The value of a technology company is often determined by the strength of its intellectual property -- patents, copyrights, trademarks and trade secrets. Technology companies are continuously acquiring and disposing of intellectual property through acquisitions, licensing arrangements, assignments, collaborative arrangements, joint ventures and joint research agreements.
A key element in many acquisitions is the seller's intellectual property, and every technology-based public company's prospectus requires a disclosure of intellectual property holdings. All technology companies should audit their intellectual property holdings in order to determine scope, status and value. The goals are to:
- identify a company's ownership interest;
- secure and record a company's rights in its technology and other valuable materials; and
- minimize the chance of unauthorized use and disclosure of technology, trademarks and confidential information.
For a potential buyer, it is important to ascertain whether the seller is infringing the rights of any third party to avoid "buying a lawsuit."
Ownership. Without proper agreements and internal policies, a company does not automatically own its products. Companies should have the following mechanisms for identifying ownership: policies for identifying its patents, trademarks and copyrights; knowledge of intellectual property licensed to and from others; and the scope of these licenses; and agreements with employees and consultants which specify ownership/assignment of technology and non-disclosure of confidential information.
Companies should have proper procedures to schedule actions such as maintenance due dates so that their rights do not lapse.
Secure and record rights. Once a company determines what intellectual property it owns, it then should take the proper steps to secure and record its interests. Assess whether patent, trademark and/or copyright protection is available and, if so, whether to try to secure appropriate protection through filings with the appropriate government offices.
Technology and other data determined to be trade secrets and or confidential information should be classified as such, and procedures should be implemented to avoid loss of this status.
Unauthorized use. Owning registered patents, trademarks and copyrights may not be sufficient if a company does not police its portfolio. For intellectual property to have value, a company should know who uses its technology and how the technology is being used. Failure to do so may result in loss of certain rights to and value of intellectual property holdings.
The audit process. The first step in an audit is to inventory intellectual property by creating schedules to identify patents, copyrights, trademarks, and trade secrets. Patent schedules should contain application numbers and dates, registration numbers and dates, titles and the countries in which a company's patents have been filed.
Trademark schedules should contain similar information and also include goods or services and classes. Copyright and trade secret schedules should contain enough information to identify the subject or the technology.
Once this information is compiled, determine if any patents or trademarks have lapsed for failure to pay maintenance or other fees or for failure to file any necessary papers with the appropriate offices. Determine which of these items are the subject of licenses, or whether technology is being used in countries where the technology is not protected through patents or copyrights.
Conduct a similar evaluation for trademarks. Once a comprehensive inventory is created, the time spent maintaining and updating these schedules will usually decrease.
By maintaining an inventory a company will be in a better position to ascertain the value of its estate and how to use these assets strategically in the marketplace.