George P. Shenas

Are You Properly Tracking and Maintaining Your IP?

Take a step back and think about the importance of intellectual property in your company. If you do so, you are apt to find that intellectual property may make up the bulk of the value in your company. This may take a variety of forms, including patents, copyrights, trademarks, trade secrets, in-bound or out-bound licenses, and other intellectual property. Given this fact, it makes a great deal of sense to keep a close inventory of your IP and to carefully maintain it - in much the same way that you do with respect to your fleet of trucks, or your manufacturing equipment! For this reason, a regularly scheduled audit of your IP should be a part of any annual business audit.

In the M&A world, the value of your business will ultimately be affected by your ability to demonstrate that the IP which you own, license or otherwise rely on every day can be transferred risk-free and, if possible, cost-free to any buyer of your business. Your ability to prove this may be negatively affected in many ways which can be avoided by careful planning. Conversely if you are able to provide a prospective buyer with carefully documented records reflecting your diligence in this area, you can demonstrate your attractiveness as an M&A target and enhance the value of your company. For example, it is important to spot any contracts or licenses that limit rights in IP assets, commit IP assets to others or restrict or limit the transferability of IP assets to others (particularly in an M&A transaction). Further, it is important to carefully document the inventors or authors of IP within your portfolio, and to maintain records showing that proper employment or consulting agreements are in place providing for the assignment of IP created by any employee or consultant of the company. Steps should also be taken to document that trade secret maintenance procedures are in place in your company to avoid the loss of legal protection. Of course, a careful monitoring of the extent, if any, to which you employ open source software modules should be conducted in order to avoid a compromising of your ability to transfer your intellectual property to a buyer free and clear of any open source licenses.

And, finally, the simple act of making sure that your company does not employ any unlicensed software - even off-the-shelf software - can save your company a great deal of grief both during and, quite possibly, before any M&A transaction arises. With the advent of the "software police" every company potentially faces at any time the prospect of a disgruntled employee reporting your company for the use of pirated software. This can result in extremely expensive dealings with the likes of the Business Software Alliance (the "BSA") or other like group or, at a minimum, a reduction in the selling price of your company to reflect the existence of such a risk factor.

If you would like a checklist of the steps you should be taking in this area, send us an email at gshenas@gpsinc.com and ask for a copy of our "IP Audit Program" information.

George P. Shenas