incorporating any expected revenue from licences or commercialisation of your intellectual property into your budget and off-setting any expected expenses or fees payable in order to maintain and enforce your rights.

•  Setting up ‘watch’ services to monitor third-party filings of similar or conflicting intellectual property rights or to monitor competitors’ intellectual property portfolios.

•  Obtaining financial valuations of important intellectual property rights and considering any insurance and tax implications

•  Formulating an intellectual property enforcement strategy to protect your intellectual property against unauthorised use.

•  Developing an intellectual property management plan to integrate your intellectual property assets into your wider business strategy. 

Summary

An intellectual property audit is an essential tool for business owners to ensure that their assets are properly protected and managed. Regular audits can also uncover underused assets that may generate additional revenue. By conducting an intellectual property audit, businesses can safeguard their rights, avoid infringement, and align their strategy with overall business goals. It’s a proactive step to ensure your portfolio is robust, secure, and positioned for growth.