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This article is written by Nisha Modak, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from Lawsikho.com.

Introduction

The world, as we know it today, is dynamic in nature. There is constant change, alteration, modification and innovation in almost every sphere of our existence. Be it a new machine that works faster and more efficiently, thereby saving man hours; or a unique method/ procedure that produces results never seen before; these are examples of creations that change our lives for the better. However, these changes are not god gifted, and there is laborious human effort and mental skill that goes into conceiving, creating and developing these novel inventions. It was soon recognized that the developer of such inventions should be legally protected and entitled to exercise sole rights over the results of his hard work. 

Intellectual property is the term used for all works that generate from an innovative mind, in which a person’s thinking, reasoning, creative and analytical skills are put to use. Human innovation which leads to the development of a new product or process demands the investment of a lot of effort, mental acuity and creative skills, and hence it squarely fits in the definition of intellectual property. The law gives a statutory protection to this intangible property of the developer, in the form of patents. In simple terms, a patent may be equated to a right conferred upon the patent holder to exclusively exploit his invention for commercial gains, and also to prevent others from doing so.

Need for patent portfolio audits

Since patents are a form of intellectual property, they are an extremely valuable intangible asset for a company or business. Once a company acquires a patent, it holds a monopoly over the usage and application of the product or method for which the patent is acquired. Since the exclusive rights are held by the company, it can license out the right to use the patent to other interested parties, thereby making the patent a source of monetary gains. Companies that possess more than one patent to their name have a greater opportunity to commercialize their intellectual property. It is thus essential for a company to manage these assets, so as to be able to commercially exploit them to the maximum extent.  However, it may happen that at times, a company is unaware of all the potential assets it holds, due to a lack of knowledge regarding the value of its patents. Hence companies have to find a way to manage, organize and assess all their intangible assets. This forms the basic premise behind the practice of patent portfolio audits.

A patent portfolio audit is a process whereby a company aims to gain a thorough understanding of all the patents in its portfolio, and it covers all aspects associated with patents such as potentially patentable inventions or discoveries, status of pending applications, status of granted patents, patents licensed out to other businesses and the corresponding license fee etc. In essence it means carrying out a complete and detailed investigation regarding information of all patents owned, filed and licensed out by the company. It enhances and preserves the value of the existing intellectual property. By implementing such a practice, a company gains an advantage to stand out and differentiate itself in the market, thereby generating better financial prospects for itself. A patent portfolio audit may be equated to a financial audit. Like in a financial audit, a patent portfolio audit involves making a thorough inventory of all the assets available at the company’s disposal and laying out a plan as to how they can be exploited to the fullest extent. Similarly, both the processes play a vital role in helping a company determine a strategic course of action with respect to the use and commercialization of its resources.

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Objective of patent portfolio audits

The basic purpose behind carrying out such a patent portfolio audit is to enable a company to accurately assess all the patents it possesses or has potential to possess, license out patents to other businesses who wish to acquire the technology involved in the patented invention, manage the revenue being earned or estimate the revenue which can be earned by such licensing. However, the utility of such an audit is multi-faceted, and if conducted in a proper manner, it has a plethora of other benefits that it can offer to a company. 

First and foremost, a patent portfolio audit enables a company to identify new opportunities to capitalize and profit from their intellectual property. An audit will lend clarity to the company regarding the value and demand for the technology involved in the patents it possesses, and thus the company can explore commercial opportunities in both domestic and international markets, by executing more licensing agreements with other interested businesses. 

One of the most important results obtained by conducting an audit is that it puts the company in a position to align its business strategy with its patent portfolio. This means that a company can make well informed decisions regarding its business, since it has a complete understanding of all its owned and licensed patents. Complete information regarding the patents owned by a company consequently gives it information about the areas where it does not possess any patents, and thus enables the company to demarcate areas where more research and development is needed, and helps it allocate resources for the same. By doing so, a company can obtain additional patents in several diverse fields, and can subsequently expand the scope of its commercial exploitation.

Another beneficial outcome of carrying out a patent portfolio audit is that it lends clarity to a company regarding the status of the patents it has licensed out to other businesses. This gives a chance to the company to review and reevaluate the terms under which such licensing is carried out, and can help the company secure its own interests by putting it in a better position to negotiate. Hence, it facilitates the creation of new and beneficial business relations, and helps optimize business transactions. Secondly, it helps the company to identify all the possible risks and trade-offs involved with licensing agreements, and allows the company to safeguard itself. 

After developing a thorough and comprehensive patent portfolio, a company can assess whether it holds any competitive advantage. It can compare its own portfolio to those of other businesses, and this will determine its future business strategy, as well as providing it opportunities for improvement. The company may also explore business enhancement options such as mergers, joint ventures etc. based on its portfolio and those of other companies. 

By conducting an audit and acquainting itself with all the patents and their field of operation, a company can implement a vigilance policy and protect itself against infringement. It can also assess whether any product or technology being used by it is unknowingly infringing any competitor’s patent, which will give the company a chance to remedy itself and thereby avoid a lawsuit.

It is always a dilemma for a company to decide between generating its own technology for its use, or whether to license in the same technology that may have been developed by another company, in exchange for a license fee. This decision has to be made based on a lot of factors, such as the cost of developing the technology versus the cost of licensing it, the human resources that shall have to utilized for the research and development of the new technology, the potential licensors who have successfully generated the sought technology, the usefulness of the technology etc. By conducting an audit, a company can gain some of this necessary information, thereby enabling it to come to a decision. 

Lastly, a successful patent portfolio audit helps a company review its plans for future audits and management of the patent portfolio. It also enables a company to better train their employees in matters of reporting of inventions, maintenance of confidentiality etc.

Basic process of a patent portfolio audit

Each company undertakes the audit in accordance with the specific objectives and outcomes which it wishes to gain from the process. These different desired outcomes will be reflected in the manner in which different companies carry out their audits. However, there are certain fundamental aspects which have to be present in a patent portfolio audit, irrespective of the reason for which it is being conducted. These are:

  • The most essential task to be achieved before undertaking the process of an audit is to ensure that all records of the patents have been properly maintained and that they have been kept up to date. If an audit is carried out with old data, it can mislead the company and thereby defeat the very purpose of conducting the audit.
  • The next step is to evaluate the market value and income to be earned from all the patents in the portfolio, as opposed to the costs being incurred in maintaining and protecting the intellectual property rights vested therein.
  • Lastly, a timeline should be developed for carrying out regular audits, and this timeline should be strictly adhered to. The process can yield its optimum benefits only if it is regularly carried out. 

Conclusion

It may be concluded that for a company, simply developing and licensing out patents is not enough, but those patents have to be meticulously managed and handled. Thus patent portfolio audits are an inseparable aspect of owning patents, and this requirement must be complied with in order for a company to fully utilize its valuable intellectual property. 


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