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IP audits can be profitable

|Written By Daryl-Lynn Carlson

To ensure that companies that have many registered patents and trademarks can be efficient, conducting an audit of their intellectual property is imperative, lawyers say.

‘An audit can be a useful tool to help optimize IP spending and in avoiding unnecessary spending,’ says Stuart Ash.

A comprehensive audit can save clients much money and enable both small and large companies to sell off any patents and trademarks they’re no longer using.

Noel Courage, a partner with Bereskin & Parr LLP in Toronto, affirms that encouraging a client to conduct an audit of their intellectual property holdings can be tremendously beneficial for them.

“Where IP audits are particularly useful is in big companies where you have a lot of R&D initiatives on the patent side or if you have a lot of brands,” he says. “An audit can be helpful to pull together all the internal IP and you can identify what’s being used or not.”

Courage says it’s imperative for companies that have an international market to affirm which patents or trademarks they’re not using and, in turn, to try to commercialize, sell or license them out.

He recently conducted an audit for an international diagnostics company. He worked with the in-house counsel to oversee which patents they weren’t using and found several of them. The company then abandoned or targeted those it wasn’t using for sale or licence.

“An IP audit is a means of becoming organized and knowing what you have and what you can commercialize or sell,” says Courage. “I would say that audits are a very constructive way to assess any company’s inventory and plan for future IP.”

Stuart Ash, a partner at Gowling Lafleur Henderson LLP in Ottawa, agrees that audits are underused as a tool to identify gaps with respect to patents and trademarks.

“It’s important to determine if trademarks or patents a company is paying to maintain are still related to the company’s core products or services or if they still serve the company’s strategy,” he says. “An audit can be a useful tool to help optimize IP spending and in avoiding unnecessary spending.”

Ash encourages his clients to review their filings and registrations on a regular basis to assess whether their protection is up to date and whether they should maintain or amend its scope.

Ash notes as well that an audit can be useful in identifying agreements that address the ownership of important intellectual property developed by or for the company.

It’s particularly important for companies to have written agreements with employees and contractors that have developed innovations in order to ensure they own the rights.

“A company that doesn’t have proper written agreements with its employees, contractors or others who develop IP for the company can be surprised to discover that it does not own what it thinks it owns,” says Ash. “An audit is a useful tool to help identify such problems.”

Ash adds that while a company can conduct a review of its intellectual property at any time, it’s often easier to do it before and apart from an important event such as a sale, a financing effort or litigation when there can be less time to remedy the issues identified during the audit process.

“I’ve been involved in a number of transactions where we have had to scramble to update ownership of important IP prior to the sale of the business,” says Ash.

“A purchaser is more likely to dig further, ask more questions, and even ask for stronger reps and warranties if it appears that the vendor’s IP is not in good order.”

Mike Andrews, founding partner at Andrews Robichaud in Ottawa, affirms that intellectual property audits are important in order to ascertain where the company is at.

He points out that the bankrupt conglomerate Nortel Networks Corp. sold off $4 billion worth of patents and trademarks for innovations last year to various entities.

“Intellectual property, for the most part for Canadian business managers, is a mystery and it shouldn’t be,” says Andrews. “They need to be a lot more informed as it’s not just a job for the legal community; it is a priority for the business community in Canada.”

Andrews notes that over the last several years, there have been many companies that have relinquished their patents to buyers outside the country following an audit or as a result of a change to a new owner.

In some cases, however, companies that have undertaken an acquisition or have been subject to sale don’t acknowledge the total value of their intellectual property portfolio, he says.

“It’s very disturbing that companies don’t fully recognize the value of their intellectual property and an audit can help them ascertain that.”

As well, it could be helpful for the federal government to undertake a comprehensive intellectual property review in order to determine how companies can more easily keep track of their portfolios, says Andrews.

“It’s a very important aspect for inventors and innovators and it should be much easier to both register a patent or trademark in Canada and keep track of what you have. This can be a very lucrative sector for the benefit of everyone involved as long as the proper steps are taken.”

Eileen McMahon of Torys LLP in Toronto works with companies to conduct audits of their intellectual property in order to ensure they’re spending their money effectively. Audits, she notes, often result in reduced costs and increased revenues.

“The audit helps to provide an objective view of the company’s intellectual property, what it is costing the company, and whether it dovetails with the company’s business strategy and products generating the revenues. We conduct the audit for all the IP in Canada and other countries.”

The results can be helpful, she adds. “We often discover that there are patents or trademarks that aren’t generating any revenue for a company or that don’t make strategic sense. However, they are carried year over year, costing the company, and aren’t leveraged.

The audit helps assess whether those rights should be abandoned, sold, licensed, donated or otherwise leveraged.”

McMahon says an audit can include reviewing licensing and other agreements in order to assess whether the company is receiving the revenues it should be getting.

Javad Heydary of Heydary Hamilton Professional Corp. in Toronto agrees that an audit can be beneficial. “There are many reasons to do an audit and you have to do one if the company is being sold,” he says.

“A patent portfolio is very important to conduct an audit on as that is where your client can save money.”

Heydary notes as well that an audit is helpful for finding out whether the client is infringing on anyone else’s patent or trademark.

But he says audits aren’t always an easy process, particularly for businesses that are online, as the company must review everything from patents and trademarks to registered domain names.

As a result, Heydary advises clients to make a checklist of everything they’ve reviewed in their audit to be sure they’ve covered all intellectual property that’s registered.

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