9192, 917 PM Intellectual Property Aust
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IP Audit — A “How to” Guide
By Ian Cockburn!
“If you don't measure it, you can't manage it’.
Perhaps the above-mentioned expression is the single most compelling reason for any company,
particularly an SME, to conduct an intellectual property (IP) Audit. But what should be measured and how
can we begin the process?
An IP Audit is defined as a systematic review of the IP assets owned, used or acquired by a business. Its
purpose is to uncover under-utilized IP assets, 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.
In many cases SME's do not have the resources to conduct a full audit of all its IP and wil find it difficult to
put a value to each of the components making up an IP portfolio. Putting aside these difficulties, and at the
risk of reducing the exercise to the “too-hard basket’ i is important for every business to document and
value what is, in many cases, its most important intangible assets.
An Example of an IP Audit
The table below is a guide illustrating how to kick-start the IP Audit process. At the very least an IP Audit
should identify just what IP assets are owned by a business and just how important those are to the firm.
As an example, let's take the mythical Company, Aglaia, Aglaia is an SME employing 50 staff and has both
import and export potential for its patented tea-tree formulations and associated health products. The
company has been reasonably successful but faces stiff competition in the niche “Natraceutical” market
The Company has a house brand and a number of product brands.
The first step in the Audit process is to identify the readily identifiable IP. Assets falling into this category will
include any registered trademarks, copyrights, designs or patents owned by the business, any licenses to
third parties and any licenses from third parties, including cross-licenses. Also included in this category are
things such as in-house work manuals, databases, recipes, franchise agreements, publications and
product/process know-how. Once identified the IP’s are then scrutinized to determine who owns them,
whether they have not lapsed (remain registered) and enforceable and whether they are being effectively
used. The Individual components are also given an importance rating — by looking at factors such as
whether or not they are embodied to core technologies, the life expectancy of the underlying IP in the said
technology and the potential or actual exclusivity of the technology.
The second step is to itemize what might be termed external or market influences. These will include the
company brand, product brands, company and product get-up, goodwill, product certification, export
certifications, regulatory approvals, distribution and raw material networks, client lists, and marketing and
advertising programs.919/22, 9:17 PM
Intellectual Property Audit
In trying to estimate the value of any of these items, a good question to ask is how much will it cost to
replace the item if it were lost, what is the expected income, e.g. in the next five years, that can be
generated by the underlying IP assets and how is it being used, Several IP valuation methods can be used
to establish the value of an underlying IP asset.
Table 1 — An Example of a Provisional IP Audit
INTERNAL ASSETS PRODUCT | EXTENT OF IMPORTANCE ESTIMATED
LIFECYR) | USE VALUE $
Trademarks
Tm 10+ | y 100,000
Tm? 1-2 40,000
Tin3 ote 10+ 19,000
Patents
PI 15 J W 2,000,000
P2 a 10,000
P3 ete 10 5,000
Designs
Dl 4 25,000
bz 10 hy Wy 100,000
Copyright
Forms, 5 |) 1,000
Charts, ete 5 1,500
Tracle Secrets 15 100,000
Custom Software 3 13,000
Recipes!formulations 10 60,000
Macuals 3 40,000
Publications 12 5,000
Training 1 30,000
Licenses in 1-2 J 50,000
Licenses out. i} | 100,000
External Assets
Company “House” Brand 20+ W DU 750,000
Product Brands ior 250,000
Distribution conir acts 5 25,000
Raw Material nebr orks 5 2,000
Client Lists 1-2 J 3,000
Marketing Advertising 1 3,000
Goodwill 30 TW 100,000)
Customer Loyalt; 5A0 WW 20,000
Product Certification 2-5 Hf fu 100,000
ImportExport networks 5.10 120,000
The above example merely illustrates the hidden assets found in any company (in this case an SME) and
how an IP audit can facilitate the identification of importance, in terms of contribution to company's
competitiveness and bottom line, different IP assets it own or use.
In the example, the most valuable assets are clearly to the House and Product brands and to a Patent
listed as P1, Having made this assessment the Company Management may then take informed decisions
measures to be taken in the event that a Company's IP is infringed. In addition the management would be
in a position to formulate an IP strategy with the objective on ensuring that the company’s IP assets are
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used effectively and appropriately. Understanding which of the company's IP assets are most important
enables their full value to be realized and protected.
To conclude, an IP Audit makes sound business sense. Not only can an Audit identify company strengths
and weaknesses, it is also an extremely useful tool that can be used to bring together all ofthe different
departments within an organization. All departments have an interest in some shape or form as to how a
product is made, what goes into the product, how it is packaged, marketed and the price at which it is
placed on the shop shelf — and as stated at the beginning - "if you don’t measure it, you can’t manage it’
Ifyou have any thoughts, comments or additions to the above discussion please e-
mail icockbum@piperpat.com to begin a dialogue, or conversely consult an IP professional to determine
best fit patent strategies for your firm.
claimer: PIPERS endeavors to be as accurate as possible when preparing its articles and has taken all
reasonable steps to ensure that the information contained herein is accurate. The contents of this article
are for purposes of information only. If you require any clarification, please seek the advice of an IP
1 The author is WebEditor, Manager Advertising & Marketing at PIPERS - Global, A Patent attorney Firm
with Offices in the United Kingdom, New Zealand, Australia, Singapore and Malaysia. The views expressed
in this article are those of the author and do not necessarily represent those of WIPO.
“A new Information Revolution is under way. (...]
Itis not a revolution in technology, machinery, techniques, software or speed
It is a revolution in CONCEPTS.”
Peter F. Drucker
Management Challenges for the 21st Century, p.97
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