The first step in creating an IP plan is to audit your company’s current state of affairs. Conducting an IP audit will provide you with a report card of sorts that helps you understand where your company is performing well and where it needs work.
I break an IP audit down into five parts: (1) identifying existing procedures, (2) identifying relevant personnel, (3) assessing your employment agreements, (4) assessing your IP portfolio, and (5) assessing your risk-avoidance practices.
Entrepreneurs should begin any IP audit by asking what procedures and/or systems do they already have in place related to their intellectual property. To some extent, this provides a bit of a catchall category to make note of any important systems and/or procedures your company has already adopted.
During this initial stage, you should identify whether you have any of the following:
- systems or procedures to identify innovations occurring within the company
- systems or procedures to assess and prioritize any innovations or other intangible assets you identify
- systems or procedures to obtain and/or perfect your company’s legal rights in the assets
- systems or procedures to identify any potential conflicting patents or trademarks that could create issues for your company
- systems or procedures to ensure that your employees are not using copyrighted material without a license
- systems or procedures to ensure that new employees are not using trade secrets from their prior employment
- training you have in place for your employees related to intellectual property and/or innovation
- policies calling for the periodic review of innovation and/or intellectual property issues
The importance of these procedures will vary from company to company, depending on your industry and the extent to which your company is creating and selling products. If you can identify a good reason why your company does not have one or two of these systems, procedures, training, and/or policies in place, it may not be a major issue. If your company does not have any of them however, that is likely a significant red flag that your company is in desperate need of significant IP planning.
It is also important to identify the key players involved in your company’s innovation and its IP decision-making. One of the major oversights that prevents companies from harnessing the value of their intangible assets is a lack of communication between the people involved in creating the assets and the people responsible for protecting the assets. In large corporations, this occurs when the in-house lawyers are not fully engaged with the relevant parties. For smaller companies, this occurs when the executives are not fully aware of what is being created.
To remedy the lack of communication, part of your IP audit should involve identifying the employees responsible for creating intangible assets, the individuals charged with protecting these assets, and the communication that is occurring (or not) between these two sets of employees.
Begin the process by identifying the creators. For inventions, this will normally include the members of the product-development teams. It might also include other management officials who are creating business methods. For trademark and copyright issues, this will often involve the marketing team. Trade secrets could come from any number of places, including the product-development team and the sales team, which is creating customer lists and other data compilations.
After the creators are identified, you need to determine who is responsible for making the decisions about protecting the assets. Do you have an employee who serves as the chief IP officer? If not, is there a team charged with the task? For most entrepreneurs who are reading this book, I suspect the answer is that there is no one within the company that is charged with these decisions. Instead, the decisions are made on an ad hoc basis when they happen to rise to the level of top management.
Finally, identify the modes of communication that connect the creators and the deciders. Does your company have a regular reporting process in which the creators share important innovations with the deciders? If not, there are almost certainly opportunities that are being missed.
Another aspect of any IP audit is to consider the extent to which your employment agreements and your agreements with independent contractors have the necessary provisions to protect your intellectual property rights.
Do You Have Written Agreements?
The first step is to analyze whether you have written agreements in place for each and every employee and independent contractor who works for your business. As a matter of employment law, you do not need employment agreements. The law implies all sorts of terms to employment in the absence of a written agreement.
The law falls far short, however, on issues related to intellectual property. Thus, you should have written agreements with every employee who is involved in any aspect of creating intellectual property (whether through invention, brand development, or the creation of creative work) and with every employee who has access to confidential information. Similarly, if you work with independent contractors (e.g., outside designers), you should have agreements in place with these contractors as well.
If, during the course of your IP audit, you note that you do not have written agreements with your employees, correcting that issue should go to the top of your “to do” list.
Do The Agreements Include Assignment Clauses?
The vast majority of intellectual property rights can be transferred only through a written document. This is true for patents, trademarks, and copyrights. For inventions, without a written agreement, the employees who qualify as inventors are the sole owners of the invention and any patent issued to cover that invention.
With trademarks and copyrights, there is sometimes room to argue that the work was conducted for hire and thus belongs to the company. Without a written agreement, however, employees may be able to argue that they retain rights to the material.
Thus, the written agreements you have with your employees should include a statement that they agree to assign, and are assigning, to the company all rights to any works created during the course of their employment. These statements are assignment clauses.
There is magic language that needs to be included in the agreements to ensure that the transfer is effective. During the IP audit stage, the goal is merely to collect the agreements and make a note of whether they contain assignment clauses. During the IP planning process after the audit, you will correct any insufficient language (often by working with an attorney to ensure the agreements have the necessary language).
Do The Agreements Have Confidentiality Clauses?
To protect your trade secrets, your written agreements should also include confidentiality and non-compete clauses (to the extent they are enforceable by state law).
From an intellectual property standpoint, the goal here is not to make it impossible for your employees to leave your company and work elsewhere. Full non-compete clauses that would prevent your employees from plying their trade elsewhere are dicey (and may not be enforced depending on the circumstances), and I won’t comment on the business wisdom of including such clauses considering the impact they will have on your ability to recruit top-tier talent.
From an intellectual property standpoint, you need to assess whether you have provisions that expressly prevent your employees from using any confidential information your company has collected and/or created should they leave the company. These more targeted clauses can be important to prevent a claim that the information was not actually held in confidence. Thus, during the IP audit, note whether you have confidentiality clauses.
Do You Have Indemnity Agreements?
Agreements with third-party contractors who are serving in a creative role should also include non-infringement and indemnity clauses.
A non-infringement clause should generally state that the contractor represents and warrants that he or she has the legal rights to the products and services being provided. To use a simple example, your agreements with a designer should include an express provision that the designer has all the necessary rights to the images and design elements contained in the finished design. These rights are then transferred to you upon completion as a result of the assignment clause. The goal is to ensure that the designer is not providing you a design with an unlicensed image that can create liability for you in the future.
The indemnity clause should require the third-party contractor to be responsible for defending you in any lawsuit alleging infringement stemming from that contractor’s work. Such a clause will often not be worth much because the contractor will likely not be in a financial position to fulfill the obligation, but it is worth including in any event.
During the IP audit, you should note whether your agreements with outside contractors have the necessary provisions.
After you have assessed your employment agreements, it is time to move on to assessing the state of your existing intellectual property portfolio. The goal during this stage is to catalog all of the intangible assets of your business and assess whether you have taken steps to convert these intangible assets into protected intellectual property.
The Assessment Method
The goal of the assessment is to determine whether your business has any valuable intangible assets that it has not yet taken the appropriate steps to protect. To achieve this goal, I recommend taking a three-step process.
First, you need to list all of your potentially protectable intangible assets. The types of assets that you should include are set out below in the sections about each type of intellectual property. During this audit procedure, your goal is to be as all-encompassing as possible. In other words, you want to identify each and every potentially protectable asset. In many cases, you will ultimately decide that certain assets do not warrant the time or expense to protect, but you cannot make that assessment until you have identified all your intangible assets.
Second, determine how important each of the potentially protectable assets is to your business. We are all constrained by how much time and money we can devote to any process, so applying a significance value to each asset will allow you to prioritize your tasks once the audit is complete. You can make this significance ranking as complex or as simple as you like. Some entrepreneurs may want to use a one to ten rating, while others may want to simply use a yes/no approach. For most entrepreneurs, the sweet spot will likely be using a three-tier approach: critical, important, and not important.
Finally, note what steps have already been taken to protect the asset and/or convert it into protected intellectual property. This will include listing whether you have filed for protection (in the case of patents, trademarks, and copyrights), whether you have a monitoring regime in place, and whether you have taken steps to maintain the confidentiality of your trade secrets.
The mechanics of creating the list do not need to be complicated. You could conduct the audit using any three-column chart (whether in PDF, word processor, or spreadsheet format).
The assessment will differ slightly between each of the forms of intellectual property, so the following sub-sections outline how the audit should be performed for the various forms of IP.
As described in the intellectual property overview, patents are available to protect an inventor’s rights in a new and useful invention. Patents are available for a wide array of inventions, including any new method, machine, product, ornamental design for an article of manufacture, or plant. You can also obtain patents for improvements on existing inventions.
You should list every potentially protectable invention you or your employees have created as a part of your business. Products and machines will generally be easy to identify. You should list any product or machine that you have created that is different from anything else in the market.
Methods are a bit trickier and might not be obvious without looking. Have you or your employees created innovative ways of doing business? If so, those methods might be protectable by a patent. The courts have been making it harder to obtain (and defend) these types of patents, but it is still possible to patent a business method. During the audit process, think carefully to identify any new and innovative business methods you have created.
Ornamental designs are also an important consideration here. You can file for a design patent to cover a new ornamental design for an article of manufacture. In other words, if you have a particular design for a product, it might be protectable. Thus, consider adding any unique design elements that you have developed for the products you offer to your list.
Once you have compiled your list of inventions, you should note any steps you have taken to protect them. This will involve listing whether you have filed for a patent application and what the status of the application is. For any important inventions for which you have not filed an application, you should also note the date that you first disclosed the invention or offered it for sale. There is a one-year bar that denies you the ability to get a patent, so the dates can be crucial for helping outside counsel prioritize any patent filings.
As described earlier, trademarks are used to protect the trade names, slogans, and other branding information that you use in commerce.
During the audit process, you should identify all trade names your company uses, including the company name, the names of all products, the names of any services (or service packages), and any other names your company uses to do business. This process is not complex, but it is important to be thorough. Make sure to be careful not to miss any of your products or offerings.
You should also look to identify any marks and slogans that you use. This would include your logo, product logos, and any one-line phrases used to market the product. The logos will be easy to identify, but the slogans will not always be obvious. Generally, slogans will be things that you include on labeling or that appears regularly in your sales, marketing, or advertising copy. If there is a phrase or slogan that you are using repeatedly, it is probably worth adding to the list.
Trademarks obtain common-law protection immediately, but there are more robust protections for registered marks. Thus, during the audit, you should identify whether you have taken any steps to register the marks.
Any creative work is protected by copyright. A copyright is automatic as soon as a work is in fixed form, but registering a copyright has certain advantages. Thus, during an IP audit, the goal is to identify the extent to which you have registered copyrights for important creative works.
Attempting to compile a list of all works that are subject to copyright protection would be nearly impossible. Your website copy, marketing material, sales material, videos, webinars, slide decks, any drawings, and any other creative work is subject to copyright protection. Just reading the list likely makes your head spin. Trying to compile a complete list of all these creative works is unnecessary and could consume your time for weeks.
Rather than attempt to compile a complete list of creative works, you should attempt to identify all of the creative works that you can envision wanting to protect if you came across an infringer. This will likely include a significantly smaller universe of work. Every entrepreneur must decide how broadly to protect the company’s copyrighted matter.
Once you determine how broadly you would seek to enforce your copyrights, you should create a list of all potentially enforceable works. Then, you should note whether you have filed to register these works.
Trade secrets protect confidential information that has commercial value. In cataloging these potential assets during your IP audit, you should look to identify any category of confidential information that has value to the company. Some common examples include recipes/formulas, customer lists, and data compilations. The potential categories to be protected as trade secrets are nearly limitless, so you should try to identify any confidential business information that has value.
In assessing the steps that you have taken to protect trade secrets, you should assess the extent to which access to this information is limited to those who need access to it and the extent to which those employees are required to maintain its confidentiality.
In addition to assessing the status of your portfolio, the IP audit will assess whether you have taken the relevant steps to minimize the risks of being accused of infringing others’ intellectual property. This process involves assessing your company’s systems and procedures and searching for potentially problematic rights held by third parties and the steps you have taken to ensure that your employees are not crossing the line.
The Assessment Method
The goal here is to assess the extent to which your company has taken reasonable steps to reduce the chance that it is infringing the intellectual property owned by third parties. Unfortunately, assessing the risks is not nearly as easy as assessing the steps taken to protect your portfolio. There simply are no sure-fire ways to check for all potential threats from third parties.
As a result, your audit will focus on the extent to which your company has taken common-sense steps to limit risks. Specifically, your audit will involve analyzing whether you have taken steps to ensure your key assets (across the various types of intellectual property) do not infringe on easily identifiable IP rights held by competitors.
Patent infringement issues can pose some of the most significant threats to a business. Unfortunately, patents also pose the most difficult task in risk assessment and minimization. The United States has issued more than nine million patents, and approximately two million of those patents remain in force at any given time. There is obviously no way to review anywhere close to all of the patents in force.
During an IP audit, I recommend analyzing the extent to which you have completed two tasks: (1) have you had a patent attorney conduct a search of the relevant art (i.e., related inventions or publications), and (2) have you analyzed your competitors’ patent portfolios?
The first category of search is a relatively simple inquiry during the IP audit phase. All you need to do is ask yourself a simple yes-or-no question: Have you had a patent attorney or search firm conduct a patent search?
The second category requires a bit more consideration. To complete this phase of the audit, you should list your direct competitors. Then note whether you (or someone on your behalf) has conducted a search to determine whether that competitor holds any relevant patents.
If you have not conducted any search of your competitors’ patent holdings, the answer will be a simple “no.” If you have conducted some review, you should note the extent of the review. Have you searched your competitors’ websites and products to look for patent markings? Have you had a patent attorney (or search firm) identify relevant patents?
Note the steps you have taken to search for relevant patents in your audit worksheet.
It is considerably easier to conduct an audit of your trademark-clearance procedures. Specifically, you need to note any procedures or steps that you take to ensure that your trade names, logos, product names, and slogans do not infringe on trademarks held by others.
In assessing your risks, you should repeat the list of trade names and related marks that you created as part of assessing your IP portfolio. This list should include a comprehensive list of all the potentially important trade names that you are using, which will serve as a good measure of your risk avoidance.
To assess the risk, you should identify the extent to which you have (or someone on your behalf has) searched the federal trademark database, conducted an internet search for the relevant words and phrases, and conducted a full-blown trademark search.
Assessing your copyright clearance is also a relatively straightforward, albeit time-consuming, audit task. The goal is to identify all creative material you are using and to analyze the extent to which you have the necessary licenses.
Begin the process by analyzing all photos and other images that are included on your website and other media. Identify each photograph and image, note its source, and confirm that you have the necessary license.
Conduct a similar analysis for any music included on any videos you have produced, any videos or similar material you did not create, and any other creative works that you are using.
Beyond looking at individual works, your assessment should include the extent to which you have adopted procedures for clearing copyright issues on an ongoing basis. Thus, you should note whether you have a procedure to ensure that your employees obtain the necessary licenses for any images or other matter prior to their use.
Assessing your risks with respect to trade secrets poses a particularly difficult task. Ultimately, your risk of being sued for trade secret theft will be the result of the activities of employees who join your company from a competitor. During the IP audit, the goal is to assess the extent to which your company has developed procedures to prevent new employees from using any confidential information they bring from a competitor (or at least identify any such activity).
During the audit, note whether your company requires new hires to expressly agree not to use any confidential information learned at their prior employer. Similarly, note whether you have any procedures to monitor potential improper use of trade secrets (e.g., use of customer lists by sales personnel).
Click on the links below to navigate between pages of intellectual property resources.