By J. Grant Moubry

While the term “Intellectual Property Audit” may sound abstract or complex, it is a term with which all business owners and executives should become familiar. A generation ago, much of a company’s assets were tangible, i.e. buildings, equipment and goods. Today however, most company’s assets are typically comprised of intangible assets. Such intangibles may include trade secrets and rights to patented articles or methods, service or trademarks, or copyrightable material. An intellectual property audit provides an assessment of these intangible assets for your company, as well as establishing or maintaining an effective strategy for the maintenance of your intellectual property and training your personnel to properly identify intellectual property issues as they arise.
So, you may ask, “Why would my company need this?” Even a company that prides itself in performing top-notch manual labor services, or companies that offer goods related to, for example, home décor or hunting supplies, have intellectual property associated with their business. The mark or logo by which you are known, or the method you employ that distinguishes your goods or services from the competition are forms of intellectual property that need to be adequately protected to keep the business competitive. Issues arise in one of two forms: (1) as a business owner, you will want to prevent others from using your name or logo, or from selling your goods or implementing your unique methods of doing business; and (2) others will want to exclude you from doing the same. An IP audit will ensure that your IP is protected by filing the appropriate documentation with government agencies, as well as to ensure your company is in compliance with the law and not infringing a competitor’s IP rights.
The goals of an IP audit include the following:
1. To uncover IP assets used or owned by your business and identify the importance that those assets have to the business’s continued and future success;
2. To ensure that your company is managing and exploiting this intangible property in the most efficiently and economically effective manner;
3. To identify your company’s core assets and allow your business to focus on these assets;
4. To identify areas that may be ripe for licensing to third parties;
5. To minimize the risk of infringing a third party’s rights;
6. To provide a value to each asset in order to prioritize its importance to your business;
7. To establish or maintain effective in-house protocol for managing and protecting the company’s IP;
8. Develop a basic toolkit of forms to ensure standardized employment contracts, non-
disclosure agreements and other restrictive covenants; and
9. To adequately train managers and employees in identifying IP issues as they arise.
If you feel that your company is in need of an IP audit, you may then ask, “When should our audit be performed?” The simple answer is: the sooner, the better. Besides this overly rudimentary answer, an audit may be appropriate in any of the following situations. First and optimally, an audit may be performed in the early stage of a company’s life. This ensures that systematic procedures are put in place for protecting the company’s IP rights and helps to define the core technologies that the company should exploit. Next, an audit may be appropriate before acquisition of a new technology or product, or in conjunction with the development of a new technology or product. This will ensure the new product does not infringe a third party’s rights. Finally, an audit of limited scope may be appropriate following a significant change or new development in the law. This will ensure the company stays on track with its existing IP plan in light of changes in IP law. It is important to remember that an IP audit should be specifically tailored to your company’s needs and resources, and be limited in scope to accommodate your company’s particular needs.
Once you decide an audit is right for your company it is time to gather the required documentation to make the difficult and time consuming process as easy as possible on the auditors. Additionally, one person should be placed as a liaison between your company and the auditors to help the efficiency of this process. This liaison will act to gather the required documents and background materials before commencing the audit. Such materials may include relevant patent or trademark filings or contracts and other such agreements relevant to the nature and scope of the audit. Many times, it will be necessary for the auditors to be given an adequate demonstration of the technology, products or services that are the subject matter of your business. Both archived and active files should be made accessible for the auditors.
The next question that many small business owners ask is, “how they will be able to afford this arduous and time consuming process?” This is not always easy to justify for these business owner when faced with all of the other expenses that come with running a business. One example of the consequences of failure to patent a newly developed technology deals with Xerox’s invention of the graphical user interface, also known as GUI. The GUI is the system of pull down menus and pop-up boxes that later became the basis for the Apple and Windows operating systems. Xerox’s failure to patent the GUI allowed the industry to use the technology without having to pay royalties to Xerox. The GUI royalties Xerox failed to capture are
astonishing and have been estimated at over half a billion dollars. This example shows the need for every business to undergo an IP audit, even if limited in scope to what can be afforded by the company.
Fortunately for all business owners, an IP audit can be tailored to meet the business’s financial constraints. In light of the Xerox example above, a narrowly tailored audit is relatively inexpensive when you consider the financial gains that can be realized if a company’s intellectual property is identified and properly protected. Only after significant amounts of vital intellectual property are uncovered may the cost of protecting that IP become a burden on a small business. However, an audit will also prioritize the core technologies for the company so that the company may focus its budgetary constraints on protecting these most important areas first.
In conclusion, the evolution of the business world has created a significant need to adequately protect all of your company’s IP. By performing IP audits throughout the life of your business, or at critical milestones, you may ensure your business remains competitive in this new world of ever evolving technologies and scientific advances. If your company does not properly handle and exploit its own intellectual property, your competitor will.

Author: J. Grant Moubry is a Registered Patent Attorney at the Law Offices of Duane P. Stone, P.C., and is a veteran of the United States Air Force who served five years as an Aerospace Engineer. The Law Offices of Duane Stone is a business and corporate law firm located on the web at www.stoneatlaw.com, headquartered in Dillsburg, Pennsylvania, and represents clients throughout the United States for a wide range of legal services, including corporate and business law, litigation, intellectual property, military law, and real estate and estate planning matters.