Your company has a problem. You’ve neglected one of your most valuable assets: intellectual property! While businesses routinely perform financial, cybersecurity, and compliance audits, many fail to review their intellectual property (“IP”) portfolio until their hand is forced. Companies have trademarks, copyrightable works, inventions, trade secrets, and data rights that are left undocumented, misused, or incompletely protected.
The solution? A properly conducted IP audit and gap analysis identifies what IP the company owns, how it uses its own and other’s IP, where protection is missing or misaligned, and what risks or opportunities lie ahead.
The Basics
What Is an IP Audit?
An IP audit is a structured review of a company’s intellectual property assets and practices. A complete audit goes beyond a simple inventory by reviewing the company’s registered and unregistered rights. An audit includes the company’s use of third party IP, licenses and other contractual arrangements involving IP, and the company’s IP policies and procedures.
What Is an IP Gap Analysis?
A gap analysis builds on the audit by identifying where the company’s assets lack protection and what practices open the company up to risk.
Typical Issues
Typical issues revealed by an audit and gap analysis include:
- Use of trademarks without proper clearance checks
- Trademark registrations that do not cover the full extent of goods and services of the company or do not cover the full geographic scope of the company’s use
- Unregistered trademarks and copyrights
- Inventions and trade secrets inadequately protected by policy or practice
- Use of third-party IP without proper licenses
Identifying Risk and Getting Ahead
Here are some common misconceptions that we hear from companies:
- “Our former founder wrote it, so we own it.”
- “We used this name for years, so no one else can.”
- “The agreement probably covers IP.”
- “I found it online, so I can use it.”
Often, the first time a company learns they’re wrong about one of the above common assumptions is when a competitor or adversary takes advantage of a gap in protection or asserts their right against the company’s use.
The ability to enforce IP rights and defend IP use depends heavily on groundwork laid before a dispute arises. While a company can sometimes catch up after the fact, proper documentation, prior registration, accurate and complete chain of title, and consistent use all matter. Companies that audit early and often are better positioned to enforce quickly and credibly.
Conducting the IP Audit
IP Asset Identification
The reality is that IP plays a role in nearly all businesses. The first step in an IP audit is to identify the extent of the IP the company uses and owns. This can include licensed IP, digital assets, registered IP and unregistered IP.
Ownership and Use
Ownership and use of the IP are the most common issues identified in an audit. In looking at what the company owns, some questions include whether employees and contractors have IP agreements in place and whether any acquired IP have been properly assigned. In looking to what the company uses, some questions include whether the company’s own use of their IP has been properly cleared and whether third-party IP has been properly licensed. Finally, looking downstream to any company owned IP used by third parties, some questions include whether effective licensing is in place to control the third party’s use and whether monitoring and enforcement policies and procedures are in place to detect unauthorized use.
Registration and Protection Status
Finally, once the IP is identified and ownership and use is confirmed, the audit examines how and where each asset is protected. The amount of protection or registration a company wants or requires is unique and can vary based on the industry or technology at issue. In the audit stage, the company simply determines what and where registrations exist and what is required for maintenance. This inquiry feeds directly into the gap analysis, which next asks what and where registrations should exist.
Conducting the Gap Analysis
Where the audit answers “what exists?”, the gap analysis answers, “what’s missing, misaligned, or at risk?” Once all IP has been identified, the gap analysis looks to four areas where the company’s existing portfolio and practices may be lacking.
1. Protection Gaps
While some IP is protected based on use (common law trademarks in first to use countries), creation (copyrights), or controls over disclosure (trade secrets), registration can offer a multitude of advantages, including improved recourse and certain presumptions, which provide increased leverage in enforcement. For other forms of IP (patents and trademarks in first to file countries), registration is essential to obtain any rights in the IP. Determining gaps in protection include looking at whether trademarks are registered in all important countries, whether likely to be copied creative works are registered, and whether any patentable inventions are evaluated for patentability and either filed on or kept as a trade secret.
2. Ownership Gaps
Ensuring ownership and accurate chain of title is central to any enforcement effort. To ensure chain of title, it is imperative to ensure proper assignments are in place tracing the asset from its original owner to the company. Even when a work is created by an employee, that relationship alone may not be enough for ownership to flow to the company with no assignment required. Sometimes, the original owner would be the company because the work was created by an employee. Other times, the original owner is the employee by nature of the invention and an assignment is required.
3. Growth Based Gaps
As a company grows, its IP portfolio should grow with it. As a company’s offerings increase, new IP is created and old IP may become stale. Further, as a company enters new markets, some forms of IP are territorial by nature and require separate filings in each country or territory where protection is sought. Even for other universally protected forms of IP, a given territory may have specific requirements for enforcement or to maximize the rights granted through protection.
4. Process Gaps
Assumptions over IP can turn out to be true when proper processes are in place. Reframing our original examples:
- “Our former founder wrote it, and he assigned the rights to the company in his founders agreement, so we own it.”
- “We cleared this name prior to use and have used this name consistently for years, so
no one else canwe are in a good position if another company uses it for something similar.” - “We submitted the agreement to legal with our specific use case and it
probablycovers IP.” - “I found it online and obtained a license, so I can use it.”
Where the audit serves as a double check on the company’s IP assets and uses generally, creating and adhering to IP policies and procedures acts as a proactive measure to help reduce risks as new IP is developed and used.
Turning Findings into Action
As with any internal exercise, an IP audit and gap analysis is only valuable if it leads to action. Even the most prudent companies may uncover issues within their IP portfolios and proactively identifying these shortfalls allows the company to correct any issues before it’s too late.
While the results of an audit and gap analysis may appear intimidating, not all gaps are equal in their risk profile or ease of correction. When faced with a mountain of issues, companies can prioritize based on the revenue associated with the IP right, any litigation exposure, or any competitive risk caused by the lack of protection.
Please contact a member of the HSE Intellectual Property team if you have any questions on how to conduct an IP audit and gap analysis, or on remediating any issues identified by an IP audit and gap analysis.