Michael D. Moberly   February 18, 2011

In my view, it’s just rather straightforward.  In today’s knowledge (intangible asset) based economy conventional intellectual property (IP) audits – assessments are no longer sufficient to provide company management teams and boards with the necessary depth, type, and level of strategic information and business insight to meet the needs of the current fast-paced, aggressive, and increasingly competitive business (global transaction) environment.

Traditionally, intellectual property (IP) audits and/or assessments endeavor to identify, often through hand-me-down templates and check-lists, the status and (legal) defensibility of a company’s intellectual property.  And, if an auditor, usually an attorney, is experienced and so inclined, their work may also include ascertaining whether evidence exists that the IP (subject of the audit) may be hemorrhaging, i.e., in some state (all, or in part) of mis-appropriation, infringement, or compromise, in other words, whether the asset is hemorrhaging value and competitive advantages. 

Most traditional approaches to auditing intellectual property tend to be, in my view, time bound descriptions of a specific IP’s status, or, what I often refer to as ‘snapshots-in-time’.  However, in today’s increasingly competititive, predatorial, legacy free, and ‘winner-take-all’ global business environment, the status (stability, value, defensibility) of IP and its complimentary – supportive intangible assets can change quite rapidly.  That is, the assets’ competitive advantages and value can be undermined, entangled in legal challenges, or experience substantial erosion through misappropriation, infringement, or compromise. 

Consequently a snap-shot-in-time approach to an IP audit/assessment seldom reflects or projects the very real possibility the asset(s) will experience changes in (a.) value, stability, and sustainability at some point during the life, value, and functionality cycle of the asset, and/or (b.) the assets’ economic-competitive advantage linkages or contributions to other current or future projects, product development or relevance to a company’s strategic planning, stakeholders, and its value – supply chain.

So, I frame the rationale and methodology for conducting IP audits and assessments through a different lens and with different objectives, that is, to bring relevant, actionable, tactical, and strategic insights to management team and boards about their intangible (IP) assets.  Such insights constitute essential information that should be readily available to management teams and boards whose companies operate in economies and business environments dominated by intangible assets of which IP is an element.

The end goal of course, is for companies to be (a.) well positioned to utilize their IP (and other intangible assets) as effectively, efficiently, and profitably as possible, (b.) well informed about current and horizonal risks relative to their business environment and types of transactions their company is routinely engaged in which intangibles and IP are almost always in play or part of the deal.  

In short, conventional ‘snap-shot-in-time’ IP focused audits/assessments are ill-suited, in my view, to ‘bring to light’ assets’ vulnerability to – probability of infringement, compromise, or misappropriation, each of which constitute ever present, yet evolving risks and threats.

Too, from an IP holders’ perspective, the windows and/or time frames to commercialize IP or position (leverage) other such (intangible) assets to begin reaping the economic – competitive advantage benefits due, are narrowing, somewhat analogous to the rapid pace of today’s cable network and on-line news cycles, wherein certain events can literally ‘go viral’ in a manner of minutes, but they also can, with equal downward speed, be relegated to inconsequential historial blips on our respective radar screens. 

So, a 2011 version of an IP audit and assessment should, again, include objective and strategic insights, not just about a company’s registered IP, but also about – address the complimentary and supportive intangible assets that contributed to bringing that IP to the forefront.

So, in this highly charged, competitive, and evolving global business (consumer) environment, the notion ‘that everyone get’s their 15 minutes of fame’ seems quite relevant to today’s IP arena.  That is, the best business strategy, insofar as IP is concerned, is to take full advantage of that proverbial ’15 minutes’  but also try to extend that time frame for as long as is feasible.  And, that, in my view, is how the 2011 version of IP audits and assessments should be framed and executed, i.e., include an objective determination if sufficient asset management, stewardship, and oversight have been (are) in place to sustain the necessary control, use, ownership, and monitor (the assets’) value and materiality.

So, the notion that one can hold onto their IP, much as if it were a bank ‘certificate of deposit’ in the 1980’s, in which there was, at the time, some certainty CD’s would mature, draw interest, and increase in value over time with virtually little risk, is no longer a reality relevant to today’s business IP – intangible asset dominated environment. 

Some would correctly make the case, as I would, that trying to hold onto one’s IP for indeterminate periods actually increases its vulnerability – probability to compromise, infringement, circumvention, becoming ‘boxed in’, being at the mercy of ‘trolls’, or simply becoming irrelevant.  Any one of those calamaties, should they materialize, can significantly undermine-erode the IP’s value, demand, and attractivity, particularly in the eyes of would-be investors, buyers, and/or alliance partners. 

A harsh reality in those instances, should certain risks materialize, is that a governments’ issuance of a patent may become little more than a handsomely framed document hanging on one’s wall, behind which, there are some ill-fated thoughts of ‘I wish I had done something differently’!

Too, it is a very costly and lengthy undertaking to mount and prosecute a legal defense of one’s IP if misappropriation, infringement, or compromise is suspected.  In other words, to do so, requires not only some ‘very deep economic pockets’, but the holder must be sure their IP protection ‘house is in good order’ before seriously contemplating such a strategy, otherwise, the odds of being on the losing end of the litigation and/or losing the rights to one’s IP altogether are poor.  And, if the holder is a start-up, early stage firm, or even a mature small or mid-size company, such costs frequently serve to deter them from intitiating such processes and ultimately pursuing what is (was) rightfully theirs.

As a holder of IP, it will always serve a company’s near and longer term interests to be able to demonstrate that the asset (subject of an audit, assessment) retaining its projected value, and that its demand and usefulness, in the marketplace, remain stable and sustainable. 

So, re-framing or re-formatting conventional intellectual property audits/assessments to focus more on the value and sustainability of IP and identifying the key intangible assets that support and compliment that IP, its value, and its sustainability, in my view, would provide all parties, be they holders of intellectual property, would be investors, prospective buyers, or stakeholders, with a more objective and strategic perspective regarding the IP’s current and future ‘state of affairs’.  A key benefit of this latter approach of course, is that management teams and boards would achieve a higher level of confidence (about the IP and intangible assets their company produces and possesses) from which they could engage in more sound strategic planning and significantly less risky business decisions .

Another underlying rationale for this post is that company value has literally shifted from collections of physical (tangible) assets to combinations and collections of intangible (non-physical) assets of which intellectual property is one element.  This makes it all-the-more necessary then, that decision makers, would-be investors, buyers and stakeholders of companies with relatively intensive bundles – portfolios of IP and intangible assets should receive far superior insights and guidance about those assets than what is typically reported in conventional template-check list types of audits-assessments.  

This level of information, for example, would have more relevance to (a.) buy, don’t buy, or (c.) invest, don’t invest decisions.  And, if the assessment (audit) includes not merely the IP’s legal status and defensibility, but also, (a.) information about the assets projected life, value, and functionality cycle, (b.) pre and post transaction contexts, and (c.) criticality assessments (i.e., adverse affects) to prospective buyer’s – investor’s mission should certain risks materialize, all parties stand to benefit.  Presented in this context then, the conventional IP audit and assessment would assume many ‘due diligence’ characteristics which again, in today’s hyper-competitive and predatorial business transaction environment are not just helpful, they’re necessary and a fiduciary responsibility!

Additional perspective worthy of introducing to the conventional IP audit/assessment equation is a comprehensive (strategic) understanding and appreciation for the ‘demand’ of the IP (intangible) assets, i.e., somewhat synonymous with its commercialization opportunities.  In this context, an IP audit – assessment should include a relevant, but exhaustive characterization of a company’s current and projected business and competitive landscape to provide management teams and boards with insightful perspectives about ‘demand’ (for that specific IP) emanating from the global business-competitor intelligence industry.

Ultimately, what’s needed is a much more forward looking approach that literally alters the conventional precepts of IP audits-assessments to include much needed due diligence features conducted by experienced practitioners who are well versed in a range of issues that can adversely affect – jeopardize the anticipated (projected) benefits of a transaction in which IP (intangible assets) are key.

So, while I recognize and respect the need for speed and confidentiality in executing business transactions, and by extension, (offensive, defensive) IP audits and assessments, it has come time, in my view, for parties to convey less concern about the speed in which a transaction (deal) can be formulated and more attention towards ensuring the the IP and complimentary-supportive intangible assets that will inevitably be in play remain intact and sustainable relative to their value and revenue producing capabilities, in addition, of course to their legal defensibility in both pre and post transaction contexts.  That’s something that a conventional ‘snap-shot-in-time’ audit seldom provides.

So I advocate (practice) the inclusion of virtual and perptetual elements to IP audit and assessment processes.  By that I mean, inserting mechanisms to continually monitor and objectively assess (measure) changes in asset value relative to the original (business) objective and/or purpose for conducting the audit/assessment.  By doing so, prospective investors, buyers, and alliance partners, and stakeholders can be provided with much needed asset tracking (monitoring) capabilities relative to the (IP, intangible) assets they’re about to purchase and/or make investment and adjust-leverage their decisions accordingly, should it be necessary.

It’s my view and practice then, to, at minimum, re-phrase some of the key questions posed in conventional IP audits and assessments, e.g., ‘is the intellectual property protected’ (presumably by a patent)?  Instead, replace such conventional questions with I view as being more important preceeding questions, that literally go to the heart of the matter, such as, ‘has the know how – intellectual capital on which the intellectual property value-use is premised, been adequately safeguarded and managed from its inception’?

Again, to fully appreciate the relevance of re-phrasing those traditional ‘IP audit questions’, it’s important to recognize that conventional IP protections/enforcements, i.e., patents, trademarks, copyrights, etc., should not be presumed to have any deterrent effect on would-be infringers and/or misappropriators globally.  In many, if not a majority of instances today, conventional IP protections are routinely disregarded, outpaced, and/or circumvented by a growing global body of sophisticated entities that routinely materialize as well organized economic and competitive advantage adversaries.