To conduct a quick, easy, and effective intellectual property (IP) audit, start with the business, not with IP or legal considerations. IP has little value apart from the business. Legal issues have no meaning apart from the business.
How does your company make money? Identify key products, revenues, and margins. Relationships. Customers. Key people. Market leadership. Competitors. Vulnerability. Plans. These are the starting elements of an IP audit.
Forget about Rembrandts in the attic
If you’re looking for Rembrandts in the attic, you’re in the wrong place. Up there, you’re more likely to find Uncle Oscar’s dusty old watercolors. And the garage sale can wait.
The real money is on the ground floor. Your company receives checks for products. That’s where the money is.
Most companies are not in the business of receiving checks for “intellectual property royalties.” If you want to monetize your IP, try putting it into practice. That’s what Edison did. He started businesses; he didn’t wait for someone to send him royalty checks.
The IP is protecting your revenues and margins. The IP is mostly invisible; its value is largely incalculable.
Checks are usually for products not royalties
Back to business. What I want to know is this: What are you doing right? Now we’re talking. That’s where the value is. Right under your nose.
You own patents and applications. Good for you. Do they protect your key products? If they’re irrelevant—commercially useless—they have no value to you.
But if your patent is protecting your exclusive product that sells $100 million per year at a 70% profit margin, it’s worth something!
The same kind of thinking applies to trademarks, copyrights, and trade secrets (or confidential information).
In the process, you will look at agreements and procedures. You will develop better numbers and strategies for business, legal and IP.
A business-minded patent lawyer can help you in this process. Consider also the cloak of attorney-client privilege and work product immunity.
An IP audit should help you run your business more profitably. It’s often more fruitful to grow revenues and margins than to cut costs, but if you’re looking to optimize your spend on legal fees, don’t be “penny wise and pound foolish.” For example, a smart approach might be to file half as many patent applications, and spend twice as much on each. See my blog, 7 tips for General Counsel. This is especially true in this day of post-grant challenges such as Inter Partes Review (IPR).
In addition to providing you with my own thoughts, I have researched the subject of IP audits on Google so you don’t have to. For a simple, sensible approach, see Ian Cockburn’s article, IP Audit – A “How to” Guide, on the WIPO website. If you prefer to deal in complexity, see Discovering New Value In Intellectual Property (HBR 2000), and ask yourself how the optimistic assessments panned out.
Remember, this blog is about the quick, easy, and effective IP audit. There are times when you’ll want more and deeper analysis. If you need a detailed capital valuation for tax or other purposes, that can be done. If you’re in litigation, you may want accounting and economic analysis for the purpose of proving damages.
Don’t kid yourself: A complex IP audit won’t necessarily have any more value than a simple, practical approach, particularly when it comes to running your business.
Where credit is due
Credit for this topic goes to lawyer Heather Kumor of New Jersey. Heather observes that most companies don’t know what IP they own. She’s right.
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Thank you for joining me.