FUNDAMENTALS OF by chenmeixiu




A.      Purposes of an Intellectual Property Audit

       An intellectual property audit or due diligence exercise can be done for one or more of the
following reasons:

1.      Financing or Acquisition Transactions

        Investors and acquirors often need to assess intellectual property rights in connection with a
variety of transactions, such as financings, acquisitions and strategic alliances. Such an assessment
often includes examining rights to the underlying intellectual property, valuing it and determining
whether the rights in important intellectual property are enforceable and sufficiently broad in scope.

        In addition, accounting rules relating to the treatment of goodwill and intellectual property
rights upon acquisition may make such assessments necessary on an ongoing basis post-acquisition.

2.      General Intellectual Property Rights and Responsibilities Assessment

        Any organization may desire to establish or analyze the effectiveness of existing internal
policies and procedures relating to intellectual property protection, enforcement, exploitation and
maintenance, and review the procedure to determine whether or not the organization has properly
acquired rights from third parties (so as to minimize the likelihood of infringement suits against it).

        Licenses, distribution rights and other transactions (involving for example computer
software, patents and other intellectual property assets) may necessitate due diligence that is similar
in nature to the third party due diligence for financing or acquisition transactions.

3.      Pursuing an Intellectual Property Exploitation Program

        Another reason an organization might perform an audit is to examine a significant
intellectual property portfolio for the purpose of exploiting licensing opportunities to obtain
revenue from third parties. Some non-profit institutions such as universities have significant
intellectual property portfolios that fall within this category.

4.      Intellectual Property Enforcement Actions

       Pre-lawsuit investigations typically involve additional due diligence with respect to the
prospective plaintiffs intellectual property and, in certain instances, a selective audit of the
prospective defendant's intellectual property to determine the potential for counterclaims or

* Adopted from an article authored by Edward G. Poplawski of Sidley Austin Brown & Wood LLP (2001) and from
Randall C. Brown of Haynes and Boone, L.L.P., Intellectual Property Audits: Conflicts and Ethical Issues, 7th Annual
Advanced Patent Law Institute, 2002.

B.      Intellectual Property to be Considered

        The commonly known types of intellectual property protection are patents, trade secrets,
trademarks, copyrights and rights of publicity. However, new uses and combinations of materials
otherwise protectable under classic intellectual property rights need to be considered. Examples
include such things as the use of open source software, rights to access data available in electronic
form on the internet or otherwise and forms of use and protection not available in past years (such
as protection of books, music and video through digital right management systems).

C.      The Proper Scope of an Audit

        The proper scope of an intellectual property audit should be determined on a case-by-case
basis. It fundamentally depends on a number of factors, including the particular part of the life
cycle that the business or institution occupies, the specific needs to be addressed and goals to be
implemented, the availability of the client's employees to assist in the audit and the budget allocated
for the audit. The scope may depending on a number of factors, including the stage of development
of the organization and its products (startup/mature, etc.), and the use the organization makes of
intellectual property:

1.      Defensive Position -

         A company may be essentially minimalist and reactive with respect to its intellectual
property. That is, it obtains intellectual property protection, such as patents, to create a shield that it
hope will deter others from poaching on its technology and will avoid litigation. Non-profit
institutions that fit into this category similarly take a minimalist and reactive approach which often
focuses on obtaining patents for important employees of the institution and relying on these
employees to seek out licensing opportunities for the institution.

2.      Strategic Competitor

        A company may aggressively develop new technology and seek to protect its business
model through the use of intellectual property barriers. Similarly, some companies base (or seek to
base) their business model on exploitation of unprotectable or unprotected intellectual property of
others, or by licensing protected material for new uses.

3.      Intellectual Property Profit Center Position -

        This type of organization may seek to maximize the value of its portfolio for licensing to
third parties. This may be incidental but beneficial to the institution's main mission (a university)
or may in some cases be organized specifically for the purpose of commercializing existing useful
intellectual property (such as a patent exploitation company or pool)


A.      Pre-Audit Preparation

1.      Conduct Preliminary Meeting with Client and Determine Overall Audit Parameters

         Essentially, the attorney determines the purpose and scope of the audit and establishes a
budget for the audit consistent with the audit's scope and objectives. As a preliminary matter, the
attorney should also gain a solid understanding of the company or institution, its technology, and its
competition; as well as learn about any serious or extraordinary issues relating to the company's or
institution's intellectual property. Such issues include threatened lawsuits, disputes with key
employees, and significant anticipated changes in the technological direction of the company or
institution. Additionally, the attorney should inquire about any previous audits and other efforts to
manage intellectual property and become conversant with any preexisting internal policies and
procedures concerning intellectual property. The attorney should also preliminarily discuss the
nature of the report that is to be provided, who will review it, and for what purpose. A
determination should also be made as to the appropriateness of engaging an accountant or other
valuation expert to assist with valuation of any intellectual property. Finally, the attorney should
consider the extent to which any report or audit related communications should be protected under
the attorney-client privilege and/or work product immunity.

2.     Develop an Audit Plan and Obtain Client Approval

       (a)     Identify the Participants in the Audit and Their Duties -

        The preliminary meeting and ensuing pre-audit analysis determines the persons that are to
assist the attorney in the audit or otherwise constitute the audit team. Typically, the attorney will
engage in-house counsel and key technical employees, although in some cases employees from
contracts, marketing and other departments may be needed to assist the attorney. An accounting
firm or other outside expert may be appropriate. Once the audit team is assembled, the attorney
should, as appropriate, explain the purpose, scope and objectives of the audit and explain
confidentiality and privilege or immunity constraints.

       (b)     Review Key Documents as an Aid to Formulating the Audit Plan -

        These documents may include the company's or institution's internal policies and
procedures relating to intellectual property, standard invention disclosure forms, key contracts or
license agreements, including forms of employee agreements, prior audit reports, status reports
concerning the existing intellectual property portfolio (such as listings of the current status of
registered patents, trademarks and copyrights), and information concerning any key or dominant
technology of the company or institution.

       (c)     Complete a Written Audit Plan and Submit it to the Client -

        A plan should then be submitted to the client for approval. The plan should delineate the
purpose and scope of the audit, identify significant areas of inquiry and personnel to be
interviewed, identify documents and information sought to be obtained and all persons responsible
for assisting in the audit, and set forth an audit schedule and any particular criteria for the report
(including whether it will be in writing). The plan should also provide for any valuation analysis to
be performed by an accounting firm. Finally, since it is exceptionally difficult to predict all issues
that may arise as a result of the audit, the audit plan should ordinarily be subject to revision based
on after acquired information or changes in the company's or institution's objectives for the audit.
For this reason, it may be appropriate to perform the audit in stages by, for example, first

concentrating on certain intellectual property or technological areas or issues before others.

B.     Performance of the Audit

1.    Identify, and Prepare an Inventory of, Intellectual Property and "Knowledge" Assets
and Pertinent Documents -

        Here, the attorney should take into account not only traditional assets like patents and
license agreements, but also know-how and other knowledge-based assets that may be on Intranets,
Extranets or individual computer work stations. The difficulty of this process depends on the
cooperation of the company's employees, the company's preexisting awareness of its assets, and the
level of its previous efforts to inventory such assets. Moreover, since in a number of instances
documentation of intellectual property or knowledge asset may be lacking, the identification and
inventory process should include interviews with selected employees.

2.     Relevant Documentary Information for the Inventory Schedule:

       Relevant documents may include:

       (a)     Written internal practices or procedures concerning intellectual property, including
invention disclosure forms, document retention policies and invention incentive programs.

        (b)     Intellectual property status and maintenance reports for both domestic and foreign
intellectual property, including lists of any existing databases of the company that inventory
intellectual property.

       (c)     Copies of US and foreign patents and copyright and trademark registrations,
applications, and recordation materials, including the "prosecution file";

      (d)     Employee agreements, consulting agreements and any policies concerning an
ownership, proprietary or monetary interest in intellectual property created or reduced to practice
by employees or consultants, including hiring and exit interview materials.

        (e)    Licensing, joint venture and distribution agreements, strategic alliance agreements,
joint venture agreements and government contracts.

      (f)     Assignments, assignment agreements, intellectual property security interest
agreements and collaboration agreements.

        (g)    Documents relating to any standards or other practices of the company concerning
intellectual property ownership, indemnification and infringement, including any standard
representations and warranties concerning intellectual property.

        (h)    Documents relating to any procedures at the company for detecting and avoiding
infringement, trade secret misappropriation and other intellectual property related claims.

       (i)    Listings of computer software used by the company, including all versions and
source and object code, flow charts, and other development documents.

       (j)     Correspondence relating to various intellectual property rights, including any
disputes over intellectual property rights, an in such cases any litigation files related thereto.

       (k)     Preexisting materials relating to valuation of intellectual property, such as for
accounting, tax or other purposes.

        To obtain this information, the attorney should (i) send a questionnaire to all of the
company’s employees that use or develop intellectual property, asking them to list all patented,
trademarked, copyrighted, and confidential material used or developed by the employee; and (ii)
conduct searches of available databases for information regarding the company’s products,
services, and advertising, that involve the use of patents, trademarks, copyrights. These searches
may reveal assignments, security interests, or other impairments of the company’s rights, and the
company’s possible infringement of third party rights. A final audit report should be prepared that
identifies each asset owned by the company and specifies the date of acquisition of each asset, its
developer, any license, assignment, or transfer, and whether it has been registered with any federal
or state agency.

3.     Review and Analyze the Identified Documents and Information

        This includes follow-up interviews with employees, supplemental document searches, and
completion of a preliminary inventory schedule. Every reasonable effort should be made to obtain
written corroboration of any oral information given concerning any intellectual property asset.

4.     Assess Intellectual Property Documentation

         Here, the attorney determines the adequacy of existing documentation for identifying,
memorializing and corroborating the existence of protectable inventions and discoveries, including
invention disclosure forms, practice and procedures for creating and maintaining laboratory
notebooks and other documentation (including electronic documentation) and a system for
maintaining electronic and other records of inventions and discoveries. The attorney also looks at
the present status of any established intellectual property review process within the company or

5.     Assess Ownership of the Inventoried Intellectual Property and its Status

        This essentially involves determining who owns each item of intellectual property and
whether the statutory or other legal formalities for maintaining valid and subsisting rights in the
intellectual property have been followed. For example, it may involve determining that patent
maintenance fees have been timely paid, verifying whether assignments have in fact been filed in
the United States Patent and Trademark Office and determining the status of any security interest in
such patents. By way of further example, it may require review of government contracts to
ascertain whether the United States Government in fact has title to the subject intellectual property.
Additionally, the attorney may need to review existing employment and consulting agreements to
determine whether they provide for proper ownership and assignment of intellectual property rights
to the company or institution. The level of detail here depends on the scope and objectives of the
audit, the budget and other factors discussed above.

       Specific steps to take for specific types of IP can include the following

       (a)     Patent Rights.

        (i)    Issued Patents: The company should provide an all-inclusive list and copies of all
the company’s issued patents, including (i) abandoned/expired patents and applications; (ii)
reissues and reexaminations of the patents; and (iii) patent applications, including any provisional
patent applications. The attorney also should conduct an independent search for patents either
owned by or assigned to the company; and a search of key inventive employees to ensure that all
their inventions have been appropriately assigned to the company.

       (ii)    Prosecution File History: The attorney also should obtain and examine the
prosecution file history of each patent and application to determine whether the company’s
products are covered by the claims of each corresponding patent or application.

         (iii)   Competitors’ Patents: Particularly if the company operates in a highly competitive
field, the attorney should obtain copies of competitors’ patents. The claims of competitors’ patents
should be considered in juxtaposition with the positions the company took concerning the scope of
those claims during the prosecution of its own patents. The audit report should note where the
company’s claims have been limited due to competitors’ preexisting patents to help ensure that the
company’s products conform to its patent without infringing on any competitors’ patents.

       (iv)     Other Related Documents: While the company should already have a copy of all
documents produced by any of its in-house attorneys, each outside counsel should provide to the
attorney a copy of their files. Scientists who worked on developing patented inventions should
provide their lab notebooks and other notes. The attorney should survey all employees to determine
what association they had with the invention through its development.

       (v)    Validity Opinions: The attorney should inspect copies of any validity opinions and
should note important points from validity opinions when assessing the strength of each patent.

        The attorney should also consider issuing his or her own validity opinion for patents of
particular value or importance to the company.

        (vi)    Company’s Ownership: The attorney should look into products that the company
developed through joint ventures with other companies or research institutions. To make sure that
everyone who contributed to any subject matter covered by the claims of patents covering such
products is listed as an inventor, the attorney also should review potential contributions by past and
current employees in all departments even incidentally connected to the development of the subject
matter. Because an employer does not own the inventions of its employees in the absence of a
contrary agreement, either an actual assignment or an implied assignment must be found to support
company ownership of such inventions.

        (vii) Actual Assignments: The attorney should review employment agreements for an
actual assignment clause. The audit report should note whether the patentee retained any rights to
the patent and whether the actual assignment complied with the applicable state statutes. The audit
report also should indicate whether the company properly recorded any such assignments.

      (viii) Implied Assignments: The attorney should document (i) the employment of all
employees who were hired to invent or develop products but did not sign written agreements to

assign their rights to such inventions to the company; and (ii) whether the invention was within the
scope of the field in which the employee was hired.

        (ix)    Implied Licenses: If no assignment arose, the audit report should indicate whether
the company has an implied license, or “shop right,” that arises when the employee used company
property and spent time during his ordinary hours of employment working on an invention. The
attorney should advise the company that – in valuing the patent – an implied license is not
transferable to another entity unless the entire business and associated goodwill of the company is
also transferred.

       (b)     Trademark Rights

       (i)    Registered Marks: The audit report should list the (i) current status; and (ii) class of
goods or services for which it is registered of all U.S. federal, state, and foreign trademark and
service mark registrations and applications, including marks that have been cancelled or
abandoned. The attorney also should perform an independent search to verify the company’s
records because an independent search can assist in identifying inactive marks.

       (ii)    Common Law Rights: The attorney also should review a list of unregistered
trademarks protected only by common law rights, including the reasons why such marks remain
unregistered. The attorney should also identify the company’s protectable trade dress.

        (iii)   Prosecution History: The attorney should review the prosecution history for each
trademark application to determine whether the use of the trademark is limited in any way,
particularly in reference to any concurrent use agreements.

        (iv)    Acquisition by Assignment: The attorney should examine any registered marks and
actual use applications or intent-to-use applications that the company has acquired by assignment to
ensure that (i) the document for registered marks and actual use applications states that the related
goodwill of the assignor’s business has been transferred with the mark; and (ii) the document for
intent-to-use applications states that the company succeeds to at least that part of the assignor’s
business covered by the mark. The audit report should note proper recordation of all such
assignments with the PTO.

       (v)    Security Interests: The attorney should search the PTO and the applicable Secretary
of States offices to discover all security interests or liens. The attorney should review the
company’s loan transactions and acquisitions.

       (vi)    Licenses: The audit report should (i) identify all licenses that the company has
granted to third parties to use its trademarks, including the scope, duration, and any licensee
problems for each mark; and (ii) fully describe the quality control system the company uses to
monitor compliance with its licenses or the absence of monitoring.

       (c)     Copyright Rights

        (i)    Copyright Registrations: The attorney should (i) review a list of all copyright
registrations and applications and (ii) verify this list against a list obtained from an independent
search of the company’s name and its employees’ names, conducted in the Copyright Office.

        (ii)  Copyright Ownership: The attorney should (i) determine the ownership of each
copyright by reviewing personnel files to ensure proper classification of each person as either an
employee or an independent contractor; (ii) review all employment agreements to ensure that the
company will be deemed as the author of all works created by an employee acting in the scope of
their employment; and (iii) should assess all agreements with independent contractors for changes –
typically in work-for-hire or assignment clauses – to the common law rule that independent
contractors own the copyright in their own creations.

       (d)     Trade Secret Rights

        (i)    Contact all Personnel: The attorney should survey all personnel because trade
secrets may be involved in every department of the company. The audit report should catalog
anything that the company considers confidential, sensitive, or prefers to not make public.

        (ii)   Company’s Ownership: The attorney should verify the company’s ownership of its
trade secrets by determining (i) whether any assignments have been made or licenses granted for
such trade secrets; and (ii) whether any former employees have used the company’s trade secrets in
new employment. The audit report should document each instance of former employees using the
company’s trade secrets with full details of the resolution of each instance.

        (iii)   Licenses: The attorney (i) should review any licenses the company has to use third
party trade secrets, and (ii) should determine whether the licensors continue to hold the information
as a trade secret or have publicly disseminated that information.

       (e)     Domain Name Information

        The company should provide (i) a list of all domain names that are currently registered and
active; (ii) a list of inactive names; and (iii) a list of any other names the company is considering
using in the immediate future. The attorney should conduct a search of each major domain name
registry to verify ownership of the names on the company’s list and to determine the enforceability
of all contracts between the company and the various domain name registrars. Any other contracts
relating to domain names should also be noted and included in the audit report. The attorney should
examine all domain names the company has acquired by assignment for compliance with all
required formalities, particularly for foreign domains.

       (f)     Computer Software.

        Computers software is protectable by copyright and trade secret law, and in some cases
patent law. However, the attorney may consider the following additional steps to take with respect
to software.

        (i)    Review source code for evidence of third party code, including perhaps automated
source code review, or the equivalent. This would include searching for third party copyright
notices and code which seems to be authored by a third party.

       (ii)   Interview key developers regarding their prior experience, potentially including
execution of Certificates of Originality (which provide a step-by-step explicit roadmap of
information on creation of the code).

        (iii)  Review trade secret protection program, including procedures used to protect
secrecy of source code. Specifically review any source code escrow agreements to ensure
transaction does not result in a triggering event.

        (iv)    Confirm that ALL individuals associated with the development of products have
executed adequate assignment of inventions agreements. Obtain list of previous employers/other
clients of each individual and compare against industry competitors.

       (v)    Consider on a contingency basis whether any sub-parts or modules of products are
replaceable .

       (vi)    Confirm need for use and retention of personally identified information, and
procedures relating thereto

       (g)     Protective Measures for the Company’s Existing IP Rights

         (i)     Docketing Systems: The attorney should review the efficiency of any maintenance
fee payment system the company has in place – including the company’s domain names which may
be registered with different authorities or registrars that demand different fees based on the date of
initial registration – and any docketing systems for renewal filings. The audit also should include
confirmations of filing of statements of use for all U.S. trademark registrations along with any
necessary filings required in applicable foreign jurisdictions and confirmations of filing affidavits
of incontestability for each mark.

        (ii)   Marking of Products: The audit report should fully describe the company’s system
for the marking of each product – reflecting any gaps in continuity of marking – and also should
describe any failure to mark any products with proper notice.

        (iii)   Enforcing the IP Assets: The attorney should review documents reflecting the
company’s actions taken to address infringement of its IP assets and should determine the statute of
limitations for any unresolved claims. The audit report should record the company’s actions in
enforcing its IP assets against infringers and should include copies of the decisions or settlement
agreements in each case. The audit report also should record and evaluate all instances of potential
infringement to determine whether the company took appropriate and consistent actions. Any
mechanisms the company uses to monitor infringement, such as using a watch service or a tracking
system, should also be evaluated to determine their cost-effectiveness and appropriate range of
coverage (i.e., use on the Internet).

      (iv)    Security Measures for Trade Secrets: The audit report should detail every security
measure used by the company in the protection of its trade secrets, including, but not limited to:

                     (a)     Review all measures related to document security, including practices
       such as stamping documents with the term “Confidential,” coding documents, allowable
       photocopying, restricting access to certain areas, and the company’s document retention

                      (b)    Review all measures related to personnel, including all
       confidentiality and nondisclosure agreements, assigned security levels, and employee exit

       interviews. Each document should be evaluated to determine the scope of the agreement.
       Special care should be given to reviewing nondisclosure agreements with third parties to
       ensure that trade secrets have not been publicly disseminated;

                     (c)     Review all measures relating to computer security, including
       password access, firewalls, Internet protection and remote access restrictions;

                      (d)    Determine if any trade secrets have been disclosed in patent and
       copyright applications or any other intellectual property registrations;

                      (e)     Review all litigation files to ensure that no trade secrets have been
       publicly revealed. All disclosures to state or federal governmental agencies – when required
       by law – should be noted for each trade secret;

                      (f)     Assess the ease and likelihood of reverse engineering of each trade
       secret, and evaluate each trade secret to determine whether other types of intellectual
       property are available and appropriate under the company’s business objectives.

       (h)     Third Party IP Assets

        In addition to its own rights, the company may hold an interest in other parties’ IP assets.
The attorney must review all licensing agreements to ensure that the company is continually in
compliance with the terms of such licenses. The attorney should evaluate whether the licenses
further the current and future business plans of the company, carefully reviewing the terms
regarding the scope of rights granted, diligent exercise requirements, duration, on-line use, and

        The attorney should survey the licensor’s potential infringement of other patents to evaluate
the company’s possible liability. The audit report should note the quality control measures used by
the licensor and the effects of such measures on the company’s operations, especially any
ramifications that inspections – or other monitoring activities – have on trade secret security. The
attorney audit should assess the viability of any indemnification provided by the licensor for patent

       The attorney also should (i) review assignments to determine whether the company was
granted an assignment from every author of a work and whether the license was exclusive; and (ii)
contact all licensors and assignors to determine whether any security interests or liens have been
granted in the IP assets.

6.     Assess the Scope and Enforceability of Selected Intellectual Property Assets

        The scope and enforceability of an intellectual property asset depends not only on having a
sufficient proprietary interest in the asset and complying with any legal formalities to keep the asset
valid and subsisting, but also on the scope of protection that the law accords to the asset and the
value of the asset in the marketplace. In most instances, it is inappropriate for budgetary and other
reasons to perform a detailed study of the legal scope and value of an intellectual property asset. It
is similarly inappropriate in most cases to perform an exhaustive analysis of the ownership and
current status of each such asset. Accordingly, the attorney needs to work closely with the client to

identify key intellectual property assets that are candidates for a more detailed study and decide
which, if any, of these assets merits such a study.

7.      Analyze Existing Litigation and Assess Potential Liability to Third Parties From Use
of Intellectual Property Assets

        Along with identifying existing litigation, an audit may uncover intellectual property assets
that are innocently or deliberately being used in a manner that potentially or actually infringes or
misappropriates a valid and enforceable intellectual property right or confidential information of
the third party or breaches some contract. Conversely, it may also uncover information reflecting
that a third party is infringing the client's intellectual property rights, misappropriating confidential
proprietary information of the audit client, or breaching contract. This may, in turn, call for formal
legal opinions concerning infringement or misappropriation, implementation of litigation avoidance
measures, and formulation of a program of intellectual property enforcement. Especially in the case
of new products under development, it may also necessitate right to use opinions or product
clearance opinions. Finally, as appropriate, a valuation analysis may need to be performed on
selected intellectual property assets in order to better assess the protectable scope of the asset and
the potential for exploiting it in the marketplace.

8.   Identify the Competitive Landscape and Assess The Intellectual Property Positions of

       This may be done on a preliminary basis through interviews with selected employees and
review of readily available competitor documents.

9.     Perform a Valuation Analysis With Respect to the Inventoried Intellectual Property

       In a number of instances, this analysis is performed by the attorney working with personnel
of the audit client to value some or all of the intellectual property assets. However, in other
instances, the analysis is performed with a suitable accounting firm. The analysis may include:

        (a)   Assessing the competitive landscape, the audit client's business strategy and
determining how intellectual property can best support that strategy and enhance value for the audit

      (b)    Assessing the competition's intellectual property position and how the competition
manages and exploits its intellectual property.

      (c)       Identifying important and truly enabling technology of the audit client and assessing
whether it is actually covered by patents or trade secrets.

       (d)     Mapping the audit client's existing intellectual property assets against its preexisting
and future products and the competition's present and anticipated products.

        (e)    Assessing the competitive advantage that the audit client enjoys from its intellectual
property and measuring the current performance of its intellectual property portfolio in terms of
factors such as licensing royalties, market foreclosure, etc.

        (f)     Applying suitable valuation models and techniques to value the audit client's present
intellectual property portfolio and suggest proposed strategies for generating value.

        (g)     Determining any strategy that the audit client should adopt with respect to
management of its intellectual property and helping the audit client develop a plan to exploit its
intellectual property.

       (h)     Recommending select and intellectual property assets for licensing or transfer,
including creation of spin-out companies that house the intellectual property.

       (i)    Determining tax strategies for intellectual property asset management and

10.    Determine any Remedial Action to be Taken

       The audit should also determine any remedial action that the audit client needs to employ,
including curing deficiencies in intellectual property ownership, developing better invention
disclosure procedures, and developing litigation avoidance measures.

C.     Preparation of the Formal Audit Report

        Preliminarily, it should be decided whether the report is to be written or oral, or is to be
separated into multiple reports in order to preserve the attorney/client privilege and work/product
immunity or for other business reasons. In this regard, it is generally preferable to meet with the
audit client to discuss the results of the audit before preparing the formal report. The formal report
should contain an inventory of the intellectual property, an analysis of the results of the audit and
recommendations for intellectual property protection, enforcement, exploitation and maintenance
and for utilizing intellectual property in a manner that best subs ewes the audit client's goals and
objectives. It should also discuss any remedial action that needs to be taken. Preferably, it should be
followed by a meeting with the audit client to discuss the findings contained in the formal report
and implementation of its recommendations.


        Despite the continued trend of the courts to narrow the legal scope of intellectual property
protection, intellectual property remains a key asset for many companies, especially start-ups and
emerging growth companies. An intellectual property audit may constitute the best way to see to it
that intellectual property assets are being adequately protected and exploited and to otherwise better
ensure that the audit client is respecting any valid legal rights of a third party in its intellectual
property. Moreover, given investors' insistence that start-up and emerging technology companies
protect their intellectual property, an audit is a good way to determine whether the company is
sufficiently vigilant about protecting its own intellectual property.


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