Why and How?
Why carry out an IP audit?
In business field, the concept of due diligence is known and used in the context of company transfers. Buyers must be vigilant, in particular by conducting audits prior to any acquisition. The aim is to limit the risks associated with purchases by including, for example, an asset liability guarantee in the contract for the acquisition of a company.
When applied to intangible assets, the aim of due diligence is to secure their ownership, list these assets and value them. However, an IP audit can also be carried out at any time in a company’s life, in order to enhance the value of its intangible assets.
What should be done beforehand?
Before any third party is brought in to carry out an audit, a file should be compiled containing documentation relating to intellectual property rights, such as
• trademarks
• patents
• designs
• a list of current administrative and/or legal proceedings,
• contracts relating to the assets (assignment, licence, employment contracts, provision of services, etc.)
• employment contracts for employees with inventive and/or creative assignments.
This first stage will enable the company concerned to make an initial assessment of the situation before involving a professional.
How is the audit carried out?
It is customary to involve a professional subject to a confidentiality obligation (lawyers, patent attorneys, other auditors bound by a confidentiality agreement).
The team in charge of the audit
• analyses the legal documentation, particularly in terms of the client’s rights and obligations;
• carries out additional research and checks to ensure that the documentation is complete;
• conducts a “risk” audit.
These procedures enable us to inform our clients of the risks identified and to make appropriate recommendations.
Common examples include:
• trademarks, designs and/or patents registered in the name of the founder but not subsequently transferred to the Company. In such cases, it is often advisable to formalise the transfer to the company. This transfer of ownership will increase the value of the company and reduce the risk of claims against the Company;
• incomplete coverage of trademarks as a result of changes in the owner’s business;
• the use of trademarks in a form other than that registered, giving rise to the risk of revocation;
• the lack of monitoring of assets – trademarks, domain names, company names – and therefore the impossibility of knowing whether these assets have maintained a strong distinctive character in the market concerned;
• the incomplete territorial coverage of industrial property rights (trademarks, designs and models, patents), in relation to the Company’s territorial activity;
• the failure to update the data relating to the Company holding the industrial property rights concerned (trademarks, designs and models, patents), following a transfer, a change of company name, or a change of registered office address, in particular ;
• the relevance and quality of the visuals registered as designs and models, enabling them to be usefully and validly used against third parties;
• the absence of assignment of copyright on creations registered as designs and models, or on the logo of the trademark registered in the name of the Company.
With regard to know-how and business secrecy, the Company must ensure an adequate level of security to keep its assets secret (confidentiality agreements with third parties, confidentiality clauses in employment contracts, limiting access to this information, etc.)
Lastly, the audit will focus in particular on the intellectual property clauses in the company’s various contracts:
• employment contracts (particularly in the case of companies employing employee authors),
• service contracts,
• confidentiality agreements…
This overall assessment of contracts will enable the auditor to draw up an account of the obligations incumbent on the audited company and its co-contractors.
Lastly, the auditor will take into consideration past and current proceedings (pre-litigation, administrative and litigation), as well as any transactions relating to the terms and conditions of intellectual property rights. He will then be able to formulate his recommendations relating to them.
What happens next?
In the field of intellectual property, due diligence enables the potential transferee to assess the value of the transferor’s portfolio of rights and to anticipate potential risks.
It also enables the audited company to take appropriate measures to ensure that the IP assets are valued in the event of a total or partial sale.
Lastly, whether it is the transferor or the transferee, the company concerned will be able to rectify the points raised in the light of the risks identified and the recommendations made by the auditor.
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Our Intellectual Property team is naturally at your disposal to help you enhance the value of your intangible assets, and audit your intellectual property rights, whether you are an assignor, assignee or simply a brand owner.
Delphine Brunet-Stoclet
Marie André-Nivet
Léna Tordjman
Félix Bertrand
