IP AUDIT

In the past, companies unveiled their commercial potential by taking only tangible assets such as infrastructure, turnover etc. But now in the knowledge economy, the trend is changed a lot. The companies consider not only the tangible assets but also intangible assets such as patents, trade secret etc. And one cannot know “what are their intangible assets?” without any review of the intangible assets. IP Audit may be a solution to the aforesaid statement.

Thus IP Audit may be defined as a systematic review of the IP assets owned, used or acquired by a business. IP Audit is used to uncover the underutilized IP asset, to identify any threats to a company’s bottom line, and to enable business planners to devise informed strategies that will maintain and improve the company’s market position.  It helps the company to know their strengths and weaknesses after the valuation of their assets.

IP audit may help the company management to take right decision such as expanding of business, in-license an IPR). Also the IP audit may help the management to formulate proper and effective IP strategy with objective on ensuring that the company’s IP assets are used effectively and appropriately. So the company may understand value of the IP assets and thus may realize to protection of the assets in future.

A sample IP Audit:
A company xyz involves in the business of processed food production. The company employs around 100 staff and also exports the processed food. The company has established brand name in the market.

Internal Assets	Product life (Years)	Importance Ranking (on the scale of 1-5)	Estimated Value ($)
Trademarks TM1 TM2 TM3	10+ 10+ 3	3 2 2	100,000 50,000 30,000
Patents P1 P2 P3	18 10 12	4 3 3	2,000,000 750,000 500,000
Copyrights CR1 CR2 CR3	35 20 10	3 2 1	30,000 25,000 15,000
Trade Secrets	27	5	200,000
Training Manual	5	2	50,000
Publications	5	2	7,000
License in License out	2 5	2 3	60,000 200,000
External Assets	Product Life (Y)	Importance Ranking (on scale of 1-5)	Estimated value ($)
Company brand	30+	5	750,000
Product brand	20+	5	250,000
Business networks	10	2	120,000
Marketing	2	1	5,000
Goodwill	50	5	100,000
Certification	3	3	100,000

The first step in the IP Audit is to identify the readily identifiable IP which may be termed external or internal asset. This may cover any registered trademark, copyrights, and patents owned by the company, any licenses to third parties and from third parties, including cross-licensing and IP pools. The in-house project manuals, databases, publications, stationery, agreements, and know-how. After the identification the IP assets, they are scrutinized whether they are not lapsed and enforceable and whether they are being effectively used. After that they are ranked on the scale of 1-5 based on the factors such as the importance of the technologies, life of the underlying IP in the said technology and the commercial potential of the technology.

The second step is to categorize the IP based on the factors of influence of the product embodying those IP. The influencing factors may include the company brand, product brand, goodwill of the company, certifications, regulatory approvals, and several business networks, client lists and various marketing and advertising programs.

After these two successful steps, the value of the individual IP assets is estimated. The value of the IP is estimated by considering, “how much will it cost to duplicate the same if it were lost”, “what is the expected income say in the next 5 years” etc. Various IP valuation methods are available which can be used to estimate the value the underlying IP asset.