By Daniel L. Boots
Intellectual property has become increasingly complex and inevitably intertwined with many aspects of any organization in today’s fast-moving economy. Sources suggest the value of U.S. IP assets currently exceeds other tangible assets; the largest assets in many tech companies today is indeed their IP. Organizations are thus wise to implement IP management policies tailored to their businesses. This article highlights an audit program that enables an organization to better “mine” its IP through the identification and development of those assets, while also identifying potential IP liabilities. An IP audit maximizes the value of the organization’s IP assets, mitigates IP liabilities and supports an effective IP management program, which is often made an integral part of its strategic planning. Regardless of an organization’s focus, it should have a thorough understanding of its IP environment.
The IP audit primarily involves identification and classification of IP assets and liabilities, and an analysis of existing internal processes for managing those assets and minimizing liabilities. IP assets include rights held under patents, copyrights, trademarks, trade dress and trade secrets. Licensing rights, under which one company uses the IP of another, are also included. (The classification of IP assets through an IP audit is distinguishable from an IP evaluation, where assets are valuated and assigned monetary values.) An important goal of an audit is to recommend an IP strategy to manage the organization’s IP moving forward and to minimize risk by monitoring use of third-party IP. An IP audit should also be used in any merger, acquisition, IPO, investment or re-capitalization transaction to help determine the organization’s true value.
An early step in identifying assets through an IP audit is the formation of an “IP committee,” consisting of persons from various business units within the organization. The committee may perform a variety of functions tailored to the organization’s particular IP management needs, including enforcement of the existing IP policy; evaluation of new ideas (to determine if pursuing formal protection is appropriate) and licensing to/from outside parties.
More particularly, an IP audit allows a company to identify and maximize the value of its different types of IP assets. Through an IP audit, a company should develop a “checklist” for identifying and developing potentially patentable subject matter and to address issues that may impact the company’s ability to secure its IP rights. For patentable technology, a standard “invention disclosure” form should be utilized through which a new idea is systematically recorded and evaluated by peers and the IP committee.
Trademarks and trade dress hold value through their positive association with a particular brand. Such value is determined by their distinctiveness, their use and protection, and the quality of the associated goods/services. Trademarks and trade dress are protected primarily under federal law, while some some state law is applicable as well. The IP committee should formulate a policy for developing, clearing and protecting trademarks and trade dress, and for standardizing use across all business units. The policy should also require a pre-adoption clearance search be conducted before any proposed mark or trade dress is approved for wide-scale adoption, use and potential registration. If trademarks and trade dress are not properly vetted, protected and used in a consistent manner, the company risks losing brand recognition and diluting the goodwill associated with its marks.
The IP committee should foster and monitor the development of copyrightable material, confirm ownership in works created by employees and contractors, and minimize the risk of infringement of third-party IP rights by company personnel, particularly with respect to software.
Software created by an employee within the scope of employment is typically owned by the employer as a “work made for hire.” However, software created outside of the company does not automatically fall within the legal definition of WMFH. Consequently, if a software development agreement with an outside contractor does not include an express assignment of the copyright and ownership of the software back to the company, neither may legally be owned by the company. An IP audit should confirm that all such agreements ensure the company owns full title, and not merely a licensed right, to any software created for the company. Any use by the company of open-source software should also be monitored and, if necessary, its source confirmed. An IP audit should confirm the company’s rights in all software (both originally created and third-party) being used in its operations.
Finally, an organization’s trade secret information is often at the heart of its operations. Similarly, a policy should be implemented to identify (through the audit) and protect (through the IP program) such information from inadvertent or intentional disclosure. The policy should address the treatment of such information disclosed to parties outside and within the organization (during and after employment). One element of establishing trade secret rights under state or federal law is the owner must have identified the trade secret and must have itself taken measures, reasonable under the circumstances, to preserve the confidential information. A court will not protect and prevent the disclosure of information the company itself has not taken steps to protect. Here again, any organization possessing such information should adopt a checklist to identify and implement security precautions.
The federal Defend Trade Secrets Act of 2016 recently created a new federal action to protect trade secrets. The DTSA addresses previous weaknesses in state laws (without replacing them), and is modeled on the longstanding Uniform Trade Secrets Act adopted by most states, including Indiana. The DTSA provides for (1) access to federal courts applying a truly uniform trade secret law, and (2) an ex parte seizure mechanism to stop trade secret theft in process but not yet complete. To benefit from the DTSA, an organization’s IP program should have a response plan in place before facing a trade secret emergency. Without advance planning as set forth in a cohesive IP plan, a company’s opportunity to prevent trade secret theft and the loss of valuable IP can be irretrievably undermined.
A company’s valuable and monetizable IP may be present but untapped or unprotected. If properly mined and maintained, IP assets hiding within the hills of an organization can prove valuable to its bottom line. Good luck prospecting!•
• Daniel L. Boots is a partner of the Intellectual Property & Technology group at Bingham Greenebaum Doll LLP, focusing his practice on counseling emerging and established businesses in all areas of intellectual property and technology. Dan has more than 29 years of experience in domestic and foreign IP matters and can be reached at email@example.com. The opinions expressed are those of the author.