Key Business Concerns In Commercializing Intellectual Property Rights – Intellectual Property Rights Laws and Practices Important Questions

Question 1.
How is the valuation of the intellectual property done?
Answer:
Acceptable methods for the valuation of identifiable intangible assets and intellectual property fall into three broad categories. They are market-based, cost-based, or based on estimates of past and future economic benefits.

In an ideal situation, an independent expert will always prefer to determine a market value by reference to comparable market transactions. This is difficult enough when valuing assets such as bricks and mortar because it is never possible to find a transaction that is exactly comparable. In valuing an item of intellectual property, the search for a comparable market transaction becomes almost futile. This is not only due to lack of compatibility, but also because intellectual property is generally not developed to be sold and many sales are usually only a small part of a larger transaction, and details are kept extremely confidential.

There are other impediments that limit the usefulness of this method, namely, special purchasers, different negotiating skills, and the distorting effects of the peaks and troughs of economic cycles. Cost-based methodologies, such as the “cost to create” or the “cost to replace” a given asset, assume that there is some relationship between cost and value and the approach has very little to commend itself other than ease of use. The method ignores changes in the time value of money and ignores maintenance. The methods of valuation flowing from an estimate of past and future economic benefits can be broken down into four limbs;

  1. capitalization of historic profits,
  2. gross profit differential methods,
  3. excess profits methods, and
  4. the relief from the royalty method.

Discounted Cash Flow (“DCF”) Analysis sits across the last three methodologies and is probably the most comprehensive of appraisal techniques.

Question 2.
Explain the usage of the ‘excess profits method’ for the valuation of intangibles.
Answer:
‘Excess Profits Method’ in reference to intangibles looks at the currents value of the net tangible assets employed as a benchmark for an estimated rate of return. This is used to calculate the profits that are required in order to induce investors to invest in those net tangible assets. Any return over and above those profits required in order to induce investment is considered to be the excess return attributable to Intellectual Property. While theoretically relying upon future economic benefits from the use of the asset, the method has difficulty in alternative usage of assets. But worldwide, future economic benefits are used to arrive at the current valuation of intangible assets. The excess operating profits method determines the value of the intellectual property by capitalizing the additional advantages generated by the business owning the property over and above those generated by similar businesses, which do not have the benefit of the property.

There are different ways in which the excess advantage may be calculated, for instance by reference to a margin differential or comparing the return on capital employed earned by the business owning the property with that earned by companies without such benefit. The calculated excess operating profits expected to be earned over the life of the asset in question are then discounted to the present day to arrive at a value for the asset. It is significant if using this method, to ensure that the excess advantages identified are particularly attributable to the intangible asset in question and not to some other factor like an efficient production facility or distribution network that relates to the business as a whole.

Question 3.
‘Unfair competition is going on ¡n relation to intellectual property.’ Discuss the safeguards and multilateral agreements in this regard.
Answer:
Multilateral Agreements:
A number of multilateral agreements in the field of intellectual property deal with unfair competition in intellectual property transactions. The laws dealing with restrictive trade practices in India are contained under the Patents Act and the Competition Act. The Paris Convention for Protection of Industrial Property provides for efficient protection against unfair competition. Article 17 of the Berne Convention for the Protection of Literary and Artistic Works makes clear that the Convention does not prohibit the application of national administrative control this formulation may apply to competition laws. The Paris Convention allows the grant of compulsory licenses to prevent abuses resulting from the exercise of the exclusive rights conferred by patents.

From the objective point of view, which provides intellectual property rights in order to prevent the conclusion of contract negotiations in the abuse of their exclusive right. For the restrictions of intellectual property rights, TRIPs agreement to be enough interest, TRIPs Agreement expressly provides for Article 8 the principle of prohibiting the abuse of intellectual property rights, Article 30 of the exceptions to patentability, Article 31 of the compulsory license system are the embodiment of intellectual property restrictions. WTO Agreement on Trade-Related Aspects of Intellectual Property Rights expressly recognizes the role of competition policy in ensuring that I PRs promote economic growth and innovation. Article 40.2 of the TRIPS Agreement provides that: “Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market”.

It allows member countries “to adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices in the light of the relevant laws and regulations”. The repression of anti-competitive practices associated with I PRs is therefore assigned to national competition laws and policies.

Safeguards against Unfair Competition under Multilateral Agreements
As a general rule, any act or practice carried out in the course of industrial or commercial activities contrary to honest practices constitutes an act of unfair competition; the decisive criterion being “contrary to honest practices. A number of multilateral agreements in the field of intellectual property deal with unfair competition in intellectual property transactions. In this context, the need for international cooperation has also been emphasized under the TRIPs agreement. In particular, consultations among member countries are envisaged, inter alia, through the supply of publicly available non-confidential information. In this regard, Article 8 stipulates that appropriate measures consistent with the provisions of the Agreement may be needed to prevent the abuse of I PRs or practices which unreasonably restrain trade or adversely affect the transfer of technology.

Article 40 affirms the right of member countries to specify in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having adverse effects on competition in the relevant market and to adopt, consistently with other provisions of the Agreement, appropriate measures to prevent or control such practices. For example, exclusive grant back conditions, conditions preventing challenges to validity, and coercive package licensing. Article 31 of the TRIPs agreement lays down conditions limiting the use of patents without authorization of the IPR holder, including both uses by Governments or by third parties i.e. through compulsory licenses.

The TRIPs Agreement also contains a number of provisions relating to the use of I PRs. First, there are general considerations in paragraph 1 of the Preamble that is accompanied by Article 8(2), allowing Members to take appropriate measures in order to prevent abusive practices. Second, there are some very precise provisions concerning competition law. They allow fair use and the possibility of compulsory licensing or the granting of dependent patents, i.e. the granting of a right by public authorities, and against the will of a patent owner, in order to make use of a patent to the extent necessary to develop a new product.

Compulsory licensing provisions can be included in both intellectual property and competition laws. Article 31 (k) of the TRIPS Agreement, explicitly provides for the granting of such licenses in the case of patents. Grounds for granting compulsory licenses under competition law have included in the US the use of patents as a basis for price-fixing or entry-restricting cartels, the conclusion of market-concentrating mergers in which patents played an important role, and practices that extend the scope of patent restrictions beyond the bounds of the patented subject matter. Compulsory licenses may also be issued when cross-licensing unduly limits competition, particularly in cases that involve substitute technologies, i.e. technologies that actually or potentially compete with each other, independently of their intrinsic characteristics.

However, certain exceptions from these conditions are made if the unauthorized use is permitted in order to remedy a practice determined to be anti-competitive after the judicial or administrative process.

Question 4.
What is the difference between Intellectual Property Law and Technology Transfer? Please analyze.
Answer:
Intellectual Property (IP) refers to the creations of the human mind like inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual property is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems, and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. Intellectual property rights protect the interests of creators by giving them property rights over their creations. The TRIPS Agreement encompasses, in principle, all forms of intellectual property and aims at harmonizing and strengthening standards of protection and providing for effective enforcement at both national and international levels.

Technology Transfer:
As per Oxford Dictionary, ‘Technology Transfer’ is the transfer of new technology from the Originator to a Secondary User, especially from developed to developing countries in an attempt to boost their economies. As per Business Dictionary, Technology Transfer refers to (1) Assignment of technological intellectual property, developed and generated in one place, to another through legal means, such as technology licensing or franchising. Or (2) Process of converting scientific and technological advances into marketable goods or services.

In general, it denotes the sum of knowledge, experience, and skills necessary for manufacturing a product or products and for establishing an enterprise for this purpose. Transfer of Technology is a complex phenomenon necessarily involving rights, obligations, privileges, and commitments of the parties to the transactions. The basic legal document is the license agreement for the transfer of technology. If technology is transferred through licensing, stronger IPR protection results in greater innovation, and increased licensing. Licensing has the advantage to firms of higher profits due to lower production costs, but involves other costs in terms of contract negotiations, transferring the necessary technology, and in the rents that the innovator must give to the licensee to discourage imitation. By reducing the risk of imitation, stronger IPR protection also reduces the costs of licensing, thus encouraging licensing and freeing up resources in innovation.

Transfer of technology takes place through formal and informal channels. Some of the formals channels include trade, licensing, joint ventures, franchising, foreign patenting, and Foreign Direct Investment (FDI) while the informal channel include imitation and technology spillover. The technology transfer relates to voluntary or non-market transactions by which a firm gains access to technology developed in another country. Therefore, policies made to develop a strong I PR regime can help developing countries gain access to foreign technology.

The impact of stronger IPR protection on technology diffusion is ambiguous in theory and depends on a country’s circumstances. On the one hand, stronger IPR protection could restrict the diffusion of technology, with patents preventing others from using proprietary knowledge and the increased market power of IPR holders potentially reducing the dissemination of knowledge due to lower output and higher prices. On the other hand, IPRs could play a positive role in knowledge diffusion, since the information available in patent claims is available to other potential inventors.

Moreover, strong IPR protection may encourage technology transfer through increased trade in goods and services, FDI, technology licensing, and joint ventures. Despite this theoretical ambiguity, the diffusion of technology from countries at the technological frontier to other countries is considered the main potential benefit of the TRIPS Agreement, particularly for developing countries that tend not to innovate significantly.

The other commonly used models of technology transfer are the technical assistance agreement, patent and patent agreement, know-how agreement, engineering service agreement, trademark agreement, and other franchisee agreements. This all requires a huge involvement of IP rights for the best implementation of technology transfer.

Question 5.
An Indian automobile company is interested in a joint venture arrangement with a foreign company. It has, however, little knowledge about the Due-diligence of intellectual property rights in a corporate transaction. Advise the company regarding :

  • The purpose IP due diligence serves, and
  • The scope of IP due diligence.

Answer:
Purpose of IP Due Diligence
1. IP due diligence is a part of a comprehensive due diligence audit that is carried out to assess the financial, commercial, and legal benefits and risks linked to a target company’s IP portfolio, typically before it is bought or. invested in.
2. It provides detailed information that may affect the price or other key elements of a proposed transaction or even aborting the further consideration of the proposed transaction.
3. It provides a basis for assessing the risk and value of relevant IP assets in a proposed acquisition or sale of intellectual property

Scope
IP due diligence generally seeks to:
1. Identify and locate IP assets, and then assess the nature and scope of the IP to evaluate their benefits and allocate risks associated with the ownership or use of the relevant IP assets; in particular, it seeks to determine whether the relevant IP is free of encumbrances for its intended business use(s).
2. Identify problems in and barriers to the transfer, hypothecation, or securitization of the IP assets under consideration.
3. Identify and apportion between the two parties the expenses incident to the transfer of IP assets under consideration.

Question 6.
Companies are investing huge amounts of money in research and development for the creation of intellectual properties may be in the form of new. technology, drug discovery, trade secret, etc. The major concern for the companies is how to protect the IPR. Suggest the strategies for maintenance and protection of confidential information.
Answer:
Intellectual Property Rights are the key elements needed to maintain a competitive edge in the market in today’s dynamic and competitive business environment. Intellectual property is undoubtedly a business asset and an integral part of the business process. Effective acquisition, management, and protection of intellectual property can mean the difference between success and failure in businesses today. Thus, it is important that companies take appropriate steps to protect such a valuable asset so as to get the possible •commercial results from its ownership.

The various statutes that have been enacted provide an adequate mechanism of protection to intellectual property rights. In the case of Patents, a patent can provide an inventor/corporates with a 20-year government-approved monopoly and once his 20 years of protection gets exhausted, the invention can be freely accessed and commercially exploited for the larger good of society by any player who is capable of doing it. However, it is equally true that some ideas cannot be patented, and indeed, some innovators do not want to patent their ideas/inventions, as for instance, trade secret or confidential information. Today more than ever, intellectual property also includes confidential business information, trade secrets, and know-how, and key business relationships.

If a trade secret is really kept a secret, the monopoly on an idea or product may never end. But once the Jinny is out of the bottle, you won’t get it back in, if it is lost it is lost forever and the companies are unlikely to extract sufficient damages from whoever breaches their confidentiality. Trade secrets need to be prevented from being disclosed. Though it is difficult indeed, not an impossible task. The textbook examples included the recipe for Coca-Cola and the formulation of the alcoholic beverage Chartreuse, which was only known by two monks.

The need to protect these vital assets is more critical than ever. Knowledge has become the key strategic differentiator. If it is valuable to the company, it is valuable to its competitors as well. Most sophisticated business enterprises (whether small, medium, or large) recognize the need to protect this vital Intellectual Property. But little real attention is paid to protecting. or securing these less formal types of intellectual property. It has been observed that many companies surprisingly are oblivious to the fact that these vital intellectual property assets are walking out their front door on a daily, weekly, or monthly basis, and heading across the street to rival competitors.

disclosed.
The business purpose of the disclosure or exchange of information might be quite legitimate, but the legal effect of disclosing confidential information without the benefit of a confidentiality or non-disclosure agreement could be disastrous. Corporate must make it both a corporate policy and business practice not to engage in commercial negotiations with third parties (whether direct competitors or not) without first ensuring that they have a signed Confidentiality or Non-Disclosure Agreement in place.

Departure — The other source of leakage of confidential business information is the exit of Executive(s) or key employees from the Organization. After their employment ceases, the Employee retains the right to use any general skill, experience, and knowledge that he has acquired in the course of performing his normal duties, in order that he can continue to earn a living. This has to be balanced against the employer’s right to protect its confidential information from any disclosure by such an employee. If the employee retains any confidential information pertaining to the employer or its business, then such an employee is not entitled to use or convey that information without the employer’s authority/consent.

Question 7.
Write short notes on the following:

  1. Tie-in arrangements
  2. Employee agreement
  3. Preparing an IP audit

Answer:
(i) Tie-in Arrangements:
Tie-in clauses is an intellectual property licensing the licensee to obtain raw materials, spare parts, intermediate products for use with licensed technology, only from the licensor or its nominees. These clauses also oblige the licensee to use personnel designated by the licensor. The tie-in clauses generally result in monopoly control of the supply of equipment and other inputs by supplying enterprises, leading to “transfer pricing”, “transfer accounting” or “uneconomic output”. The licensor charges a higher price than for comparable equipment and other input that could otherwise be obtained elsewhere. The use of tying clauses not only affects production costs through the overpricing of inputs but may have an important indirect effect on the import substitution, export diversification, and growth efforts of the licensee.

(2) Employee agreement:
In the Employees or Confidentiality agreement, employees should sign Employment agreements to generally detail the terms of their employment. The agreement should be signed before the employee commences. Existing employees should be encouraged to sign confidentiality agreements. However, usually, they cannot be forced to do so. When employees cease employment, the employer gives them a letter confirming this, any monies being paid to them, and reminding them of their confidentiality obligations. If confidential information is to be divulged, a confidential agreement should be signed before the disclosure is made. The type of agreement will vary depending upon the nature and context of the disclosure. In some cases, a confidentiality agreement must be made as a deed in order to be legally enforceable.

A confidentiality agreement should include the following acknowledgments:

  • the information is secret;
  • the disclosure is made to the recipient in confidence;
  • the recipient will not disclose the information to others or use the information for their own advantage, without the prior authorization of the owner of the information; and
  • the unauthorized disclosure of the information could cause loss and damage to the owner of the information and the recipient will be liable for this.

(3) Preparing an IP audit:
(1) Clarity about the Purpose
Before the actual conduct of an IP audit, it is a necessary pre¬condition that it is clearly understood by all concerned why the audit is being conducted:
(a) The situations that prompt an audit and the nature and scope of the audit will to some extent depend on why it is being conducted.
(b) In addition, the amount of time and money available for conducting an audit will have a bearing on the manner in which the audit is conducted and its eventual outcome.

(2) Background Research for Preparing an Audit Plan:
Once the purpose of the audit and the available resources for its performance are clear, a major preparatory step for conducting the audit is to understand the company. It is an essential pre-condition for preparing an audit plan, which will be the basis of the audit.

(a) What is done in background research?
(i) Gathering as much information as possible on the company and its way of doing business.
(ii) Background research will be the basis of the audit and will provide the auditor(s) with the required background information for preparing a plan for conducting an audit that is comprehensive, focused, timely and cost-effective.

(b) Major issues in a background research
(1) Internal and external relations and interactions:
How does the company regularly interact or intend to interact with such as its

  • employees;
  • vendors;
  • customers;
  • consultants;
  • independent contractors;
  • joint venture partners;
  • competitions etc.

(2) Business strategy:

  • How does the company do its business
  • Does it have written policies in place concerning key aspects of the business?
  • Does it follow a certain business model?
  • Does it, for example, engage in e-commerce and, if so, how does it fit in with its overall business strategy?

(3) Importance of IP Assets

  • where IP assets are relatively unimportant to the nature of the business as a whole, it might be sufficient merely to confirm that registered IP rights are in good standing and are held in the name of the company.
  • where the company’s principal assets are IP, it may be necessary to conduct a more thorough assessment of the company’s IP portfolio and IP-based activities.

(4) Status of IP Management

  • Does it have an IP policy or strategy?
  • What is the company’s overall approach to IP management?
  • How well informed are its. staffs on IP matters?

(5) IP disputes

  • Has the company been involved in infringement suits, whether as plaintiffs or defendants?
  • Is the company involved in disputes or potential disputes that involve IP rights?

(3) Preparing an IP Audit Plan
The last step is to prepare an IP Audit plan.

(1) This will set out the purpose, the scope, how long it is expected to take, the budget, and who will be responsible for which area of the audit plan.
(2) It will deal with the following:
• The scope of the audit;
• The time table for the audit;
• The responsible person for each part of the audit;
• The form of the final audit report to be produced.

Question 8.
What is the significance of intellectual property management?
Answer:
The importance of intellectual property management are as follows:
(1) Effective management of intellectual property enables companies to use their intellectual property to improve their competitiveness and strategic advantage.

(2) Acquiring intellectual property protection no doubt is crucial but its effective management provides much more than just protection to an enterprise’s inventions, trademarks, designs, copyright, or other allied rights.

(3) Effective intellectual property management requires a company to commercialize its inventions and effectively monitor and enforce its intellectual property rights. Indeed, a company portfolio of intellectual property must be viewed as a collection of key assets that add significant value to the enterprise.

(4) Effective management of intellectual property may be a critical business strategy to maintain sustainable corporate growth and maximization of shareholder value resulting in economic growth.

Question 9.
Explain the strategies for effective I PR Management.
Answer:
The strategies for effective management of intellectual property assets require the implementation of a comprehensive asset management plan. In this, the most important step is to reviews the existing intellectual property assets so as to identify and locate the company’s key intellectual property assets such as:

  1. patents;
  2. patentable subject matter;
  3. copyrights;
  4. trademarks;
  5. designs;
  6. trade secrets;
  7. domain names;
  8. mask works;
  9. inventions;
  10. works of authorship;
  11. hardware and
  12. devices depending upon the nature of business.

Once the intellectual property assets are identified, it becomes important to determine the nature and scope of the company’s fights in intellectual property assets, which may range from outright ownership to a license including contingent rights in intellectual property to be developed in the future. Capitalizing on intellectual property assets so identified require a most constructive approach keeping in view, among others, type of intellectual property assets, the type of business claiming ownership of intellectual property assets, long term and short term goals of the business organization including intended/possible use of intellectual property assets.

The ownership and control of intellectual property also attract certain risks and this requires strategies and plans to mitigate those risks. The most important among others being the infringement of rights in intellectual property, the risk management strategy should take into consideration the situations where company’s own Intellectual Property Rights may infringe the IPRs of a third party, the company has a valid claim of infringement against a third party.

Question 10.
What is valuation? Illustrate the methods for the valuation of intangibles.
Answer:
Valuation is essentially a bringing together of the economic concept of the value and the legal concept of property. There are four main value concepts:

  • owner value;
  • market value;
  • fair value and
  • tax value.

There are quasi-concepts of value that impinge upon each of these main areas are:

  • investment value;
  • liquidation value and
  • going concern value.

Methods for the valuation of identifiable intangible assets and intellectual property fall into three categories. They are: –

  • market-based;
  • cost-based or
  • based on estimates of past and future economic benefits.

The methods of valuation flowing from an estimate of past and future economic benefits can be divided into four limbs:
(a) Capitalization of historic profits:
It arrives at the value of IPR’s by multiplying the maintainable historic profitability of the assets by a multiple that has been assessed after scoring the relative strength of the IPR.
For example – a multiple is arrived at after assessing a brand in the light of factors such as leadership, stability, market share, internationality, the trend of profitability, marketing, and advertising support, and protection.

(b) Gross profit differential methods:
This method is often associated with the trademark and brand valuation. These methods look at the differences in sale prices, adjusted for differences in marketing costs. That is the difference between the margin of the branded and/or patented product and an unbranded or generic product.

(c) Excess profits methods:
This method looks at the current value of the net tangible assets employed as the benchmark for an estimated rate of return. This is used to calculate the profits that are required in order to induce investors to invest in those net tangible assets. Any return over and above those profits required in order to induce investment is considered to be the excess return attributable to the IPRs.

(d) The relief from royalty method:
It considers what the purchaser could afford, or would be willing to pay, for a license of similar IPR. The royalty stream is then capitalized reflecting the risk and return relationship of investing in the asset.

Question 11.
What is Discounted Cash Flow (“DCF”) Analysis?
Answer:
DCF Analysis site across the last three methodologies and is probably the most comprehensive of appraisal techniques. Potential profits and cash flow need to be assessed carefully and then restated to present value through the use of discount rates or rates. DCF mathematical modeling allows for the fact that 1 Euro in your pocket today is worth more than 1 Euro next year or 1 Euro the year after. The time value of money is calculated by adjusting expected future returns to today’s monetary values using a discount rate. The discount rate to be applied to the cashflows can be derived from a number of different models including:

  • common sense,
  • build-up method,
  • dividend growth models, and
  • the capital asset pricing model utilizing a weighted average cost of capital.

Example:
In discounted cash flow model, it would not be correct to drive out cash flows for the entire legal length of copyright protection, which may be 70 plus years, when a valuation concerns computer software with only a short economic life span of 1 to 2 years. In short, when undertaking a valuation using the discounted cash flow modeling, the value should never project longer than what is realistic by testing against the major lives i.e. physical functional, technological, economic, and legal.

Question 12.
What does the term ‘technology’ mean? What are the factors to be considered while defining the technology in the licensing agreement?
Answer:
Technology is a complex concept. As per the UNIDO Guidelines paper, “Technology or know-how denotes the sum knowledge, experience, and skills necessary for manufacturing a product or products and for establishing an enterprise for this purpose”.Technology is viewed as any systematic or practical knowledge or skills used for:

  • manufacture of products or application of processes;
  • commercial or management purpose in the industry; and
  • the achievement of any desired result, be it industry or social areas of life.

Transfer of technology is a complex phenomenon necessarily involving rights, obligations, privileges, and commitments of the parties to the transaction. The basic legal document is the Licence Agreement for the transfer of technology. A License Agreement is a formal instrument that serves several purposes. The license may be granted for IP that is necessary to further develop, reproduce, make, use, market, and sell products based on the technology to be transferred. The terms and conditions of a licensing agreement determine the success of the technology transfer. Therefore, while formulating the licensing agreement, the parties involved should define the technology to be transferred without any ambiguity. The factors to be considered while defining the technology in the licensing agreement include:

  • Type of the technology i.e. product, process, facility, software, formula, etc;
  • need for additional license for practicing the technology;
  • industrial standards or specifications associated with the technology; and
  • details required to practice techniques. Other factors that need to be considered for a successful technology licensing are:

1. owner/s of the technology;
2. nature of ownership;
3. other IPRs such as trademark, copyright, trade secret, etc. associated with the technology;
4. nature of technology;
5. scope of rights expected from the technology license;
6. technology and industry in which the technology can be utilized; and
7. terms and value of royalty etc.

Question 13.
What does intellectual property audit mean? What are the types of intellectual property audits?
Answer:
(1) IP audit is a systematic review of the IP owned, used, or acquired by a business so as to assess and manage risk, remedy problems and implement best practices of IP asset management.

(2) IP audit involves undertaking a comprehensive review of a company’s IP assets, related agreement, relevant policies, and compliance procedures.

(3) An IP audit helps a business to make an inventory of its IP assets or update it and analyze:

  • How the IP assets are used or unused.
  • Whether the IP assets used by the business are owned by the company or by others.
  • Whether these IP assets are infringing the rights of others or others are infringing on these rights.
  • Determine in the light of all this information, what actions are required to be taken with respect to each IP asset, or a portfolio of such assets, to serve the relevant business goals of the company.

(4) An IP audit seeks to uncover unused or underutilized assets, to identify any threats to a company’s bottom line, and to enable business managers to devise informed business and IP strategies that help maintain and improve its competitive position in the relevant market(s).

TYPES OF IP AUDIT There are 3 types of IP Audit:
(1) General purpose IP Audit:
(a) A general or broad IP audit is done in the following types of contexts:
(i) Before establishing a new company it is always important to a start-up company to be aware of intangible assets it owns or needs to protect.
(ii) When a business is considering implementing new policies, standards, or procedures relating to IP.
(iii) When a business is considering implementing a new marketing approach or direction or is planning a major reorganization of the company.
(iv) When a new person becomes responsible for IP management,

(b) Once a comprehensive IP audit has been undertaken, a smaller effort and expense is needed at regular intervals, such as on an annual basis so that IP assets are reviewed and appropriate decisions taken, depending on the current and emerging needs of a company.

(2) Event driver IP Audit:
It is generally much narrower in scope than a broad or general-purpose IP audit. Further, the nature and scope of such an audit is determined by the event in question, and the time and resources available for doing it. Event-driven IP audit is often called “IP due diligence” when done to assets, as objectively as possible, the value and risk of all or a part of a target company’s IP assets.

(3) Limited Purpose Focused Audits:

(a) A limited purpose audit is typically much narrower in scope than the other two types and is performed under much constrained time schedules. These audits tend to be situational in nature. They are typically used to justify a certain legal position or the valuation of a particular IP.

(b) A limited purpose-focused audit is done in the following types of contexts:

  • Personnel turnover;
  • Foreign IP filings;
  • Using the Internet for business purposes;
  • Significant changes in |P law and practice;
  • Cleanroom procedures;
  • Preparing for litigation.

Question 14.
Briefly list out the restrictive practices used in the intellectual property licensing agreements.
Answer:
Restrictive trade practices under the guise of intellectual property licensing can always be corrected by competition authorities. The restrictive practices mainly used in the intellectual property licensing agreements are as follows:

1. Restrictions after expiration of Industrial Property Rights or loss of secrecy of Technical know-how:
The expiration of the term of patent in an intellectual property licensing agreement signifies that the knowledge and invention are covered by such patent without any obligation. Where the supplier of the technology imposes any restriction after the expiration of the term of intellectual property rights. The problem may also arise when the secret know-how loses its secret character before the expiration of the agreement.

2. Restrictions after Expiration of arrangements:
This will generally oblige licenses to pay royalties, during the entire duration of the manufacture of a product or the application of the process involved, without specifying any time limit.

3. Restrictions on Research and Development:
Such restrictions generally involve limitations on the research and development policies and activities of the licensee. The restriction on research and development activities of licensee company has also been declared as restrictive practice under the UNGTAD Code.

4. Non-Competition Clauses:
It includes the restriction on freedom of licensee company to enter into arrangements to use or purchase the competing technologies or products not furnished or designated by the company supplying technology. Non-competition clauses which may have an indirect effect, oblige the licensee not to cooperate with competing enterprises or to pay higher royalties if it sells or manufactures competing products.

5. Export Restrictions:
It may include conditions restricting or prohibiting the export of products manufactured by the transferred technology. These conditions restrict the export of such products to certain markets or permission to export to certain markets and the requirement of previous permission for exports.

6. Price-Fining:
It involves the practices where the licensor reserves the right to fix the sale or resale price of the product manufactured by the imported. technology. This clause covers the price determined by the licensor on goods produced with the help of transferred technology.

7. Exclusive sales and representation arrangements:
Such practices prohibit the freedom of the licensee company not only to organize its own distribution system but also to prohibit the licensee company from entering into exclusive sales or representative contract with any third party, other than the licensor or a party designated by the licensor.

CS Professional Intellectual Property Rights Laws and Practices Notes