Tuesday, 12 July 2011

Intellectual Property Audit

Copyright of this article rests with the writer Mr. Vinod Khurana, President IFAIA

(The article aims to explain the importance of Intellectual Property Audit in changing IPR scenario.)


Intellectual property audit is not statutory and hence is self-driven. In the growing corporate warfare the management of intellectual property has become absolutely mandatory. As the subject is critical and not so well understood in general, an organization in order to sustain in the changing business scenario has to understand their rights in explicit term and has to setup a system strong enough not only to protect those rights but also to commercially exploit them. In order to set up strong proactive system, audit of IPR by an expert team of professionals in this field becomes inevitable, who would help in setting up the system and lay down the mandatory build in checks for a system to function. The issues that the business organization needs to understand and are dwelled upon with due diligence by the IPR audit team are:


    Business must know what properties they own and intellectual properties can be no different. To monitor that Intellectual Properties are properly protected there is a need to take stock of such Properties. The rights could be in the form of Patents, Trademarks, Copyrights Industrial Designs, Trade secrets, Integrated circuits, and Geographical indications involving various modes, criteria and specifications. At the same time business may also have various intangible assets such as, customers list, distribution network, marketing method, manufacturing practices, R & D capabilities, which are equally valuable and at the same time vulnerable to exploitation. If one knows not what his rights are how can he protect them.

    Indian intellectual property laws have undergone sweeping changes. The new laws have come in force or they are in process of being put in force. The changes in the recent time have come through legislation such as, the Trademark Bill 1999 and copyrights amendments Bill 1999, the Design Bill 1999 the protection of Plant Varieties and Farmer's Right bill 1999. Geographical Indication of goods (Registration and Protection) Bill 1999 and the Patent Bill. These new legislations have brought changes in the basic existing policies and structures having larger ramifications, at the same time one intellectual property can be protected by more than one statute. All Organizations need to understand the modes of protections as both the civil and criminal mode are available as options.

    In order to protect intellectual property the organization should establish a proper procedure to determine what rights should be registered and what rights cannot be registered, should they be registered only in India or should they also be registered abroad. If they are to be registered abroad what factors should be considered and what route should be followed. Has the cost-benefit analysis being done before claiming rights abroad. If not registered should they be maintained as trade secret or should they be made public to protect their interest. Organizations also have to be cautions to understand if any third party is permitted to infringe, the proprietor's monopoly is eroded.

    Organization may have registered rights, which are no longer required, and it may make commercial sense in dispensing few of those rights. Maintaining a right without utilizing it is like a white elephant. As it costs money to maintain a right besides being a sunk investment, if not used it would be prudent to segregate them for commercial disposal. Many patents and trademarks may be laying and cluttering portfolio, there may be some patents, which make no commercial sense for the organization that does not mean that they have no commercial value. How those rights are to be traced out and valued can be of great significances.

    The organization may have large number of intangible assets like distribution network, customer list, manufacturing practices, research capabilities, licenses, and supply source. There are various other trade secrets which are highly valuable, how they need to be protected, how can they be misused by the employees, what precautions should be taken to protect. These precautions become more important in the fast changing moral values, where the frequency of employees turn over is increasing considerably and the loyalty to the organization appears to be fading fast.

    Organization needs to follow suitable procedure to record its right more so the unregistered rights. If the corporate logo is protected as Trademark then the jingle may also be protected as copyrights. Similarly the patent will not be granted in India to computer programme as per existing legislation but the same may be protected in different form. It needs to be understood as to how far you can make your correspondence as secret/confidential, what consequences will it have if the organization starts making every communication as confidential/secret, it may even loose the very credentials of being confidential/secrete. The organization must distinguish the various means and adopt the most economical and beneficial to monitor and protect the rights.

    Some of the contracts need to be formed under special statutory provision, some of the contracts may be formed under the law of contracts, what is more important is the organization to critically monitor the contract terms. How the agreement should be formulated, what are the key areas which need special emphasis, how the communication gap can be injurious and advantageous how should they be protected, when and how should they be disclosed. What are the obligations on the employees in a fiduciary capacity, how can they be put in force. The organization needs to understand these issues.

    Organizations needs to be wary not only on protection of their own intellectual property, the infringement of third-party right inadvertently or otherwise, can even prove to be devastating. Infringement of Polaroid instant photograph by Kodak, who was literally forced to destroy many millions dollar worth of its instant Cameras is not the case in isolation. To obviate and minimize the risk organization must prepare the guidelines and modus operandi that needs to be followed before starting any new product to avoid such situation.

    There is a great awareness in the industry as regards to the necessity of R & D establishment. The cost-benefit analysis would remain to be the basic bone of contention of the R & D units. Therefore the industry needs to understand as to what factors needs to be looked into and verified before the research is launched, how these factors can be verified, what would be the source of information and of counter check, how authentic would be the information, how should the research be executed, would it be more economical to outsource the research, if so as to whom and on what terms should it be allocated, what precaution should be taken in doing so. If the research is to be undertaken in house, how the records should be maintained, what precautions should be taken with the employees, what happens if the employee leave before the search is complete and such other issues needs to be closely understood and evaluated to make R & D unit economical and beneficial.

    As the intellectual property is comprehensive and the range of assets covered by those rights are diverse and extensive, to apprehend their commercial importance and the scope of exploitation becomes difficult. It would therefore be desirable for organization to put itself to audit of IPR undertaken by a team of experts in order to build up the IP monitoring system and to formulate the correct procedure and guidelines to protect and enhance the commercial value of intellectual property.