The Intellectual Property Audit – Finding What You Have

One traditional definition of an intellectual property audit is “a cataloging of a organization’s intellectual property assets.” It is required for an organization to meet its due-diligence requirements for mergers, acquisitions, or other transfers. Today, organizations see an intellectual property audit not only as a balance sheet for intangible assets but also, more importantly, as a self-evaluation that the organization constantly and consistently engages in to determine the value of its own assets, determine how to best capitalize on those assets, and keep abreast of the changing values of its assets in the face of the ever-changing economic and legal ecosphere.

Who Should Conduct an Intellectual Property Audit?

“Intellectual property audit” is perhaps something of a misnomer. It indicates that the audit is a mere counting up of assets, and the person conducting the audit merely adds up the intellectual property found in the organization and reports the value. Nothing could be further from the truth. An intellectual property audit is an inherently legal undertaking , and should therefore be performed by a team consisting of at least an attorney with expertise in the law of intellectual property, either in-house or outside counsel, or by the in-house personnel of the organization, if they have sufficient knowledge of the organization’s intellectual property to perform the activities required for an intellectual property audit of the organization. An intellectual property audit is not an accounting function. The intellectual property audit is an assessment of the legal status and value of an organization’s intellectual property, especially targeting those areas where the marketing and management goals of the organization and the existing protection of the organization’s intellectual property are somehow not well suited to each other. The attorney or attorneys and other team members (the team might consist of the intellectual property attorney and at least one representative from each of the management, marketing and technology areas ; because of the inherent legal significance of the intellectual property audit, at least one member of the team must be an intellectual property attorney) selected to perform the audit should therefore have some expertise with the organization’s technology, the marketing and management goals of the organization, and have some familiarity with what is involved in intellectual property protection: prosecution of the registration application, maintenance of the property, and on through defense of the intellectual property through litigation and the appellate process.

When to Conduct an Intellectual Property Audit

When should an organization consider conducting an intellectual property audit? Attorney Leslie J. Lott has identified several appropriate times in the life of an organization for intellectual property audits ; in this subsection, I borrow heavily from her listing and commentary.

New Intellectual Property Management

If the organization has new intellectual property management, the new intellectual property manager should have a thorough intellectual property audit performed to become familiar with the status of the portfolio.

Merger, Acquisition, Significant Stock Purchase

A significant corporate change (merger, acquisition, significant stock purchase) can impact intellectual property ownership; this is another signal for an intellectual property audit.

Transfer or Assignment of Interest in Intellectual Property

A transfer or assignment of intellectual property from one organization to another calls for an intellectual property audit of both organizations’ intellectual property. Here, the intellectual property audit allows the organizations to be sure the transfer or assignment meets the interests of both by ensuring that the intellectual property is properly protected and enhances the acquiring organization’s existing intellectual property interests, and that the intellectual property does not leave any unplanned vulnerabilities for the organization transferring the interests.

Licensing Program

An intellectual property audit should be performed when an organization sets up an intellectual property license or licensing program, and on a regular basis thereafter. This is important whether the organization is the licensor or the licensee.

If the organization licenses its intellectual property to others, it must of course actually own the intellectual property that it is licensing. Also, there must be no existing licenses that would interfere with the proposed new license.
If the organization is the licensee, obtaining the intellectual property rights of another, the audit determines that the scope and extent of the license to be obtained is adequate for its purposes.

Significant Change in Law

A significant change in case or statutory law may require an organization to re-evaluate its intellectual property.
One such change in statutory law occurred when Congress passed the federal anti-dilution statute. This change in the law significantly impacts the analysis of the potential liability of an organization for infringement of the trademarks of others and also affects the analysis of whether or not others are infringing the organization’s rights.

Four examples of case law which arouse the need for an intellectual property audit are the Qualitex case (which deals with the protection of color as a trademark), the Sony case (which deals with the question of whether a device that can be used for copyright infringement is itself an infringement of copyright), the Festo case (which deals with the Doctrine of Equivalents in patent prosecution), and the KSR case (which deals with the concept of obviousness in patent law).

Financial Transactions Involving Intellectual Property

Financial transactions involving intellectual property might include loans, public offerings, private placements, or any other transaction which directly involves an organization’s intellectual property, or in which the intellectual property of the organization is or could be significant.

New Client Program or Policy

An organization should conduct an intellectual property audit in connection with new programs or policies, such as an aggressive foreign filing program, new marketing approach or direction, expansion of a product line or services, corporate reorganization, or any other corporate change that could affect the interaction between the organization’s intellectual property and the marketplace.

Safeguarding Intellectual Property in the Republic of Panama

Panamanian Intellectual Property Law No. 35 of May 10, 1996, replaced the obsolete legal provisions on Intellectual Property, which were in existence for more than sixty years. This law simplifies the process of registering trademarks and allows for renewal of a trademark for ten-year periods. The law’s most important feature is the granting of ex-officio authority to government agencies to conduct investigations and to seize materials suspected of being counterfeited.

This new legislation introduced modem concepts recommended by the World Intellectual Property Organization (WIPO), consistent with the policies of the World Trade Organization (WTO), thus bringing Panama into line with international developments on industrial property, which has reduced the infringement of foreign trademark rights in Panama.

In addition, Panama is party to the following international agreements:

(a) The Trade Related Intellectual Property Rights (TRIPS) contained in the Marrakech Treaty, approved by means of Law No. 23 of 1997;
(b) The Berna Convention approved by means of Law No. 3 of January 3 1996;
(c) World Intellectual Property Organisation (WIPO) Treaty approved by means of Law No. 93 of 15 December 1998;
(d) The General Inter-American Convention for Trademark and Commercial Protection approved by means of Law No. 64 of 1934; and
(e) The Paris Convention, approved by means of Law No. 41 of 1995.

In Panama, differing from other jurisdictions where cases of industrial property are of administrative nature, since 1997, the IP jurisdiction has been removed from the Ministry of Commerce and Industry and given to special courts with exclusive competence to handle IP conflicts (ie, oppositions, cancellations, infringement of trademarks and copyrights, etc). Also, the District Attorneys’ office is specialized in the prosecution of IP rights. Since the creation of this specialized jurisdiction within the court system, the proceedings regarding these subjects have been more expedite and owners are allowed to get a better protection of their IP rights in Panama.

The creation of specialized prosecutors for intellectual property-related cases has strengthened the protection and enforcement of intellectual property rights (IPR) in Panama.

Panamanian Intellectual Property Law also includes criminal enforcement and criminal penalties such as prison, which are the most effective methods and procedures in the fight against infringement of intellectual property rights.

Another major difference from foreign jurisdictions is that in Panama custom authorities and administrative authorities from the Colon Free Zone, which have their own special brand register, are empowered by law to retain, inspect and even seize counterfeit goods; in some cases, these institutions may proceed even without the need of a claim or process in case of suspicion of counterfeited goods.

On the other hand, Panama’s 1994 copyright law modernized copyright protection and its 2004 update created a special Copyright Office with anti-piracy enforcement powers.

The Republic of Panama is signatory to the WIPO Copyright Treaty and the WIPO Performances and Phonographs Treaty. The copyright office has enhanced border measures and established new punishable offenses, such as for Internet-based copyright violations which have significantly reduced the rate of VHS piracy.

Panama worked through the FTA negotiations with the United States of America to establish a legal regime to combat piracy of audiovisual products over the Internet, including notice and take down provisions and clearly defined Internet Service Provider (ISP) liabilities and copy protection measures.

At the international level, Panamanian government has reinforced the legal framework and institutional arrangements to comply with the existing international treaties, including more effective methods and procedures to all intellectual property matters, such as:

• Administrative enforcement, such as seizure of infringing goods by a customs office;

• Criminal enforcement against the infringer;

• Civil enforcement, in which the right holder, or someone in possession of valid rights, such as an assignee or licensee, takes prescribed legal action, such as in court by filing a civil action against an infringer, and perhaps seeking an injunction;

• Technological enforcement, in which producers of products and services employ technological means to protect IP rights against infringement (for example, encryption of digital copyright works).

• Border measures before the Customs Office and the Colon Free Zone Authority. In order to enforce IP rights, Panamanian Intellectual Property Law grants discretionary powers and faculties to Customs and The Colon Free Zone authorities to conduct investigations and retain any goods suspected of being imitations, including the confiscation of equipment used to manufacture fake goods.
The Attorney General’s Office and the Customs Bureau are officially empowered to initiate investigations on Intellectual Property matters.

The Customs Bureau and the Free Zone Administration are duly empowered to keep records of the Panamanian Intellectual Property Registrations for companies willing to protect their intellectual property through barrier measures. GALINDO, ARIAS & LOPEZ offers the service of registering a Panamanian Trademark Registration before the Customs Bureau and the Colon Free Zone.

With the information in the register, the authorities can control and even seize merchandise more effectively at the Colon Free Zone and Customs. These measures take importance because allowing an infringing product to remain on the market will hurt the right-holder’s sales and lead to a risk of market confusion.

Some complexities involved in establishing or enforcing IP rights on a cross border/international scale, are time factor and expertise on the part of the authorities. In view of the seriousness of the sanctions involved, which require that decisions be taken as quickly as possible, time is of the essence.

Demanding cessation of infringement only makes sense if a court order can be issued quickly. For this reason, preliminary injunctions play a major part in enforcing IP rights, since these measures are intended to prevent further infringement until the court has decided on the merits of the case.

On the other hand, the demand for a quick procedure, leading to a very tough sanction, requires expertise on the part of the judges. Only judges fully versed in intellectual property matters are prepared to make speedy use of this prohibitory instrument. It is also necessary to ensure the participation of well-trained legal practitioners and attorneys.

Finally, costs are an issue of major practical importance in establishing or enforcing IP rights on a cross border/international scale. With the complexity of these matters, retaining the services of experts, and of specialized legal practitioners in addition to attorneys, imposes a heavy financial burden on the parties. Measures such as taking evidence and carrying out tests and investigations on the infringing goods also involve further costs. In some cases, in Intellectual Property infringement proceedings, the financially weaker party is always in disadvantage.

The United States concluded free trade negotiations with Panama on 2006. This trade agreement will eliminate tariffs and other barriers to goods and services, promote economic growth, and enhance trade between the United States and Panama.

This trade agreement includes a chapter on Intellectual Property. Conventions such as the Madrid Arrangement concerning the International Registration of Marks, and the Patent Cooperation Treaty (PCT) will be mandatory in the Republic of Panama.

The agreement provides for improved standards for the protection and enforcement of a broad range of intellectual property rights, which are consistent with both U.S. standards of protection and enforcement, and with emerging international standards. Such improvements include protections for digital products such as U.S. software, music, text, and videos and; stronger protection for patents, trademarks and test data, including an electronic system for the registration and maintenance of trademarks.

Strengthening and improving Panama’s overall regime for the protection and enforcement of intellectual property rights in a broad range of areas was an important objective of the FTA negotiations.

In Panama’s climate, businesses are often looking for a way of putting themselves ahead of competitors; many companies lack a clear understanding of exactly what their intellectual property is or what it’s worth. Many businesses are unaware of the extent of their intellectual property and the consequences of failing to protect it properly.

Therefore, businesses are realizing the importance of an effective protection and use of intellectual property and companies are seeking expert legal advice to find out the best way to protect their intellectual property and also to understand how best to enforce it.

Some companies are tending to implement measures in order to have an inventory of their intellectual property to determine what the company’s intellectual property is, where it is, and what it is worth; and also to understand that managing the company’s intellectual property is more than just registering patents and trademarks.

Companies are starting to implement processes to identify intellectual property that belongs to others – such as knowledge and trade secrets of competitors that may accidentally come into their business with new personnel.

Between in-house resources and outside advisors, companies are making sure to cover intellectual property licensing, strategic alliance structuring, counterfeit and grey market tracking, due diligence on partners and employees, registration of patents, copyrights, trademarks and trade secrets, intellectual property valuation and royalty and revenue recovery.

REBECA HERRERA graduated in 1994 from Panama’s Universidad Santa María La Antigua (USMA) with a degree in Law and Political Sciences; she also holds a Master’s degree in Law with a focus on private law, earned from the University of Chile (with Honors, 1999).

Rebeca Herrera specializes in the areas of mercantile law, corporate law, mergers and acquisitions, unfair trade practices, public bids and contracts, intellectual and industrial property, and administrative law.

She has worked with a particular focus in the area of intellectual and industrial property, legally representing multinational companies-such as banks, commercial businesses, insurance companies-in judicial and administrative processes before the customs authority of Colon’s Free Zone, and legal representations regarding health where such matters have concerned violations of sanitary registry regulations. She has participated in the process of mergers and acquisitions involving the principal banking companies in Panama, as well as insurance companies, and also the execution of legal corporate audits. She is in charge of the firm’s intellectual property department

Managing Intellectual Property Rights and Contract Law

Intellectual property rights are by their nature restrictive rights. Rights owners are granted the power to prevent third parties using their intellectual property without their consent. When it comes time for materials in which IP rights subsist to be exploited, it is the law of contract that is called upon to do permit to use the materials, subject to the conditions of contract.

Contract Law

A contract is simply a legally binding agreement. Parties to contract are at liberty to agree to what may take their fancy and the terms that may please them. The law imposes limitations on what may be contracted for when the courts find that an agreement is contrary to public policy or otherwise restricted by statute. With this background, owners of intellectual property are free to agree to deal with intellectual property in any way that they see fit.

Contractual Dealings with Intellectual Property

Dealings with intellectual property take two basic forms. Firstly, intellectual property rights are personal property, which means that they may be assigned to another person, subject to very limited exceptions. An assignment of intellectual this property rights conveys the title to the rights to another person. Far more frequently however these personal rights are licensed to other businesses for a limited purpose or a limited period, in accordance with the particular terms of contract. Amongst many others, movies, music, software, architectural plans, trade marks, designs, patents may be licensed to businesses or the public at large to use them subject to specified conditions and limitations. These licenses, which are in essence permissions, allow the licensee to perform some act in respect to the intellectual property that would otherwise amount to in infringement of the owner’s intellectual property rights.

In the commercial environment contracts allow such dealings to happen.

Copyright Law

Copyright is the palladium of product of the arts, such as manuals, computer programs, commercial documents, leaflets, articles, song lyrics, sound recordings, photographs, film, sound recordings and many others. Businesses that trade using copyright works such as these are entirely reliant granting licenses to their customers on specified terms to trade using their stock in trade.

Contract law allows these companies to restrict and limit use of these copyright works to a fine degree. For instance a photograph might be licensed for use in print media for a set price and electronic media for an entirely different price, or indeed prohibit these uses in their entirety.

Patent Rights

Of all the different types of intellectual property rights, it is patent rights that provide the most extensive and complete monopoly over inventions. Products and processes which are inventive may be patented. As the monopoly rights granted are so extensive, so the bar to surpass for registration is higher than any other form of IP protection. Use of patent rights may be managed in the same way as other intellectual property rights.

Confidential Information and Know-how

A common form of license is that granted by non-disclosure agreements. Non-disclosure agreements are legally binding contracts designed to impose restrictions upon information released to another person, pursuant to the terms recorded by the agreement. In the absence of a non-disclosure agreement, the discloser of information would be left with their rights under the general law to protect the information released from unauthorised disclosure or use. The general law requires a claimant must show that the circumstances of the case justify the court finding that the information (1) retained the requisite quality of confidence, (2) was imparted in circumstances importing an obligation of confidence, and (3) that the information has been misused. Establishing such circumstances requires meticulous preparation of evidence. Thus in the vast majority of cases proving to the satisfaction of a court that trade secrets have been misused is an onerous exercise.

Contract law simplifies this. If it were the case that a contract has imposed obligations of confidence between the parties, the discloser is not simply left with his rights at general law. The non-disclosure agreement imposes separate and independent rights to the general law, and indeed when properly drafted, may far exceed the rights that a claimant would otherwise be left with under the general law. As with other types of contracts, non-disclosure agreements may be framed to allow different types of uses of the information released – what those terms are rely upon what the parties intend to achieve.

Trade Mark Rights

The law of registered trade marks and unregistered trade marks protect brands, business names, logos, slogans, packaging and shapes in many instances. In industry, service marks and collective are also able to be registered, creating a device to set a standard of service and recognition that becomes associated with a particular standard of quality. Again, use of contracts allow businesses to license use of trade marks to other businesses; it may be that a licensor wishes to impose particular restrictions on the size, colour, geographical location or even the place on a website that a trade mark will be used. Provided these requirements may be reduced to writing with sufficient clarity they may form part of the contractual relations and effectively restrict use of the trade mark. For example, franchises depend on trade marks to create a common branding, as do businesses authorising others to manufacture packaging.

Commercial Environment

When it comes time to make commercial decisions as to the types of uses and licences that will be granted in respect to intellectual property, companies would be well advised to ensure that that contract accurately reflects the commercial intentions of the business. Failures to do so may have dire commercial and indeed legal consequences. Problems may arise by a variety of different courses.

For example, a company may inadvertently accept terms and conditions of the other business printed on the back of a purchase order authorising the payment. In such cases, the licensor’s own terms of business may be found not to apply. The consequences of this are that the business contracts on unforeseen terms of contract that may well be contrary to its own intentions, and result in foreseen consequences. In one case that the author has advised on, the author of a University course inadvertently transferred the intellectual property rights to a company rather than license its use. This placed it in a position whereby it had divested itself of the assets in which had invested significant capital expenditure, that it intended to use and re-use for years to generate income. It had assigned the ownership of the course to the other party inadvertently.

A company may wish to license a company to “use” certain intellectual property rights on restrictive terms. Difficulties may arise in the contractual meaning of the word “use” when it is not defined in the contract, and thus introduces ambiguity and uncertainty in the contractual arrangements between the parties. Where a licensor asserts narrow and restrictive rights for “use” and the licensee asserts broad liberal rights to “use” the work, unless there are other material in the contract indicating what the parties intended by “use”, it is extremely difficult to ascertain what the parties actually intended to agree to. In situations such as these where intransigence sets in, litigation is required to resolve the dispute causing distraction and expenses that is otherwise perfectly avoidable.


Fundamentally management of intellectual property rights takes place with contracts. Licences and assignment of owners’ rights may be coupled other objectives of the parties, for instance:

research grants and consequent dealings with the fruit of such research;
funding arrangements and contractual commitments for exploitation;
clinical trials and use of consequent results of the trials;
fixing royalties for exploitation of intellectual property rights;
commercialisation of intellectual property and revenue sharing arrangements
granting of options over intellectual property
grants for licences for evaluation of relevant materials, and onward licenses
cross-licensing different intellectual property rights for mutual research or exploitation; and
software licensing.

Like any other commercial contracts, dealings with intellectual property may be complicated. Frequently this is the case because the delineation of rights and use rights granted are set out in fine, granular detail. To truly appreciate the effect of such dealings, readers need to appreciate the particular types of rights that may vest in a particular form of intellectual property.

What is an Intellectual Property (IP)?

The concept of property is something we all understand. Take real estate. Property is a home, a strip mall, a commercial building or farmland. You can touch it, walk on it and live in it. Pretty simple concept. Property is something real, ergo, real estate.

An intellectual property is different. It usually begins as an idea, takes form and becomes a book, a film, a game, a TV show or something else that people read, watch, play or otherwise recognize. The World Intellectual Property Organization (WIPO) defines intellectual property this way:

“Intellectual property relates to items of information or knowledge, which can be incorporated in[to] tangible objects at the same time in an unlimited number of copies at different locations anywhere in the world. The property is not in those copies but in the information or knowledge reflected in them. Intellectual property rights are also characterized by certain limitations, such as limited duration in the case of copyright and patents.”

An IP differs from real property in several key ways. An IP is the product of imagination – a very difficult thing to measure or define. An IP is more easily stolen, pirated or just plain ripped off. In fact, certain countries in the world have no intellectual property agreements across international borders so you can buy a pirated copy of the latest blockbuster on the streets of Beijing today – BEFORE it premiers in U.S. theaters.

Like a house or other property, an intellectual property can be bought and sold. It happens every day. An intellectual property can be sold lock, stock and barrel, or sold off in parts, which usually delivers increased revenue to the owner of an intellectual property.

For example, rights to a copyrighted book can be sold off in many different formats: North American distribution rights, large-print rights, one-time serial rights, sole source rights, audio-book rights, film rights – the owner of a copyright can sell various types of rights as long as the sale doesn’t conflict with rights agreements already in place.

“I Have A Good Idea.”

So does everyone else in the world including my Aunt Tilly. But an idea is NOT an IP. You can’t copyright or trademark an idea. In fact, if some other innovator comes along with the exact, same idea as your brainstorm, there’s nothing you can do about it.

An idea is NOT an intellectual property. An idea becomes an intellectual property when you apply work to it – write it, design it, describe it, code it, or otherwise put some work into that idea. And the more work you put into your idea, the more of an intellectual property you own – an IP that needs protection from theft or infringement.

That protection can take the form of a registered copyright, a patent, a license, a contract or some other defining documentation that describes the parameters of the intellectual property.

That’s why it’s critical to protect your idea as you give it more and more form. You can copyright a book or film. And as the copyright holder, you own that IP, whether it’s a book, video game, movie, webinar, seminar or any other form of media. Without legal protection your intellectual property may be unprotected.

You know the famous smiley face – the one that’s burned into all of our brains? Well, the artist who created that ubiquitous icon never registered the copyright for the image and, over time, that smiley face fell in to the public domain, which means anyone can use it. Even an IP lawyer.

It’s a Jungle Out There

If you’re new to the concept of IP, but you’re in the process of creating one, i.e. you’re writing a book, coding a computer game, building a website or broadcasting a webinar, you need protection early in the development process.

The world wide web, and all the attendant “new media,” have created an insatiable demand for intellectual properties. Today, an IP – a good one – is almost like currency. It can be traded, bought and sold, used to build credibility and trust and generate revenue. And if it’s really good, that IP can generate a whole lot of revenue.

However, if you don’t know the consequences of selling your copyright to a publisher, if you don’t understand the difference between a trademark and a signature mark, if you’re unfamiliar with one-time serial rights, you may quickly discover that your IP is no longer your IP.

Intellectual property law is a complex specialty, one few attorneys practice. It involves a variety of media. It entails means of distribution, it crosses international boundaries in this global economy, it engages dealers, publishers, distributors and even rack-jobbers. And if you’re engaged in the creative process, chances are you may not even be aware of the value of your IP.

Further, you may not fully understand the risks associated with intellectual properties – especially across international boundaries.

Seek Legal Advice Early

Remember, an idea is just an idea. However, once you’ve developed that idea and put work into it, giving the idea substance, it needs to be protected with a copyright, patent or other legal document. You own something. But without legal protection, you can very quickly lose that product of imagination forever. Or, end up in court for years battling a deep-pockets IP publisher who’s in no rush to settle.

As soon as you begin shaping your idea into an IP, seek legal counsel from an experienced legal firm – a law firm that has extensive experience in IP management, IP development and, most importantly, intellectual property protection.

The earlier you obtain legal counsel during the development phase, the safer you and your IP are. Don’t take chances. This is your concept, your vision, your dream.