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Best practices in IP management: audits and valuation

12-01-2018

In the third article of our series on IP management best practice, Novagraaf’s Chantal Koller explains the importance of auditing and looks at the steps companies can take to assign value to their trademark assets.

If a corporate IP department is to fully reap the rewards of its brand creation and IP protection exercises, it first needs to put certain building blocks in place. As we have previously written, this should include ‘setting the right strategy’ and identifying the best model for IP management (i.e. ‘outsourced, in-house or hybrid?’).

Once a company has put in place the management process behind its portfolio, and codified it wherever possible, it will be freed up to concentrate on delivering on its overall IP strategy. For trademarks, this delivery model will typically incorporate five key stages:

  1. 1. Creation: Business strategy and brand guidelines drive choices on trade names, branding options, trademark architecture, geographical scope, filing strategy, evaluating risks and budget.
  2. 2. Protection: The IP management model provides the process to file trademarks, manage refusals, handle oppositions, and follow-ups up to registration.
  3. 3. Management: The IP model also dictates the management of asset (and data) administration including all changes in ownership and renewals, monitor for potential infringements and enforce IP rights.
  4. 4. Audits: Portfolios should be audited regularly to assess their value in light of the costs involved in growing and maintaining the rights that they contain. This can help to identify, for example, trademark rights that are not being used, as well as gaps in protection, which might leave a company exposed.
  5. 5. Evaluation/monetisation: The results of the audit will also help to drive commercial discussions on topics such as licensing, franchising, sale of IP, spin-offs and joint ventures.

It is the importance of auditing and evaluation process that will be covered in this article, as well as related advice on why and how to value trademark portfolios.

Why undertake an IP audit?
While, of course, IP professionals understand that trademarks are valuable assets, the challenge comes in quantifying that value for the wider business and using it as a springboard for growth. Part of this is due to the difficulty of accurately capturing the value of a trademark or portfolio of trademarks to a business. After all, if you are unable to put a figure on the financial value that you derive from that asset, then how can you convince colleagues elsewhere in the company to prioritise IP in their business or product strategies? It is the difficulty of truly capturing that added value that has led many organisations to consider trademarks to be a cost centre, rather than as an asset that drives value and profit to the bottom line. This is despite the fact that it is possible to turn the cost of IP acquisition into a profit by realising the value of the resultant IP on the balance sheet.

Before you can value or exploit IP, however, you need to first know what it is that you own - and also verify that those rights are valid and enforceable; for instance, by checking that they are in use and their records (title) have been kept up to date. Just as importantly, audits will also identify any potentially damaging gaps in coverage, such as products or services that haven’t been properly protected, geographical coverage that may be missing or, even, opportunities to update the existing portfolio in light of legislative changes (e.g. EU TM reform) or, even, political changes, such as Brexit. (For a step-by-step approach to auditing, read our article ‘New year’s resolutions: give your IP portfolio a fresh start’.)

Undertaking an IP audit will also enable you to consolidate your rights and agreements by providing you with a clearer picture of your IP assets, and their respective strengths and weaknesses. Similarly, it will provide the opportunity to refocus IP holdings in light of your future business strategy; for example, by ringfencing key (or ‘core’) IP rights and identifying less strategic or unused rights that may no longer justify the renewal fee.

Other reasons to undertake an IP audit may include:

  • The purchase and/or sale of (individual) business units (due diligence);
  • Setting up a licensing programme;
  • A substantial change in legislation (e.g., IFRS and SOX);
  • An initial public offering; or
  • The desire to centralise your assets.

4Ws: Who, What, What for, Where?
Novagraaf has developed a tried-and-tested methodology (the 4Ws) to undertake IP audits and measure trademark value, assessing the extent to which a company’s core brands are strategically protected by trademark registrations in key markets and territories, as well as the comparable strength of those registrations.

The approach also covers such factors as scope of coverage, effective use of trademark registration systems, ownership and portfolio consistency. The service has been specifically designed to provide businesses with greater insight and clarity into the brand and trademark valuation process, via a robust and transparent methodology, and clear advice on how to identify and remedy the issues that may be undermining asset value. Contact us today for further information and support.

Chantal Koller is managing director, trademarks in the Swiss offices of Novagraaf