Author:  Xiang Changsong（向长松）

Managing intellectual property (IP) assets is a systematic exercise that should include an IP audit and assessment. An IP audit is a dynamic process which involves enterprises assessing the overall status of their IP, resulting in an audit report which allows them to effectively manage their IP assets. The process typically involves systematic and scientific investigation and assessment of IP resources. It also allows enterprises to determine whether their IP is reasonably protected, and whether it currently provides a competitive advantage or may be used to gain a competitive advantage in the future.

Different audit strategies should be applied to different stages of an enterprise’s development. In this new era of ‘mass entrepreneurship and innovation’ in China, start-ups with distinctive, innovative features are constantly emerging, and these innovations require urgent protection. Enterprises that have passed the initial start-up stage and grown to become small and micro-sized enterprises should have accumulated a certain amount of intellectual property rights. Their IP management strategy should be adjusted accordingly.

As IP assets steadily grow, they should be effectively utilised. Accumulated IP assets can be the ‘armour’ that protects the enterprise from competitors in the market, as well as a powerful weapon to initiate attacks.

Technology-based enterprises should carry out IP audits and assessments at each stage of their development; however, the focus should be different at each stage, covering the three aspects outlined below.

Subject of an audit

An audit may be conducted externally or internally. Internal audit has the advantage of cost savings, but a lack of staff with professional audit capabilities may force the enterprise to conduct the first round of an intellectual property audit with the help of an external audit agency.

The audit should cover, at the very least, trade marks, domain names, patents and copyrights. From the perspective of brand protection, trade marks and domain names should be the focus. In terms of protecting technological innovation, emphasis should be placed on assessing the stability and value of patents. In terms of the market freedom of a patented product, infringement risk should be the priority.

If an enterprise has engaged an external auditing agency to guide it through an initial audit, internal staff should have gained some understanding of what is involved. Enterprises that employ full-time IP experts should make good use of their ability to conduct a detailed IP audit, particularly if engaging an external agency might raise concerns about the security of IP assets. However, external auditing agencies may also be able to offer professional business consulting support.

The basic enterprise trade mark and domain name are usually specified at the start-up stage. Copyright is automatically generated upon creation and requires a record to be kept. For a technological enterprise, the focus should be on patents and trade secrets.

At this stage, enterprises should have established a dedicated, full-time IP management department, thus greatly improving IP management. This team should have the resources necessary to meet the requirements of an audit. However, to ensure the objectivity of such work, using an external auditing agency, at least partially, is recommended. The audit should cover all aspects of IP and focus on those assets related to flagship products and business.

Method of an audit

Enterprises should conduct a baseline audit of their IP according to industry category, the development stage of the industry and the nature of the business, to ensure that the IP property is above the safety baseline.

Small and micro sized enterprises in their growth stage should identify and analyse their IP assets in detail. This process should be led by full-time IP staff who can draw accurate conclusions and make recommendations at a later stage.

Furthermore, enterprises should combine a baseline audit with a detailed audit to identify those IP assets which have the greatest influence on their business activities. A baseline or detailed audit should be carried out according to the particular degree of risk.

Expectation of an audit

Enterprises should be specific about the risk of obtaining, maintaining and applying IP, as well as the risks inherent in their IP system. Enterprises should then determine the areas in which they need to organise their IP and the potential risks to their business activities. In addition, enterprises should understand in detail the IP risks present in all areas of their organisation and develop a specific IP strategy with concrete tactical processes.

Conclusion

Auditing and assessing IP assets form the basis of IP management. Enterprises should possess clear management plans for acquiring, protecting and utilising IP. They should conduct a targeted IP audit and assessment based on each stage of their development. Moreover, enterprises should train internal IP talent and use external resources to further develop internal IP management capabilities.

Auditing IP rights should be considered a long-term project. Setting a timetable may reveal potential problems, allowing enterprises to implement measures and make continuous improvements to optimise and upgrade IP management, and provide strong support to senior managers of the enterprise.