Contributed 11/30/99 by Linda_Worley-Fonner@cp.vesuvius.com INTELLECTUAL PROPERTY Control Objective: Intellectual property (IP) forms the basis of a company's knowledge and ideas for future products, processes and technologies. If IP assets are not adequately valued and protected, a company may find that these resources-and even its future products-are in jeopardy. 1. Be sure The Company has fail-sale programs to ensure that IP is protected on a timely basis. (There is a danger in waiting too long to file for patents. And when filing early for a patent, make sure that the product is "panning out." If the product is shelved or abandoned, auditors must see to it that costly patent procedures are also halted.) 2. Review The Company' plans to turn a patent, trademark or other form of IP protection into stronger assets. (Often this is done through licensing. Licensing a technology or product to another company in return for a fee turns a protected product into a profit center.) 3. To effectively evaluate IP, look at the "big picture". How does this new product, process or technology fit into The Company' overall plans? How important will it be to future income? 4. Is there some kind of document that specifies who owns a particular IP asset? 5. When involved in an acquisition or a joint venture, are there steps to ascertain if the IP of the acquisition or venture partner is involved in a lawsuit brought by a competitor? Does someone ask if any of the other company's researchers ever worked for a competitor? (This may help avoid IP lawsuits in the future). 6. Does The Company have a system that measures intellectual capital and property and "takes fairly extensive steps" to protect it? (When knowledge is the chief resource that drives The Company and produces its results, there must be more than an accounting system that simply measures the cost of material, labor and tangible assets and liabilities.) 7. Understand the connection between the IP and the product line of The Company. 8. Is there a methodology for protecting the most important items first and the least last? 9. What is the IP to be protected? 10. What role does the IP play within the business? 11. What is The Company' policy toward its own IP? 12. From a listing of all products, determine where a product is in the development cycle-a hypothesis, an actual plan, underway or finished. 13. Select a sample, and determine the following: - Has trademark work been done? - Has a committee or person given it a name that would be protected? - Was a search performed in order to find out if any other company has trademarked similar research or the name? 14. Are there procedures in place that list the key people who originated the IP and what federal or state agencies might provide IP-related queries? (I.e., environmental issues, food and drug administration approval, etc.) 15. Are there steps to ensure that the researcher hasn't done similar research during employment with another company and that company doesn't have a claim? 16. Does the Company exploit licensing opportunities for patented products and technologies, making them "into a profit center"? (Even patents lose value. Very few patents have value at their expiration date, which in the U.S. is 20 years after the patent is granted. Sometimes the main use of a trademark is licensing opportunities. Hollywood is great at this. When a movie is transformed into related items sold at a toy store.) 17. Ensure expenses are not being paid for patents that didn't "pan out". Patents that didn't "pan out" should be abandoned. 18. Are there procedures to find out where else (in the world) the "invention" is made, used, or sold? If so, is the "invention" protected under those countries' laws as well? 19. How are laboratory notebooks issued, maintained, stored, and secured? (Laboratory notebooks are important for several reasons. In the US, if two applicants are seeking a patent on the same invention, the patent is not necessarily awarded to the one who filed first, but is sometimes instead awarded to the one who was the first to invent. Establishing priority of invention often depends on such documentation as laboratory notebooks. An inventor who fails to keep a laboratory notebook runs the risk of having difficulty establishing the date on which the invention was made and thus may lose out in a priority contest with another inventor.) 20. Out of the approximately XXX active patents, select a sample of more recent patents and patent applications in order to perform the following audit test steps: a. Verify that an Invention Disclosure Form has been fully completed. b. Ensure that the Invention Disclosure Form has been assigned a "docket number". c. Review comments from the Patent Committee regarding whether the Invention should be patented. d. Ensure a search with NERAC, Inc. and the US Patent and Trademark Office was conducted. e. Verify that the patent was filed in the appropriate countries. 21. Select the last 4 quarters of annuity payments in order to perform the following audit test steps: a. Determine that the quarterly report was prepared on a timely basis. b. Review the attached copies of the "abstract" to ensure proper and adequate documentation is attached for the Patent Committee's review. c. If the Patent Committee decided to abandon the patent, ensure payment was not made. 22. Determine whether a "Patent Award System" has been implemented. If so, how is the reward determined and paid out? 23. Review all maintenance and annuity payments that are charged to the Legal Departments budget to determine that they are appropriate. 24. Determine the impact if maintenance and annuity fees were inter-company charged to the appropriate product line. 25. Obtain a copy of the contract between outsource payment tracking device and The Company and review invoices to determine that proper charges are invoiced. ($XX per payment, foreign exchange rates, etc.) 26. If outside counsel is utilized, review invoices for reasonableness and the appropriate approval. 27. Ensure all documents for "acquired companies" have been incorporated into the Company Legal Department.