The Intellectual Property Audit – Finding What You Have (Part III of V)

Focus of an Intellectual Property Audit

Each intellectual property audit should focus on four key areas. First, the attorney performing the audit needs to identify all the intellectual property assets within the organization being audited. Second, the attorney must identify any problems that exist with the intellectual property ownership. Third, the attorney must identify any defects in title or enforceability of the organization’s intellectual property. Finally, the attorney must identify any unprotected intellectual property assets.

Identification of Intellectual Property Assets

In identifying all of the intellectual property assets of a organization, an attorney focuses on “…identifying the intellectual property subject matter, how it works, and how it is manifested in the organization.” Different types of organizations stress different types of intellectual property, depending on the organization’s purpose. An artistically based organization should have copyright protection in place, but may have very few, if any, patentable inventions or trade secrets. A technology-based or manufacturing organization, on the other hand, should rely heavily on patent and trade secret protection and less on copyright protection. Most organizations are likely to have logos and other trademark items.

Identification of Intellectual Property Problems

To identify any problems that may exist with the organization’s intellectual property ownership, the attorney performing the intellectual property audit attempts to trace the chain of ownership of intellectual property back to its creation. The attorney looks for assignment agreements from employees, former employees, contractors, strategic partners, acquired companies, and others who may have rights in the intellectual property if not assigned. This is especially true for patents, where, in the United States, the inventor owns all rights to “… exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States, and, if the invention is a process, of the right to exclude others from using, offering for sale or selling throughout the United States, or importing into the United States, products made by that process, referring to the specification for the particulars thereof.” It is possible in some other countries for an organization to be named as the inventor on a patent; in the United States, the inventor must be one or more human beings who may then assign rights in the patent to an organization. It is also true in copyrights, where independent contractors and consultants retain copyright to materials fixed in a tangible medium unless otherwise agreed.

The attorney performing the intellectual property audit also looks at the agreements that exist between the organization’s employees and the employees’ former employers. New hires can present a problem with intellectual property ownership if they would violate a previous employer’s noncompete/ nondisclosure contracts by assigning the rights to any new inventions to their current employer. Hence, the intellectual property attorney must investigate the employees’ prior noncompete/nondisclosure agreements.

Identification of Defect in Intellectual Property Title or Protection

The attorney performing the intellectual property audit should identify any asset that is entitled to more protection than the asset currently enjoys. In some cases, such as in patents, key protection can be lost forever if the organization postpones the decision to pursue the registration for too long. This is often a problem in that the invention, while it should be perfectly patentable, has hit the statutory bar in the patent law because the inventor disclosed or used the invention in public more than one year before the organization applied for the patent. Or, an inventor may regard her invention as perfectly obvious when it is actually patentable. The attorney can also identify valuable trade secrets that the organization should protect more carefully than it does.

Identification of Unprotected Intellectual Property Assets

Often, copyright and trademark protection may be based only on common law because the owner fails to register the intellectual property with the appropriate agency. Or, an inventor may invoke a statutory bar of the patent law inadvertently and render his invention unpatentable. This can cause problems down the road for the organization when it tries to enforce its intellectual property rights because certain intellectual property rights (patent rights especially) are unenforceable unless the asset is registered with the proper governmental agency or agencies. Ultimately, lack of registration of a piece of intellectual property can lessen the value of the intellectual property itself. The attorney must identify any of these problems and bring them to the organization’s attention. The organization then may wish to remedy a problem if it can (in the case of patent registration, the organization may be unable to obtain registration due to the one-year statutory bar). The attorney should also identify any issues with recording of licensing or change in ownership of intellectual property. An organization’s failure to record such changes can result in a second licensee taking priority over the organization as first licensee if the organization fails to provide notice via registration. In US patent law, this notice has a 90-day look-back period. Proper registration also ensures that full remedies are available for infringement.

Copyright 2003, 2007, Nancy Baum Delain. All rights reserved.

Continued in Part IV.