PHASE 1: MANAGING THE IP AUDIT

Phase 1: Structural Familiarization of Company Assets and IP in the IP Audit

The Structural Familiarization phase is the first phase, where the auditor gets to know the realities of the gaming business of corporation audited well enough to do a meaningful audit. Here it is useful to create an architectural model somewhat related to the architecture of the corporation's business entities, showing where IP rights are generated, where they are owned, where they are used, and the agreements between the subsidiaries and the parent company which pass the rights back and forth. It is not uncommon to find gaps in the agreements passing the rights around the corporation. While it is often not difficult to create the needed agreements to fill the gaps, it can be embarrassing or worse if those agreements are not in place at the time of a tax audit by foreign tax authorities or at the time a law suit has been brought in the name of a subsidiary which does not have the formal right to bring the action. Moreover, some agreements may have to be registered with local authorities to be valid or enforceable, particularly where there are tax or royalty implications.  It, therefore, pays to become familiar, at the outset, with the corporate structure of the corporation being audited. If there are foreign subsidiaries, it is necessary to determine what each does and in what countries. It may be of particular concern to determine whether R&D work is being done in a country, such as Germany, with inalienable inventors rights attaching to the work product of such inventors. 

It is also useful to become familiar with the competitive environment of the gaming industry in general. This competitive environment is one of the driving forces in the creation and use of IP rights and it is impossible to properly audit an IP rights program without taking into account the fundamental forces which motivate the behaviors which affect the rights obtained and how they are used. For example, some corporations may be in industries in which the competitive environment compels avoidance of competitors' patents because licenses cannot be expected to be available on reasonable terms and injunctive relief may be a remedy that plays heavily in the competitive equation. Alternatively, the industry may be one in which cross-licensing is the norm and a "live and let live" attitude prevails.  Finally, in this phase, it is particularly important in an audit to become familiar with the corporate structures for dealing with IP by type, i.e., who has current responsibility for doing what with regard to patents, trademarks, etc? Also, the responsibilities for dealing with IP by function should be learned, i.e., who determines on what inventions to file patent applications and which to maintain as trade secrets and who has responsibility to detect infringements? Similarly, who decides what confidential information can be accepted and on what terms from outsiders, how that information will be tracked internally, and what internal information may be revealed? 

The inquiry should not be limited to the most obvious people, e.g., the members of the law department, but should extend to others in engineering and marketing, even sales, purchasing and general management who may have responsibilities. There are many inquiries to be made in this area and the responses will determine some of the people with whom conversations must be held during the remainder of the audit. Moreover, this process may turn up whole areas of IP responsibility which are in no one's job description, explicitly, and get handled, if at all, on a catch as catch can basis. Even where all aspects of IP management are clearly assigned to someone, part of the outcome of the audit may be recommendations (or simply realizations) that the assignment of responsibilities needs adjustment.  While the audit may lead to suggestions for changes in responsibility assignments, it may also lead to recommendations for training programs and improved internal processes for easing the burden of some responsibilities of, as well as motivating, those who do not see IP as their principal responsibility. 

This set of inquiries will reveal much of the corporate culture of the audited gaming corporation regarding IP assets and the recommendations which result will have to take that culture into account. A knowledge of the corporate culture will affect everything else that occurs in the audit. In an improvement audit, recommendations which fly in the face of the corporate culture will be less likely to effect a beneficial change than those fashioned to meld with that culture. 

At the conclusion of Phase I, the extent and scope of the audit should have been determined reasonably well and various approaches to proceeding are possible, depending on the speed with which the audit is to be conducted. Certainly, the internal staff should begin to collect the documents that will be reviewed during the course of the audit. Whether they are collected all at once or progressively as needed throughout the audit is a choice to be made based upon available internal resources. The documents to gather will be apparent and they are not enumerated here. 

Intellectual Property Portfolio Attorneys

Our Dallas intellectual property portfolio  attorneys specialize in the area of law protecting the property rights of inventors and we can assist you in analyzing your patent portfolio.  We work with you to developed and maximize your IP portfolio and, once developed, assist you in monitoring your portfolio such that your goals remain met now and into the future.