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Published by Enhelion, 2019-11-24 05:14:16

IP_Module 7

IP_Module 7



It has been found that in the year 2008 alone companies in United States, United Kingdom,
Germany, Japan, China, India, Brazil and Dubai have lost almost US$ 4.6 billion worth of
Intellectual Property. This research was conducted by Purdue University’s Centre for
Education and Research in Information Assurance and Security. Based on this report McAfee
projects that companies worldwide have lost more than US$ 1 trillion of Intellectual
Property last year.1 According to a report released in October 2001 from the research firm
Gartner, “U.S. companies have $1 trillion in intellectual assets. The report notes that
companies such as IBM, Eastman Kodak, DuPont, AT&T, Lucent and Xerox are beginning to
institute systems for managing intellectual property. Intellectual property asset
management systems (IPAMS) can make it easier to share intellectual capital among
different departments in an organization, including research and development, marketing,
competitive intelligence and strategic development groups. Active portfolio management
using IPAMS can help companies identify new sources of revenue and target emerging
markets where existing intellectual property can be leveraged.”2

In order to have a good Intellectual Property Management in place we must know the
components of it. Figure 1.1 would illustrate the components of IPM

Intellectual Property Management

Thorough Mapping of each IP Valuing IP and
asset to the company’s determining
inventory of tIhPTe the royalty
enterprise’s products and services rates
and how much value
each IP brings to the


1 Vital Information More Vulnerable In Current Economic Climate, January 30th 2009 available at

2 Kim Ann Zimmermann, Fortifying corporate capital:IP management moves beyond patents, January
1 2002 available at <



One thing which should be remembered is that it is not necessary to have an IP Policy for
the sake of having a policy. It should be noted that the enterprise must satisfy itself that
there is a need to set out a statement of principles concerning the management of IP. This
will be appropriate for an enterprise at different stages of its development. An IP policy
generally will:

• Emphasise the importance that the enterprise places on IP management and

• Give management an understanding of the strategic importance of IP assets in the
scheme of all other assets of the business;


The content of an IP policy is very much driven by the business objectives and strategies of
the enterprise. Broadly an IP policy should address the following:

• Support for researchers to identify IP: this would extend to ensuring appropriate
training of staff in IP principles and application of those principles;

• Policies outlining the responsibilities of persons within an enterprise regarding IP
such as disclosure of technology, record keeping and rewards structures for staff;

• Policy on ownership of IP by staff, contractors and students;
• Procedures to assist staff to identify IP controlled by other persons so as to avoid

infringement actions;

An enterprise that establishes and implements procedures and policies to address these
issues will be in a much better position to make the most of its IP and facilitate an efficient
and effective commercialisation strategy. Of course addressing each of the above issues
should involve the staff of the enterprise. Many enterprises will not have the ability to
devote their scarce resources to developing and implementing formal IP policies. These
organisations will ‘make do’ by focusing on those issues which present the greatest risk for
the enterprise in achieving its business objectives.


An effective commercialisation strategy must have as its foundation a clear understanding
of the IP held by the enterprise and all of the grit and gold that is attached to it. Once that is
known then the enterprise can determine what to do with the IP. It is fair to say that this
level of understanding is not often held by enterprises that have seen rapid growth. Often
an enterprise will launch itself without much regard to the best practice processes for
managing its business. Sometimes this can extend to a failure to manage its assets as the
enterprise grows. This is not to say that management has been taking their eye off the ball.
A growing business will mean that key managers are focused on seeking out new
opportunities to drive revenue and to satisfy shareholders. While the enterprise is a ‘lean
and mean machine’, it will need to make day-to-day decisions on where to apply its labour
and funds. A casualty in this hurly-burly can be the lack of attention to documenting the


development, acquisition and use of its assets. It can result in a build-up of inefficiencies
over time.

The identification of IP in an existing business is not necessarily a quick, cheap or simple
exercise. It involves diverting the attention of key staff and involves costs. Because of this, it
is important for an enterprise to carefully consider the importance of IP to its operations
before embarking on what may be a fruitless and costly journey. However, if performed
well, the result of an IP audit for the enterprise is a system that will:

• Be a clear understanding of its IP asset base;
• Readily and contemporaneously identify and record new IP assets;
• Identify the material risks that apply to its existing IP asset base;
• Increase the awareness amongst its staff and contractors of IP principles and enable

them to be applied in accordance with the IP principles of the enterprise;
• Be a sound basis for proceeding with commercialisation of elements of that IP asset


A review and audit of IP held by an enterprise will also enable the enterprise to manage its
IP portfolio efficiently and assist in persuading potential investors and its shareholders of
the potential for growth in the company. Without being tangled by definitions it is worth
understanding the difference between an IP audit and an IP review. An IP audit should be a
process of capturing information about the IP that an enterprise holds. An IP review goes
beyond that. The review of IP looks not only at the IP held by an enterprise but also how the
enterprise is using its IP.

The IP review can confirm the soundness and fitness for the intended purpose of the IP, be
the source of generating additional licensing revenue, provide grounds for implementing
strategies to overcome competitors and provide recognition to staff for valuable efforts in
research and development. These issues are of fundamental importance. Any IP review
needs to have a context. What is the purpose of the review? The identification of these
actual or potential objectives will have a direct influence on the manner in which the IP is
conducted and the tangible outcomes of the audit including reports and assets identified.


The process of identifying the IP of an enterprise should be systematic. Before commencing
the process for identifying IP assets the enterprise should clearly set out the objectives it
wishes to achieve in undertaking the review or audit. The enterprise and the auditor should
clarify what is to fall within the term ‘intellectual property’. As discussed elsewhere in this
material IP has a range of meanings. The enterprise should define whether the term, for the
purposes of the identification process, covers general know-how that may be used for
generating consultancy revenue, confidential information or trade secrets, traditional
expressions of IP such as software, patentable inventions, publications, logos and trade
names or all of them. The definitional exercise will dictate the breadth of the investigation
required to identify the IP asset base of the enterprise.



An audit of the IP holdings of an enterprise should be carried out in a manner that is robust
and supportable by documentation held by the enterprise and interviews with key
managers. An IP audit is another form of due diligence. The standards and principles applied
in due diligence investigations for trade sales, investment projects or mergers and
acquisitions are equally applicable.


The gathering of information for the IP audit should involve discussions with key managers
of the enterprise to enable the auditor to understand the nature of the business, the core IP
that drives revenue for the enterprise, and the forms of IP that subsist within the
technology. This period of initial consultation is critical in establishing rapport with the
management of the company and to get feedback on likely pitfalls that may be relevant to
the company in commercialising its IP. This will often be sufficient to identify key forms of IP
and the major risks faced by the company moving forward towards full commercialisation of
its IP portfolio. These interviews become a useful sanity check to be applied to the
information subsequently received by the auditor.


The first stage in an IP audit is to conduct a survey identifying the IP held by the enterprise.
This will involve asking what patents, copyright, trademarks, designs, PBR and circuit layout
rights the enterprise is able to identify. This is easy where the form of IP is registered and
the enterprise would be expected to be able to lay its hands on certificates of registration
and the like. That is not the end of the story. Staff of an enterprise are not likely to be
familiar with the principles of IP to ascertain whether ideas, information, processes or
products would fall within a form of IP: For this reason the IP audit questionnaire should
apply general questions to derive information that can be analysed by an IP specialist so
that a view maybe formed as to whether IP is likely to exist either within existing registered
IP or as being IP that has been ‘lost’ or IP that may well be identified and protected.


The second stage of the due diligence process is to identify the degree of control, if any, that
the enterprise has over the IP identified. This involves:

• Ascertaining the ownership of the IP. How is it developed? Who developed it? When
was it developed? What assistance did the enterprise have in developing or
acquiring it?

• Reviewing the licence arrangements and other contractual restrictions that apply to
that IP and all documentation relating to the development and acquisition of that IP;

• Proof of the information obtained from the above investigations such as certificates
of registration, correspondence, laboratory books, contracts and non-disclosure


Most forms of IP legislation expressly state any IP created by an employee in the course of
their employment will vest in the employer. The distinction between an employer and an
employee becomes critical. Drawing the distinction becomes more difficult with the
development of outsourcing over the last decade. Much will depend upon the level of
independence held by the creator of the IP and the complexity of the task undertaken by
the creator. A common issue is whether the IP was developed with the assistance of
students of a research organisation. Students are not employees of a research or academic
institution so any IP they may create, as a general rule, will be owned by them unless they
have transferred their rights to another person by a contract or other form of writing.


Ownership is the ultimate form of control of IP. Control is the key element that an investor
will seek to confirm in a due diligence process. Licences of the IP by or to the enterprise will
affect the degree of that control. Permission to use the IP means that other entities have an
influence on the availability of the technology in which the IP subsists and ultimately the
level of competition that may apply in any particular market. The IP auditor will wish to
inspect all licences that apply the technology.


Performing due diligence on the IP of an enterprise will be influenced by the types of IP that
the enterprise is likely to hold. Each form of IP has its own criteria that must be established
in order to be registered or otherwise legally recognised. In a thorough IP audit, the IP
auditor would be expected check that those criteria have been established or comment
upon the likelihood of that criteria being established. This step can be difficult and time
consuming. Often it will not be possible to obtain the necessary facts to form a view of
whether IP exists. Alternatively such opinions may be required from specialists in the
relevant IP field. For these reasons those steps may not be undertaken until the enterprise
can assess the importance of that IP to its business.


One of the frustrating aspects about patent registration is that a competitor can seek to
overturn the patent registration by filing an opposition proceeding under Section 25 of the
Patents Amendment Act of 2005. As discussed the registration of a patent involves the
assessment of the claims against the specification and the results of searches for prior art.
This has been mentioned under Section 12 of the Patents Amendment Act of 2002. That
search, although is usually carried out by highly qualified practitioners in the Patent Office,
which is most of the times imperfect. It requires an understanding of the fields that are new
and expanding. It requires a skill of searching databases and general publications not just in
India but internationally. It can be akin to finding a needle in a haystack. This leaves open
the possibility that the registration of a patent may be imperfect.

An investor or purchaser of the enterprise may not be satisfied to know that the enterprise
has protected its Patent portfolio by registering its patents under the Patents Act. He may
want to get as much comfortable about the fact that the Patent portfolio position is solid


and well protected before committing to the transaction. To that end he may seek opinions
from his own patent attorneys and lawyers that the IP held by the enterprise is fairly

Due diligence on a patent portfolio presents its own idiosyncrasies. The value of a patent
rests with the scope of the claims made. If too broad, the risk of invalidity rises. If too
narrow a competitor can produce competing technology without fear of infringement. A
proper due diligence task will involve a patent attorney reviewing the claims of a patent as
provided under section 127 of the Patents Act to determine its scope and in determine
whether the claims are fairly based on the disclosure contained in a specification. To do this
the IP auditor will review the patent application and specification.


The easy question for an IP auditor is to ask, ‘Show me your trademark registration
certificates and applications’. This is only a starting point. In fact an enterprise may use a
wide range of names, phrases and logos as part of its business. Some may be applied to
products or services provided to customers or clients. Some may be internal communication
messages. The mark may be valuable IP even though it is not the subject of trademark
registration. The task for the IP auditor is to find out which marks are used to build the
goodwill of the enterprise.

Consequently the best place to start enquiries about the trademarks of an enterprise will be
with those persons who are responsible for marketing the enterprise, its products and
services. The sales workforce will use language that seeks to capture the attention of the
market. That language may accord with the trademarks used by the enterprise. But then
again it may not. A departure from the authorised use of the enterprise’s own trademarks
will trigger a review of the trademark usage procedures and of the marks themselves. At
worst the inconsistent use of the trademarks of the enterprise can place the protection of
the marks in jeopardy.

The IP auditor should find out all the names, phrases and logos used by the enterprise and
the context in which they are used. The questions which he needs to ask is: 1) Are they used
consistently? 2) Are they used in a manner that enables the marks to be protected? If logos
have been used then copyright might also subsist in the mark.


Pfizer Inc. is the world’s largest research-based pharmaceuticals company with 2005
revenues of $51.3 billion. Pfizer’s best-known products include the prescription medicines
Lipitor, Viagra, and Celebrex. The company’s over-the-counter brands include Listerine,
Benadryl and Sudafed. Pfizer has three business segments: health care, animal health and
consumer health care. Its products are available in more than 150 countries.

Recently, Pfizer has been engaged in an enterprise-wide effort to operate more efficiently
and reduce costs. Centralizing and streamlining its trademark management processes is one


such initiative that helps the company protect its valuable brands and yields a variety of
important benefits.

With some 40,000 live trademarks, protecting its valuable brands is critical for Pfizer. The
company implemented a global initiative to combat counterfeiting, giving its trademark
rights management continuous, professional attention. The consequences of a mistake in
this area could be devastating. Pfizer also recently launched an effort to centralize and
streamline its trademark payment processes. The goal was to deliver greater efficiencies
while reducing risk and error. In 2004, Pfizer began to consolidate its trademark
management processes, which had been dispersed among several departments and
external legal counsel. The Intellectual Property Global Services (IPGS) group was created
with overall responsibility for trademark research, filings, renewals and database
management. This department now has offices in New York; Morris Plains, New Jersey; and
Karlsruhe, Germany. Following the establishment of the IPGS group, Pfizer transferred
responsibility for a portion of its trademark renewals to Thomson IP Management Services.3


In India, there is not a formal registration system for copyright. This presents difficulties for
an IP auditor who is seeking to identify the risks of the copyright being challenged. As noted
the essential elements of copyright in India are:

• the work is original,
• created by an Indian citizen and
• published or communicated.

The auditor would have to ask questions while dealing with copyright issues such as
1) The IP auditor will wish to ascertain who created the work. There can be joint authorship
in copyright. This is a particular trap where the copyright work was created as part of a joint
venture or partnership.
2) How the work was created will be important.
3) Did it involve the use of other copyright works? If so,
4) Did the enterprise or the author have licences to use that copyright work and does that
licence extend to exploiting it as part of the derived work? This can be a trap for software
because many software products rely upon other applications to enable them to function.
5) Was it hard to create the work? If not, there may be an argument that copyright does not
subsist in the technology because insufficient skill and expertise has been applied to create
the technology (and therefore the work is not original).


If the registered design is important to the proposed transaction, the due diligence may
need to explore the robustness of the validity of the registration of the design. The usual
searches could be done. Enquiries into the creation of the design to assess whether the
originality criteria have been met may also be done.

3 Pfizer a case study available at <


The IP auditor will usually check:
• the formal written records, if any, that set out the methodologies within the know-

how; the controls to keep those written records secret and ensure that use is
restricted including access registers;
• the process for requiring persons within and outside the enterprise to sign non-
disclosure agreements (NDAs);
• the tracking and storage of the NDAs;
• the robustness of the NDAs including the description of the know-how that may be
included in the NDA.

It may be appropriate to conduct a search of the industry to test whether the know-how is
truly confidential. Obviously this must be done with great care and close consultation with
the enterprise so that at all times the enterprise is comfortable with the process that the IP
auditor will apply to this task. Both the IP auditor and the enterprise must carefully consider
the scope of information that the IP auditor will release in making those enquiries. This
search may encompass a review of literature in the relevant industry, interviews with key
players in the market such as other entrepreneurs and researchers, and a review of trade
publications and patent registers. Ultimately the scope of these searches will depend on the
importance that the know-how plays in the generation of revenue for the enterprise.


It is reasonable to assume that the enterprise will know of the IP that is the subject of
formal IP registration. However, this is not always the case. The enterprise should be able to
produce for inspection all certificates of registrations and files relating to the applications
for registration of the IP. If the IP audit is being conducted for the purposes of a transaction
such as an equity investment, a merger or acquisition, the investor or purchaser will usually
want to confirm the registration and status of application by carrying out a search of the
applicable register. This can be an expensive task if the enterprise has multiple applications
or registrations in many jurisdictions because there may be official fees and lawyers or
patent attorney fees to be paid. The patent attorney or lawyer engaged to undertake
searches should provide to the instructing officer a firm estimate of the likely costs that will
be incurred in performing the searches.

An investor or purchaser may also wish to carry out searches, particularly in relation to
patents, that seek to pinpoint competitive technology. These searches require skill and
experience and are best left to a patent attorney that specialises in the relevant field.


As with any due diligence the IP audit will form the basis for the representations that the
enterprise may be prepared to commit to in any commercial transaction. An important issue
for any transaction involving IP will be whether the enterprise should offer to the other
party (whether it be an investor or purchaser) warranties concerning the IP. The enterprise
must consider whether to refrain from giving warranties and bear the risk that the value of


the investment or purchase price will be discounted or provide warranties so as to maximise
the investment or purchase price. A properly conducted due diligence process will enable
the enterprise, investor and purchaser to make informed decisions on these issues. Of
course there will always be some residual risk of legal action no matter how thorough the
due diligence process. For example, the ‘first to invent’ patenting regime in the United
States means that an application for patent in the States may succeed notwithstanding the
prior registration obtained by the enterprise. The enterprise would be wary of giving an
investor or purchaser a warranty that the patented technology does not infringe any
person’s IP.


The objective in this phase is to focus on the results of the IP due diligence phase and
identify the strategic position held by the enterprise in respect of that IP and focus on
options in dealing with that IP. The first step is to identify the strategic parameters for each
form of technology or IP. This information is generally at the fingertips of managers within
the organisation and can be extracted through appropriate surveys and questionnaires
during phase one. The parameters would usually include:

• Collating the IP into fields dealing with business groups, products or services. This
will enable the enterprise to understand which groups are generating most of the IP
held by the enterprise, which products or services are under-pinned by IP and which
are not;

• Assessing the growth rate for the business unit against a standard parameter such as
gross domestic production. This will provide .a benchmark to analyse strategic focus
of the enterprise, When linked with an analysis of the IP base for that business unit
questions can be asked about future directions for that business unit and the role
that the IP will play;

• Allocating the importance of each form of IP to the whole of the business of the
enterprise, the business unit and the relevant product or service. This will also assist
with developing strategies to deal with that IP;

• Assessing the strengths of the IP. By applying a rating measure for each IP the
enterprise is able to ascertain vulnerabilities for the relevant business unit or
product. This includes not only the strength of the protection but also the period
remaining before expiration of the protection and the level, if any, of litigation that
involves the IP;

• Understanding the market position held by the business, business unit or product or

• Understanding the market trends in respect of each form of IP.

The second step of the IP strategy phase is to apply the results of the audit investigation.
Given the nature of the information it must involve persons within the enterprise involved
in management, marketing, business development and legal. The strategy generally
addresses three aspects:

• Opportunities to further build the business;
• Improve an under-performing initiative; or


• Consolidate or sanitise the IP portfolio.


This focuses on areas where the enterprise can materially improve its profitability by
leveraging off its IP base. This is principally focusing on existing or new fields in which to
establish a competitive advantage. This may entail:

• Undertaking new research and development;
• Fast tracking existing research and development (which may have funding

implications for the enterprise);
• Revisiting the enterprise’s existing IP portfolio. This may entail lodging new

applications to register IP, extending the scope of any existing applications for
registration or expediting examinations. It may also entail taking a ‘patent blitzkrieg’.
• Attacking competitors by establishing an IP enforcement strategy, increased
monitoring of applications to register IP by competitors and lodging oppositions to
such applications;
• Establishing alliances and terms with competitors and others in the industry by
cross-licensing, licensing-in IP, co-branding services or products or acquiring other

An enterprise should always look at its IP Portfolio with regard to business under three
different heads:

• The IP which is helping the enterprise in its Business and which can be licensed and

• The IP which is having the potential to be included in the business.
• The IP which has no business or commercial interest. This particular form of IP is

available for licensing, or be allowed to expire or be abandoned.

This strategy was employed by The Dow Chemical Company.


This set of strategies is relevant where the growth of the technology is not at a level that
would be sustained by the enterprise but where there is room to improve that growth by
leveraging the IP of the enterprise. These strategies can include:

• Amending applications to register IP to pick up ‘missed’ technologies;
• Grouping forms of IP together. This may include grouping patents together, grouping

patents and trademarks through a patent-branding strategy or applying to register
patents for technology that is otherwise covered by copyright;
• Rebranding an existing product or service;
• Removing impediments to growth such as existing or threatened IP infringement
actions by other persons. This might be done through settlement agreements or
cross-licensing .arrangements;


• Undertaking a royalty audit and following through with an enforcement strategy;
• Recruiting persons known to have a track record in innovation or specialist areas of

These strategies generally apply where the IP assets contains little value and importance for
the enterprise. Strategies may include:

• assigning or licensing unwanted IP;
• letting IP protection lapse;
• selling the business, which is based on the unwanted IP;
• using the IP to leverage funding such as security transaction;
• applying to register the technology to attract buyers, partners or investors.


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