Uncover ‘Rembrandts in the attic’ with an IP audit

New Hampshire businesses can justifiably credit themselves for persevering in an uncertain economy. Success and profitability can often mean making more out of less, or enhancing the value and productivity of existing assets.

Intellectual property assets are a good example. IP rights take many shapes and forms including trademarks, copyrights, trade secrets, know-how and patents.

As a business manager, you might be trained to appreciate physical assets (buildings, machinery, financial assets), but might be less familiar or comfortable with valuing intangible assets (human capital, know-how, brands, designs and other output of a company’s creative capacity).

More recently, with pressure on corporate profitability, executives are trying to discover what one author referred to as “Rembrandts in the attic,” namely, unidentified, undervalued or under-exploited IP assets.

As a result, managers are increasingly digging for buried treasure among their IP assets. Indeed, some companies exist only to exploit existing IP assets, especially patents. These enterprises — unkindly (and unfairly) sometimes referred to as “patent vultures” — have upped the ante and shone a bright light on the growing importance of IP issues.

In an IP audit, your lawyer will wield the shovel and dig for hidden IP treasure. Leveraging IP requires a number of disciplines to carry it off successfully — technical, legal, business and economic. To maximize the effectiveness of your IP audit, you should try to develop an integrated strategy with the help of legal counsel. Equally as important, your legal adviser must keep in mind that monetization of IP assets is not the only way to provide value to your business.

Analyzing assets

At its core, an IP audit is simply an inventory of the IP assets (trademarks, copyrights, trade secrets and patents) that your company already owns (or thinks it owns). It is a good way, when people of varying training and disciplines are involved, to look back at your company’s practices, while thinking forward to enhancing the value of existing IP assets.

The following is a list of the categories of assets reviewed in an IP audit:

• Patents: issued, domestic and foreign patents; pending applications; and unfiled disclosures

• Trademarks and service marks: registered, domestic and foreign marks; pending applications; and common law marks

• Copyrights: registered copyrights; pending applications; copyright interests and other creations

• Trade dress, trade secrets and know-how: confidentiality agreements with vendors and partners; non-compete and non-solicitation agreements; internal procedures for securing and maintaining know-how

• Contracts related to intellectual property: outbound licenses (when the business is licensing its IP); inbound licenses (when the business is using another’s IP); consultant’s agreements (who owns what the consultant creates?)

Once the assets are identified, they should be analyzed with the following goals in mind:

• Knowledge of your company’s assets will assist in deciding which assets to acquire and maintain, and how best to manage the assets.

• Knowledge of your IP assets can enhance your company’s value as an acquisition target.

• Licensing of IP assets can generate income and cash flow.

• Identification of IP assets will provide additional collateral in secured lending situations, enhancing creditworthiness and borrowing ability.

• Knowing the identity and value of IP assets allows a more informed view of what assets and rights should be enforced.

• Knowing IP assets allows you to decide which ones (of lesser or no value or utility) can be ignored, reducing maintenance costs.

Following an IP audit, you can take relatively simple preventative measures in ordinary business practices to avoid disputes and improve your business’s position. In the end, an IP audit provides a snapshot of assets that you don’t always see and may not think about when you, and others, are valuing your business.

Alfred C. Frawley is a partner with Preti Flaherty and chair of the firm’s Intellectual Property Practice Group. He practices in the firm’s Portland, Maine, office and can be reached at 207-791-3000 or afrawley@preti.com.

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