14 March 2023

IP audits: What? When? and Why?

You have decided to perform an IP Audit. Maybe you have received a grant from the UK Intellectual Property Office to assist with the cost. What do you expect to achieve with the Audit? How can you get the best out of the process?

IP Audits are often generated by early stage companies. However, companies at all stages of development can benefit from an IP audit. For example, established companies with extensive IP portfolios should take the time to consider the strengths and weaknesses of their IP portfolio and their IP strategy.

An IP Audit should be a focused piece of work that takes an overall look at the current and future IP position of the business and seeks to come to some conclusions. To this end, IP audits do not generally cover:

  • Preparing and filing applications for patents, trade marks, designs or other registered rights.
  • Conducting significant searching and analysis, for example patent landscapes or freedom-to-operate (FTO) work.


UKIPO IP Audits Plus Programme

The UK Intellectual Property Office (UKIPO) offers an IP Audits Plus Programme which is aimed at small to medium sized companies. To apply for an audit, you must be an:

  • SME (fewer than 250 employees and turnover of not more than £41m;
  • Be able to demonstrate in your application that the IP audit will form a key part of achieving your business growth plans;
  • Engaged with one of the IPO partner business support schemes.

If your company meets these criteria and one of the UKIPO’s recognised partners (i.e. Innovate UK, Scottish Enterprise, Highlands and Island Enterprises, or the Welsh Government) approves your application, you can receive up to £2,500 to go towards the cost of an IP Audit, which needs to be carried out by a UK-based IP professional (e.g. a Chartered UK Patent or Trade Mark Attorney). The total cost of the IP audit is £3,000 (VAT inclusive) of which £2.5k is paid by the UKIPO and £500 including VAT is the client contribution.

If you feel an IP audit would be of benefit to your business to help achieve its commercial objectives, let us know and we can provide initial advice and then put you in contact with one of the UKIPO’s recognised partners (e.g. Innovate UK). One of their Innovation Managers will discuss your situation and advise whether your company would be suitable to apply for an IP Audit

If you are advised to proceed, you will then need to complete an application form – we are able to advise and support you through this process. Once completed, this form will be sent via your selected partner to the UKIPO on your behalf.

If you are approved for the scheme, we can then undertake the IP Audit on your behalf. We have carried out numerous IP Audits and will provide you with a final report which you can use to help achieve your objectives.

There is also subsequent funding available (up to £5,000) to help implement the recommendations arising from the audit.

IP Assets

Documenting the registered IP assets of a business (such as patents, trade marks and registered designs) is generally a relatively easy process. However, many early stage companies do not have many registered IP rights; unregistered rights (such as copyright, unregistered trade marks, domain names and technical know-how) may be of more value. These are often poorly understood.

Many IP rights may not be recognised as such by the business. Accordingly, the process of simply documenting these rights can be useful. Moreover, some unregistered rights may still be registerable. An IP audit is a good opportunity to consider whether further registered rights (e.g. for branding, graphical user interfaces or inventions that have not yet been disclosed to the public) could be potentially valuable.

IP Ownership

An IP Audit should investigate whether the business actually owns the IP rights that have been generated. This is an area where many companies can make significant improvements.

IP rights flow from the activities of individuals. These individuals may be employees, in which case the rights often (but not always) pass to the business. But does the business own the IP for developments made by contractors, collaborators and customers? What about part-time employees? Do they have another employer who might claim ownership?

Long-established companies are not immune from ownership problems. For example, multi-nationals may have complex legal structures including many legal entities and many external collaborators.

Further, companies of all sizes, particularly in high tech areas, make extensive use of academics and PhD students for whom the ownership of IP can be more complex in the absence of a clear contract put in place before the start of a project.

Ownership of registered IP is often resolved before filing. However, ownership of unregistered IP may never be resolved. Trying to determine who owns the copyright in a piece of software written by a contractor who no longer has any involvement with the business can be close to impossible.

An IP Audit is an ideal time to take stock of agreements with all relevant parties to ensure that any IP rights that should have passed to the business have done so. For example, it is much better to discover you need a confirmatory assignment to perfect your title to an important IP right during an internal audit, than to find out for the first time when the issue is raised by a potential investor or acquirer during due diligence checks.

IP Risks

Documenting IP Assets may be the key part of the IP audit from the point-of-view of the business owners, but understanding IP risks may be the more important to existing and future investors.

Perhaps the key risk is whether the IP rights of others might be infringed – often referred to as “freedom-to-operate” (FTO).

The priority for early stage companies is often developing products/services and finding customers. Thus, FTO is often deferred to a later stage. This is often the correct approach. For example, during early development, a product specification can be somewhat fluid, and a freedom-to-operate analysis attempted too soon risks becoming irrelevant as the product develops. The balance between going too soon and potentially needing to redo such analysis closer to product launch, versus the risk of investing too much time and capital into a route which is unviable due to third party rights is often delicate, and may depend on the nature of the products concerned.

Even though undertaking FTO analysis would go beyond the scope of an IP audit, the report will often consider at what stage the business should consider undertaking FTO analysis, and the scale of costs likely to require budgeting for.

There are many other IP risks that a business might be exposed to. These might include: Can the business demonstrate when key software was developed? Does the use of open source software potentially dilute other IP rights? Is the IP portfolio sufficiently global to provide suitable protection from the point-of-view of an investor? Through discussion with an experienced IP professional, the threats that are most relevant to the particular business can be identified and considered as part of the audit.

An IP audit therefore represents an opportunity for the business to learn about (and mitigate against) threats, some of which the business may be unaware of. In many cases, the ability to identify and take action to mitigate against threats at an early stage may be the most valuable part of an IP audit.

Longer Term Strategy

The longer term strategy of the business will have an impact on the appropriate IP strategy for that business.

If the owners are seeking to exit the business and the IP portfolio is seen as a significant asset, then the costs involved with building a more extensive IP portfolio may be justified.

Alternatively, if the intention is to build and manage a business that sells products and services in the longer term, then trade mark protection and FTO analysis may be the key focus areas.

These and other strategy questions should be discussed as part of the IP audit in order to identify IP strategies that meet the longer term business strategy.

Identify Conclusions

The IP Audit should reach some conclusions. These may take the form of short-term, medium-term and long-term actions.

The short-term actions are likely to represent “quick wins” to address issues identified in the IP audit. Example short-term actions include ensuring that any IP rights are owned by the business.

Medium-term actions are issues that could be addressed in the relatively short-term, but are likely to be more difficult to implement, or require more thought that the “quick wins” referred to above. These might include filing additional registered IP rights, or developing mechanisms for recording copyright or mitigating open source risks. A medium-term action might also be to develop an IP strategy (which might often be a development of the IP Audit).

Longer term actions are typically related to the longer term plans for the business. For example, the longer term actions might be very different if the business strategy is to develop a proof of concept with a view to exiting the business at a relatively early stage, rather than if the owners intend to own and develop the business in the longer term.

The longer term actions may include the development of an IP portfolio in accordance with the IP strategy and the development of an understanding of the IP risks and potential mitigation measures. Longer term actions may also involve setting up internal procedures for capturing and assessing new IP generated by the business. For small companies and start-ups, the number of personnel may be limited, and it may be simple to keep track of how projects are developing. As the business grows, the risks of valuable IP slipping through the cracks grow commensurately. It is never too early to start thinking about putting in place internal procedures which aim to capture the IP being generated by your business. For example, disclosure templates or forms, employee incentive schemes to encourage staff to fill in the former, and so forth.

Since many of the topics covered in an IP audit may be highly confidential, many IP audits will include a client confidential appendix. The main report will be suitable to share with your other advisers, or even as a document to demonstrate to potential investors that your business is taking IP seriously.

However, you can rest assured that highly confidential company information can be kept secret as part of the process.

Final Thoughts

This article seeks to provide some thoughts on the what? when? and why? of IP Audits.

What? – The audit should identify what IP assets the business has developed and any associated ownership issues. The audit should also consider whether the IP assets of others might pose a threat and identify other IP issues that should be addressed.

When? – Obtaining registered IP rights can be an expensive process, but having an inadequate IP portfolio can be hinder a business. Similarly, freedom-to-operate analysis is expensive, but so are the costs of redesigns or rebranding exercises caused by the IP rights of others. Thus, when to take actions is an important consideration.

Why? – A good IP strategy should help a business to understand why actions need to be taken (and, equally, why sometimes they do not) and assist in the development of an IP strategy that supports the commercial activities of the company. The focus of IP audits is often on “what?”, but “why?” may be the most important question of all.

Contact us

We are experienced in carrying out IP audits at Venner Shipley. If you would like further advice regarding the IP audit process or the IP Audits Plus programme, contact Gary or Chris.