“If you don’t measure it, you can’t manage it”.
Perhaps this expression is the single most compelling reason for any company, particularly an SME, to conduct an 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 owned, used or acquired by a business. Its purpose is to uncover under-utilized 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 undertake a full audit of all of it’s IP and will 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” it is important for every business to document and value its most important intangible assets.
What will an IP audit uncover?
An IP audit will involve the identification of all of a companies intangible assets such as Patents, licenses, Brands, Trade secrets, designs, manuals, and know-how and will enable a company to identify successful and obsolete technologies. Understanding these assets will often provide a company with extra revenue streams other than those involving licenses and royalty payments. These revenues streams can come from Joint Ventures, Research and Development sharing, and distribution agreements in jurisdictions that may have been inaccessible up until now.
Another significant feature of an IP audit will often result in a company wide appreciation of the true value of a brand, a patented technology or a design and in doing so will itself increase the value of the IP and the role that it plays in determining a company’s future marketing and production strategies. Stronger negotiating positions can be taken and robust long-term alliances forged only when true value of an IP and its surrounding circumstances are understood. Every IP has its own significance and should be managed to form part of a cohesive IP strategy designed to maximize the company’s earning potential, employee job security and customer loyalty.
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. 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 these IP’s are then scrutinized to determine who owns them, whether they remain Registered and enforceable and whether they are being used. The Individual components are also given an importance rating – by looking at factors such as whether or not they are to core technologies, the life expectancy of the technology and the 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 programmes.
In trying to estimate the value any of these items a good question to ask is how much will it cost to replace the item if it were lost, what potential does the IP have to increasing revenue and how is it being used.
Table 1 – An Example of a Provisional IP Audit
Internal Assets
Product Life(yr) Extent of Use Importance Estimated Value $
Trademarks
Tm1
Tm2
Tm3etc
10+
1-2
10+
100,000
40,000
10,000
Patents
P1
P2
P3 etc
15
2
10
2,000,000
10,000
5,000
Designs
D1
D2
4
10
25,000
100,000
Copyright
Forms,
Charts, etc
5
5
1,000
1,500
Trade Secrets 15 100,000
Custom Software 5 15,000
Recipes/formulations 10 60,000
Manuals 5 40,000
Publications 1-2 5,000
Training 1 50,000
Licenses in 1-2 50,000
Licenses out 5 100,000
External Assets
Company “House” Brand 20+ 750,000
Product Brands 10+ 250,000
Distribution contracts 5 25,000
Raw Material networks 5 2,000
Client Lists 1-2 5,000
Marketing/Advertising 1 5,000
Goodwill 50 100,000
Customer Loyalty 5-10 20,000
Product Certification 2-5 100,000
Import/Export 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 be used to focus attention on the importance that an IP in maintaining and creating competitive advantage.
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 can then make decisions to ensure that the Patented technology is not being infringed and that the House and product brands are 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 of the 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”.
If you have any thoughts, comments or additions to the above discussion please e-mail icockburn@piperpat.com to begin a dialogue, or conversely consult an IP professional to determine best fit patent strategies for your firm.
Disclaimer: 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 professional or contact http://www.piperpat.com/
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.
IP Audit – A Practical “How to” Guide. - To learn more about this author, visit Ian Cockburn's Website.
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