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Resources > Articles > How to Conduct an Intellectual Property Audit


© 1998, Leslie J. Lott
Lott & Friedland, P.A.
Miami, Florida

I. Introduction [Slide 0]

In order to protect your company's or your client's intellectual property - you first must identify its intellectual property. And that is the subject of my discussion with you this morning. We are going to talk about how you go about identifying the intellectual property of a business; when should you consider conducting an intellectual property audit; who do you talk to; where do you look for intellectual property; and what are you looking for.

And I want to try to explore with you some less conventional ways of looking at intellectual property.

First of all WHEN do you think in terms of conducting an intellectual property audit?

A. When to conduct an intellectual property audit [Slide 1]

i. New responsibility for intellectual property

ii. Merger, acquisition, significant stock purchase

In the event of a significant corporate change, such as a merger, acquisition, or significant stock puchase, which will have an impact on the ownership of intellectual property.

iii. Transfer, assignment of interest in intellectual property

iv. License

In the event of an intellectual property license or licensing program. This is equally important whether your client is the licensor or the licensee.

If your client is the licensor, licensing its intellectual property to others, you want to be certain that your client actually owns the intellectual property that it is licensing to others and that there are no existing licenses that would interfere with the proposed new license.

If your client is the licensee, obtaining the intellectual property rights of another, you must determine that the scope and extent of the license to be obtained is adequate for your client's purposes.

v. Significant change in law

A significant change in the law, whether case law or statutory law might also trigger the need to re-evaluate the company's intellectual property.

For example, a recent change in statutory law occurred with the passage of the federal anti-dilution law, which significantly impacts the way we analyze the potential liability of our clients for infringement of the trademarks of others and will also affect our analysis of whether or not others are infringing our clients' rights.

An example of case law which might trigger the need for an intellectual property audit would be something like the Qualitex case which dealt with the protection of color as a trademark.

vi. Financial transactions involving intellectual property

Financial transactions involving intellectual property might include loans, public offerings, private placements...any transaction which directly involved intellectual property, or in which the intellectual property of the company is or could be significant.

vii. New program or policy of the client

Finally, you will want to conduct an intellectual property audit in connection with new programs or policies of your client such as an aggressive foreign filing program, new marketing approach or direction, expansion of a product line or services offered by the company, corporate reorganization, etc.

B. Purpose of audit [Slide 2]

i. I.P. owned by company - protection

ii. I.P. licensed to others - compliance

iii. I.P. licensed by company - compliance

iv. I.P. owned by others - avoiding infringement

v. Other contractual or legal obligations

C. What to look for [Slide 3]

i. Trademarks

ii. Trade dress

iii. Patents

iv. Trade Secrets

v. Copyrights

vi. Mask works

vii. Contracts

a. in effect

b. terminated/expired

viii. Internet issues

a. domain names

b. hyper links

c. metatags

When you examine those elements, you are looking for issues such as:


recordation of transfers

perfection of security interests

compliance with statutory formalities

infringement of third party rights

potential defenses to charges of infringement

and you are looking for property rights of your client which might be infringed by others.

D. Where to look [Slide 4]

i. Legal department

a. previous audits

Check first for previous audits, because you can use them as the framework to build your own information...remember though, that previous audits may not be called intellectual property audits, they might be found under another name and in another context including litigation, where an employee may have given an affidavit or in response to discovery, the company might have listed its intellectual property holdings.

In connection with a closing, there is frequently a schedule of intellectual property that is prepared.

A schedule of assets, including intellectual property, may have been prepared for financial reasons such as an offering or a UCC filing.

b. registrations

You want to know if there are any existing schedules of intellectual property, and be sure to look for hard copy and/or computerized schedules.

Don't forget to look for schedules of international holdings as well as U.S.-based intellectual property.

And of course you can search databases outside the company for trademarks, copyrights and patents held by the company. You can conduct registrant and assignee searches and patentee searches, for example with the Copyright Office and with the U.S. Patent and Trademark Office and with other governmental offices.

c. contracts

You want to examine contracts - particularly employee agreements which may require employees to turn over inventions or copyrightable matter or which require employees to safeguard trade secrets and not to compete with the employer's business after termination of his employment.

You want to look not only at licenses and assignments of intellectual property, but also at settlement agreements and financing agreements. And you want to look particularly for covenants that survive termination.

These are obviously the first places to look, but do not stop there.

ii. Outside counsel

Go to outside counsel - speak with corporate counsel, litigation counsel, attorneys who may have assisted in mergers and acquisitions.

Speak with counsel who formerly represented companies that have since been acquired or who once had the responsibility for some aspect of the company's intellectual property but who no longer have such responsibility.

iii. Marketing people/brand managers

a. current and proposed products

Examine product catalogs, annual reports, product brochures, press releases and conduct computer database searches such as DIALOG or NEXIS searches.

b. unregistered marks

c. slogans

Many times slogans or tag lines are developed by marketing and advertising people, who do not realize that the slogans can serve as trademarks. Ask about advertising slogans or tag lines that have been used, and have come to be recognized over time.

iv. People responsible for web sites

a. material drawn from other sources

You must identify materials that are drawn from other sources, and be certain that these materials are either public domain, or that all necessary consents and releases have been obtained.

b. information available

Carefully screen all company information that is being made available on the web site, to be certain that there is no sensitive or confidential information included.

c. hyper-links

(On a web site, where another site is referenced, and just by clicking on the reference or the icon, the user is taken directly to the other site)

d. metatags

(When key words are buried in the software so that they are not shown on the screen, but do show up in a search so that when someone searches for key words they are directed to this web site)

You are also looking for things such as hyper-links and metatags, to be certain that your company is not infringing nor infringed by them.

v. MIS managers

With MIS managers, you want to be sure the information coming into the company is either public domain or that appropriate licenses have been obtained, and with information leaving the company you must be certain that it is not either trade secret or otherwise sensitive information, or that appropriate safeguards are in place to protect the information.

With MIS managers, you should also check to be certain that all copies of software used by the company are authorized. You must be certain that the company is not making revisions or duplications of software that is restricted.

vi. Sales people

Sales people are frequently overlooked , but in many cases it is the sales staff that bridges the gap between the internal workings of the company and the public.

These are the people who get the direct customer feedback. What products are popular and what names and slogans are recognized.

vii. Research and development

a. understand current and pending R & D activities

viii. Personnel department

a. employment contracts - check state law

b. duty to assign

c. trade secret protection

ix. Designers

Check with both product designers and graphic designers.

x. Principal competitors and competitive products

You will want to familiarize yourself with principal competitors and competitive products.

This is to be certain that the company is not infringing the intellectual property rights of others, and to be certain that competitors are not copying products, advertising, trade dress, trademarks or utilizing trade secrets that are proprietary to the company.

II. Trademarks

I would like to focus now on the specific types of intellectual property and discuss in more detail the mechanics of conducting an intellectual property audit in respect of each of them. First...trademarks:

A. Registered trademarks [Slide 5]

You will examine the company's trademark applications and registrations in the United States, in the individual states and in foreign countries.

i. U.S. registrations/ applications

ii. State registrations/applications

iii. Non-U.S. registrations/applications

You will want to check to determine that the registrations and applications are accurate, that the identification of goods and services is correct and that the correct class, applicant and use date appear.

This sounds self evident, but it is so basic that it is frequently taken for granted and not confirmed. It is amazing how often you will find errors in the basic registration or application.

Errors occur particularly:

When different people have been responsible for the registrations in different countries, rather than having one centralized trademark registration program;

When local distributors have each been responsible for obtaining their own home country registration; and

When marks are acquired from other companies. The marks are then used in accordance with the acquiring company's plans and products, which frequently vary from that of the original company.

We find in many cases where marks have been acquired, that there has been a simple failure to record the transfer to the new company.

So it is important to check and confirm the details of existing applications and registrations worldwide.

iv. Treaties - priority based on previous filings

In cases where trademark applications have been filed within the previous 6 months, determine whether the marks may have importance to the company in overseas markets, you may want to suggest appropriate foreign filings claiming treaty priority.

Look also at pending applications which are based on treaty priority to be sure the priority is accurately claimed.

iv. Assigned marks

Pay particular attention to registrations and applications which have been assigned by others, not only for accuracy and so forth, which we just discussed, but also, you will want to examine assigned marks to be sure that they adequately cover the current and projected marketing plans of the acquiring company.

v. Maintenance requirements

a. use

b. fees

c. renewals

When you examine current registrations and applications, you will also want to be certain that the necessary steps have been taken to maintain the registrations.

There are requirements for use. Registrations can be lost after non-use for a period of time, generally 2 to 5 years, depending upon the country. (U.S. Lanham Act - non-use for 3 years is prima facie evidence of abandonment, definition section, § 1125 of statute)

Some countries require the payment of periodic fees to keep registrations in effect.

Of course, in the United States, trademark registrations are canceled under Section 8 of the Lanham Act unless an affidavit of continued use is filed between the 5th and 6th year of registration.

And all registrations have expiration dates.

B. Common law trademarks [Slide 6]

You need to look also at common law trademarks. Of course, these are only an issue in the United States and in other countries which derived their trademark law from the English Common Law. Common law trademarks are valid marks which the company has adopted and used, but which are not yet registered.

The trick here is to discover what the common law trademarks are, and to evaluate and recommend whether and where steps should be taken to register these marks.

To find common law trademarks, you need to be really creative. The law has consistently expanded over the years to take the Lanham Act quite literally and give the broadest construction to the definition of trademarks which appears at 15 U.S.C. § 1127:

...any word, name, symbol, or device, or any combination thereof...

1) used by a person, or

2) which a person has a bona fide intention to use in commerce...

to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods...even if that source is unknown.

So when you look for common law trademarks, you are looking for absolutely any feature that can serve to identify the source or origin of the products or services of your company, so long as it is not descriptive or functional.

i. New products

You are looking not only for product names, but also for product configurations, configurations of containers, trade dress, decorative elements, color of the products or of the packaging, color combinations, special script or typeface....all can serve as the trademarks for a company's products. Look critically at any feature which may serve as an indication of origin of the product or service.

ii. Packaging

The same holds true for packaging. You are looking for any identifiable element of the packaging. (cannot be descriptive or functional).

iii. Advertising slogans/jingles

Advertising slogans or jingles can be valid trademarks, but they are often not appreciated, especially when they are first developed. It is only with some use, that you see what the public will respond to and remember.

Take a close look at advertising slogans that have been in use for a little while, and examine with the company, which of them may have become important enough to be worth registering.

iv. Icons, logos, graphics

Look at icons, logos, graphics, design, mascots, crests, shields...any sort of graphic elements in the company's packaging, advertising or promotional materials.

Do they serve to identify the company's goods and/or services, have they become important enough to the company, or are they potentially important enough to justify registration.

v. Sound, scent, color

Elements such as sound, scent and color have been held to be registrable in the United States as trademarks.

For example, the three chimes that identify the NBC television network are registered as a trademark, and Harley Davidson is currently attempting to register the sound of its motorcycle engine.

Scent can also serve a trademark function. The TTAB decided in 1990 that the scent of a brand of embrioderd thread was registrable as a trademark, because scent is not normally a feature of embroidery thread, and serves no function in the process of embroidery. In re Clarke, 17 USPQ2d 1238 (TTAB 1990).

Writers have speculated that, now that scents are registrable, flavors cannot be far behind.

In 1985, the CAFC held for the first time that the color of a product in and of itself, could be registrable as a trademark. This was the case of Owens-Corning's pink fiberglass insulation, which was widely advertised using the Pink Panther cartoon character and music. In re Owens-Corning Fiberglass Corp., 774 F.2d 1116, 227 USPQ 417 (Fed. Cir. 1985), but, with the exception of the 8th Circuit, the other circuit courts declined to follow the CAFC, and held to the traditional rule that color of a product could not be registered under the color depletion rule (which says that there are not enough colors to go around) and the principle of shade confusion (which says it will be impossible to determine how close one color is to another).

Ten years later, however, in 1995, the Supreme Court addressed the issue in the Qualitex case, and resolved the split among the circuits in favor of product color registration in appropriate circumstances. Qualitex Co. v. Jacobson Prods. Co., 115 S.Ct. 1300, 34 USPQ2d 1161 (1995). The Supreme Court allowed the registration of a gold/green color for a dry cleaning pressing pad.

vi. Building designs [Pollo Tropical slide 7, Reg, slide 8]

Unusual or unique building designs can serve as indicators of origin, and a great number of them have been registered as trademarks over the years, from Howard Johnson's orange colored roof, to Pollo Tropical's building design, which our firm registered as a trademark for the client.

vii. Customer nicknames

Some of the greatest trademarks have come from nicknames given to products by customers. I believe that this is how the "COKE" nickname for COCA-COLA became a trademark of the Coca-Cola company.

We have a client in Miami, Farm Stores, which is a chain of drive-in convenience stores. They carry primarily groceries and especially dairy products such as milk, cheese and ice cream.

[La Vaquita, Slide 9)

The Farm Stores signs all include a picture of a black and white cow. Spanish-speaking people in Miami, have for years referred to Farm Stores as "La Vaquita"...the "little cow".

Personally, I think this is one of the highest compliments that can be paid to a company, to be liked enough by its customers to have been given a nickname.

viii. Domain names

ix. 800 numbers

x. Evaluate for possible infringement

xi. Evaluate for registration

C. Unregistered trademarks (non-common law countries) [Slide 10]

In civil code countries, and other non-common law countries, such as Central and South America, most of Europe, and the Far East, there is no concept of common law rights. A mark is either registered, and therefore protected, or it is unregistered and therefore available for anyone to use.

In these countries, it is particularly critical to be certain to register every trademark and service mark that is of importance to the company. If you do not register your trademarks in these countries, another can and the person or company who registers the mark owns the mark and can prevent your company's use and import of goods into the country.

i. New products

ii. Packaging

iii. Advertising slogans/jingles

iv. Icons, logos, graphics

v. Sound, scent, color

vi. Building designs

vii. Customer nicknames - names locally used

viii. Domain names

ix. Fictitious names

x. Licensees/distributors

xi. Domain names

xii. Fictitious names

D. Trademarks licensed by third party owners [Slide 11]

You will also want to look at trademarks that your has licensed from third parties. When your company is the licensee, you want to:

i. Identify licensed trademarks

Identify the licensed trademarks and determine that they are still valid and that the necessary registrations are in force.

ii. Analyze for terms, expiration, requirements

a. quality control

Be certain you are in compliance with quality control provisions.

b. inspections

There may be a requirement that products be sent for inspection

c. provisions that survive termination

You want to look especially closely at provisions that survive termination or expiration of the license, because otherwise, after the expiration date, the likely assumption will be that the license terms can be disregarded. This may not be the case.

d. geographic limitations, other restrictions

Be sure to look also at geographic limitations and other restrictions in license agreements so that you can determine that the scope of the license is broad enough to meet the present needs of the company.

iii. Examine and docket, dates, notice requirements

For example, many licenses provide for automatic renewal unless there is a notice of termination within a certain period, or they provide for automatic termination unless there is notification of renewal...in either event, those dates need to be docketed.

iv. Analyze for validity

Be sure that the license has been recorded with all necessary government authorities.

E. Trademarks licensed to third parties [Slide 12]

When your company is the licensor, a similar analysis is made:

i. Identify licensed trademarks

Identify what trademarks are involved and make certain that trademark licenses are not inconsistent.

ii. Analyze for terms, expiration, requirements

a. quality control

b. inspections

c. provisions that survive termination

d. geographic limitations, other restrictions

iii. Examine and docket, dates, notice requirements

iv. Examine and enforce quality control provisions

III. Trade dress [Slide 13]

As we have discussed, if trade dress can be shown to indicate origin, it may be registrable as a trademark, but even absent trademark registration, trade dress may be protected if you can demonstrate that it is:

A. Unique; distinctive; indicator of origin; non-functional

unique; distinctive or indicator of origin (in other words, has secondary meaning); and is non-functional

B. Where to look [ Slide 14]

i. Packaging

Product packaging is the traditional trade dress, and is still the most common form of trade dress. Distinctive packaging might include, for example, the graphic design and color combination that you see on the Campbell's soup can.

ii. Product configuration

But trade dress can also include product configuration

iii. Point of sale displays

iv. Restaurant decor

Restaurants such as Fuddruckers which have distinctive interiors, have been allowed to protect their distinctive features against competitors. The Supreme Court, in the Dos Pesos case recently reaffirmed that distinctive trade dress is protectable and also established that for inherently distinctive trade dress, it is not necessary to prove secondary meaning.

v. Store layout

vi. Building design

To find these elements, again, you want to speak with:

vii. Graphic designers, art department

viii. Marketing people/brand managers

ix. People responsible for web sites

On the web sites, you will want to ask about features of the web site, such as graphics, distinctive colors, sounds, layout, etc. which might be distinctive and recognizable.

x. Sales people

xi. Product designers

Check with new product designers about projects they are working on

When you look at trade dress, you are looking for several different things:

First, you are looking to see what may be registrable and to discuss with the client which items might warrant registration.

Secondly, you want to call to the client's attention protectable trade dress elements, that the client might not have recognized

And finally, you want to be aware of and make the client aware of the trade dress of others, to avoid inadvertent infringement of the rights of others, and to be certain the client's trade dress is not being unfairly infringed by competitors.

C. Competitors, competitive products

i. Packaging

ii. Product configuration

iii. Point of sale displays

iv. Restaurant decor

v. Store layout

vi. Building design

Turning now to Patents:

IV. Patents [Slide 15]

A. Issued patents

Oddly enough, patents are much easier to locate than trademarks or trade dress. That is because there are no common law rights in inventions. There is either an issued patent or there is not, and to find issued patents, you conduct patentee and assignee index searches:

i. U.S.

Once you have located or prepared a schedule of issued U.S. patents, you want to carefully examine them for validity and enforceability.

a. validity

When you analyze validity, keep in mink that only the actual inventor can file for a patent. All co-inventors must be named. If there was known prior art, it must be identified to the United States Patent and Trademark Office during the application process. The information contained in the patent application must be correct.

If you find problems in any of these areas, many of the problems can be corrected by requesting re-issue of the patent. The re-issue can, for example, correct a defect in the name of the inventor.

If you discover potentially fatal defects, such as prior art that should have been cited by the Examiner, they can possibly be cured by requesting re-examination. The flaws are identified to the Patent and Trademark Office, and the patent is re-examined in light of the new information. The downside is, of course, that the patent may not survive, but it it does survive re-examinaiton, you can be far more confident of its validity.

b. misuse of patent

Check for misuse of the patent. This can occur in an anti-trust sense, when a patent is used to set up an unlawful tying arrangement. It can occur when a patent number is knowingly placed on the wrong product, or when a product is knowingly falsely marked with a patent number.

Misuses of patents such as these, generally arise as defenses to an action for patent infringement. Misuse of patent can be used successfully to preclude the enforcement of an otherwise valid patent.

c. marking

Under the U.S. patent statute, a patent holder is entitled to recover damages only for infringement that occurs after actual notice of the patent holder's rights. UNLESS all patented products have been marked with the patent number.

In patent cases, attorneys' fees are generally awarded only in cases of willful infringement. Marking the pateted product with the patent notice also makes it much easier to demonstrate that infringement was willful, for purposes of recovering attorneys' fees.

Be certain that your client's patented products are marked with the appropriate patent number or numbers.

ii. Non-U.S.

You will also want to look at foreign filings. In addition to patents, foreign countries also recognize other forms of patent-type protection.

a. utility models

Many countries provide for the registration of utility models.

b. design registrations

or for the registration of industrial designs. These are very similar to design patents in the United States.

iii. Periodic fees

a. lists and copies of maintenance fee records

Virtually all types of patent and design registrations, whether U.S. or foreign, have some sort of periodic payment requirements to keep the patent in force.

In the United States, for example, utility patents are subject to maintenance fees after 3 1/2, 7 1/2, and 11 1/2 years from registration. In most foreign countries, annual payments, called annuities, are required.

Be certain first, that all required payments are up to date, and secondly, that the company has appropriate safeguards to be certain they are kept up to date.

This is most often done by computerized calendering systems or by law firms or by services that maintain such maintenance fee records for a number of different companies.

vi. Assigned patents

a. assignment index search to be certain assignments properly recorded

With assigned patents, we have many of the same problems with have with trademark assignments; new counsel, corporate acquisitions or divestitures, requirements that employees assign their new inventions and developments. All of these factors conspire against the orderly and systematic recordal of assigned patents.

When factors such as this appear, pay particular attention to patents. Go back and check recent acquisitions, lawsuits, the recent past history of the company, for potential problem areas.

b. inventor search of key employees for patents not assigned to company

We also suggest that you conduct a search for the names of key employees to be certain that all inventions that should have been assigned to the company under employee agreements have been assigned and the assignments recorded.

B. Pending applications [Slide 16]

Pending applications are more difficult to locate. They are maintained in secrecy by the U.S. Patent and Trademark Office, so the only way to find them is through the inventors, the people within the company with the authority for making decisions about filing patents, and, of course, outside counsel.

You should also be certain to speak with accounting or bookkeeping people. If all else fails, they should be able to tell you whether they are paying patent counsel for prosecution costs.

i. Rejections, objections, office actions, requirements

Once you locate patent applications, you need to examine the file histories for rejections, objections, office actions and requirements of the patent examiner.

ii. Discuss with inventors: improvements, CIPs, divisional applications

You will want to discuss with inventors, the likelihood of filing improvements or of filing Continuations in Part or divisional applications.

iii. Discuss foreign filings

You will also want to consider the advisability of foreign filings.

C. Unpatented inventions [Slide 17]

In respect of new developments of the company, you will want to consider and to discuss with your client:

i. Expanded scope of patentability

a. computer programs

b. biotech/organisms

c. methods, processes

ii. Products in development

With respect to new developments, be certain that appropriate records are kept.

a. record keeping

1. date of invention/conception

Among other things, it is important to adequately document the date of invention. The first to invent is generally entitled to patent the invention.

2. reduction to practice

It is also critical to document the steps involved in reduction to practice. Reduction to practice establishes priority of invention.

3. diligence requirement

There is a requirement that patent applications be diligently pursued. Delay in filing a patent application may defeat priority of inventorship.

b. disclosure/non-disclosure

Products that are under development should be maintained in absolute secrecy, at least until a patent application is on file. Any necessary disclosures should be made only under a written agreement to maintain confidentiality.

1. agreements

2. statutory bars

(a) U.S. - one year grace period

In the United States, a patent application must be filed within one year of the first public use or disclosure of the invention or of the first sale or offer of sale.

(b) many foreign countries -

absolute novelty

In most foreign countries, there is no grace period at all. A patent application must be filed before there is any disclosure.

c. Inventorship

It is important to maintain accurate records of inventorship.

1. must be correct for patent to be valid

The claim of inventorship must be accurate for the patent to be valid.

2. all those who contribute to what is claimed

Each person who contributed to the development of the invention, must be named as a co-inventor.

d. Duty to assign

Be sure that all co-inventors have a duty to assign the invention and/or patent to the company.

iii. Ancillary uses or functions

Explore whether any of the products in development may have ancillary or even unanticipated uses or functions.

It is amazing how many products were developed while their inventors were looking for something else, such as Scotchguard and Post-It Notes.

iv. Personnel requirements to assign inventions, discoveries or patents

v. Patentability searches and opinions of counsel

Examine any patentability searches and opinions of counsel in connection with products in development, to assist in your evaluation of the potential value to the company of these products.

D. Licensing [Slide 18]

i. License of company's patents to others

a. can license some or all of the bundle of rights

(manufacture, use, sale); can divide geographically

In connection with licenses of the company's patents to others, keep in mind that the company can license some or all of the bundle of rights associated with patents. Patent licenses can be limited to some specific aspects of manufacture, or use, or sale and can also be divided geographically so that the same rights are licenses to different licensees in different geographic areas.

You should counsel the company not to relinquish aspects of patent rights that are not really necessary to your licensee.

ii. License of another's patent by company

a. may need to get license to practice your own patent

In connection with your company's license of another's patent, remember that a patent is the right to exclude others from making, using, selling or importing the patented invention. It is not a guarantee that your practice of your own patent will not infringe the rights of another.

b. patent right is right to exclude, not to practice

For example, if the patent is on an improvement in an existing patented device. The patent holder may preclude others from making. using, selling or importing the improvement, but the holder of the patent on the underlying device still has the right to preclude making, using and selling the underlying device.

iii. Ancillary uses or functions

V. Trade Secrets [Slide 19]

A. Not generally known; developed through expenditure of time, effort; giving a competitive advantage; adequate steps to maintain secrecy

Trade secrets can be found in any information that is not generally known; that is developed by the company through the expenditure of time and effort; Trade secrets of a company must give the company a competitive advantage; and trade secrets can be protected only if the company takes adequate steps to maintain secrecy.

B. How to find them [Slide 20]

Most companies do not recognize many of their own trade secrets, so it is not likely to be enough just to ask. Again, you need to talk to the right people.

i. Talk to the right people

This would include:

a. marketing people

b. sales people

c. research and development

d. computer programmers/MIS managers

e. plant managers/supervisors

ii. Ask the right questions

And you have to ask the right questions. Do not ask "What trade secrets does the company have....

a. What would you not want your competitors to know?

Ask what you would not want your competitors to know. and why? Then examine whether the necessary elements of trade secrets are present. Where did the information come from? Is it known by others? Are there measures in place to protect its confidentiality?

Other key questions include:

b. Has any source code been disclosed outside the company?

c. Is any new product information, specifications sent out to vendors/customers?

d. Is there an employee who could hurt the company by leaving to go to a competitor? How could he/she hurt the company?

In each of these cases, be sure that appropriate confidentiality agreements are in place with third parties to protect trade secret information that must be released outside the company.

iii. Examine confidentiality/non-disclosure agreements

Be sure that appropriate confidentiality agreements are in place with third parties to protect trade secret information that must be released outside the company.

iv. Where to look [Slide 21]

Traditional trade secrets are customer lists, supplier or vendor lists, product ingredients and secret recipes, formulas or manufacturing processes that are unique to the company.

But to conduct a thorough audit of intellectual property, you should be looking at a number of other things which may be appropriate depending upon the particular company...such as:

CAD systems, product definitions, manufacturing processes, assembly processes, integrated circuit schematics, simulations, layouts and other design information, test programs, text fixture schematics, test results, market research, computer programs and related data bases

Once you have identified trade secrets, it is very important that you carefully asess the security procedures in place to protect them. Without adequate security, a court will not enforce a company's trade secrets regardless of their importance to the company.`

VI. Copyrights [Slide 22]

A. Copyrightable subject matter

In an evaluation of the copyrights of a company, look at all copyrightable subject matter. In the broadest terms..."any work of authorship that is fixed in a tangible medium of expression."

i. Artwork, decoration

This can include such items as artwork or decoration, whether on products, advertising, textual materials, in computer programs or on line.

ii. Photographs

iii. Computer programs

iv. Text

v. Audio/visual works

a. manuals

b. advertisements

c. promotional materials

d. trade show/customer presentations

e. web page

vi. Music

Whether written or sound recordings.

vii. Mask works

B. Work created in-house [Ownership Issues Slide 23]

You will want to look first at ownership issues.

i. In course and scope of employment

Copyrightable works that were created by employees of the company within teh course and scope of their employment are "works made for hire" within the meaning of the Copyright Act and are owned by the company.

ii. Beyond scope of employment

Works created by employees outside the course and scope of their employment or works created by third parties outside the company, such as consultants or other independent contractors, are considered works for hire and therefore owned by the company only if they fall within the strict constraints of the Copyright Act, 17 U.S.C. § 101

C. Work for hire

i. Limited definition

They must be:

Specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audio-visual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas....

IF the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

So works made for hire must be subject to a written agreement that they are to be considered a work made for hire. Some courts have interpreted this to mean that the agreement must be made prior to creation of the work.

ii. Assignment

If there is any doubt or question whatsoever, the only safe course is to be certain that any works created by anyone other than an employee within the course and scope of employment should be assigned to the company.

VII. Contracts [Slide 24]

Finally, you will want to examine all contracts and agreements which could affect the company's intellectual property rights.

We have discussed many of these issues in other contexts, but just to summarize:

A. Intellectual property owned by others

i. Licenses

ii. Assignments

B. Intellectual property owned by company

i. Licenses

ii. Assignment

C. Personnel agreements

i. Duty to assign

ii. Duty to maintain trade secrets

iii. Non-complete

D. Other agreements [Slide 25]

Other kinds of agreements which could have a significant impact on the company's intellectual property will include:

i. Technology agreements

ii. Development agreements

iii. Settlement agreements

iv. Franchise agreements

v. Royalty agreements

vi. Marketing agreements

vii. Distribution/Distributorship agreements

viii. Sales representative agreements

E. I.P. Specific Agreements

i. Design, development, acquisition, manufacture, programming, enhancement, marketing or maintenance of I.P. [including unpatented designs, styles, know-how or technical assistance]

Pay particular attention to agreements directly relating to intellectual property such as agreements for the design, development, acquisiton, manufacture, programming, enhancement, marketing or maintenance of I.P.

ii. Consulting or management agreements

and consulting or management agreements relating to any aspect of intellectual property.

Within each of these agreements, pay particularly close attention to:

F. What to look for [Slide 26]

i. I.P. provisions

ii. Representations and warranties

iii. Quality control

iv. Restrictions on use, marketing, geographic area, etc.

v. Marking, advertising requirements

vi. Provisions surviving expiration/termination

vii. Duty to assign, to maintain trade secrets, non-compete

G. Encumbrances [Slide 27]

You will also want to be alert to any encumbrances on intellectual property that may appear in agreements. Encumbrances are most likely to be found in:

. Security agreements, financing statements, title retention agreements, other documents creating a lien, security interest, encumbrance or similar interest

ii. Agreements restricting transfer, sale, exchange or other disposition of I.P. of company

iii. Covenants not to compete

a. company

These will include direct covenants of the company not to compete, but might also include covenants that its...

b. officers, directors

c. employees, agents

...officers, directors, employees, or agents may have made with their former employers which could restrict their activities or the duties they are able to perform for the company.

This analysis should also include checking for covenants not to compete with the company that should be required of certain key people within the company.

iv. Agreements to assign inventions, discoveries or I.P. rights

You want to look for any agreements to assign inventions, discoveries or I.P. rights...

a. company

...and keep in mind, this is not just a question of obligations of others to assign intellectual property rights to the company, but also there could be obligations of the company to assign intellectual property rights to others.

This kind of situation arises fairly often when a consulting company is hired to assist with engineering, product development, software development, writing or editing or other activities that are integral to the ongoing business activities of the hiring company.

. officers, directors

c. employees, agents

...officers, directors, employees, agents, may also have obligations to assign intellectual property to the company.

. Options, rights of first refusal, other commitments granting right, title or interest in I.P.

vi. Indemnification/covenant not to sue

vii. Settlement agreements related to any I.P. case

So...we have covered a great deal of ground, but the field of intellectual property covers a lot of ground...and if I may leave you with one thought, it is this:

The scope of intellectual property definitions and intellectual property protecton is expanding all of the time. Stay open to new ideas, be aware of new developments and be creative in the way you look at intellectual property and in the way you look for intellectual property.