Legal Audit Of Intellectual Property

This article focuses on the intangible assets of an enterprise, the ones which are termed as Intellectual Property. This article attempts to look into the importance of intellectual property, the management and protection of the same, why legal audits are necessary and how they are carried about and lastly draws comparatives as to where India stands with respect to international intellectual property conventions.
Estimated Reading Time: 10 minutes

Introduction

Intellectual Property, a factor which had been overlooked for a considerate amount of time, is now on the rise and is now gaining ground in companies as people have begun to understand its importance. An enterprise usually has two forms of assets: 

  1. Tangible (Physical Assets):  Land, Machinery and as such
  2. Intangible Assets: Copyrights, Patents and Trademarks (and others)

Copyrights: According to Section 14 of the Copyright Act of 1957, it is an exclusive right to the tangible expression of an idea such as a book, painting, music etc. (except subjections mentioned in the Copyright Act of 1957). These rights are protected by copyright for at least a minimum of 50 years post the death of the copyright owner; pushing the objective of promoting and awarding creative expressions of thought.

Patents: Patents are the rights to prohibit the use or selling of an entity for a stipulated amount of time. Patents play an important role with respect to inventions, as they safeguard the invention and protect its products and designs. Patents are governed by the Patents Act 1970.

Trademarks: As mentioned in Section 2(zb) of the Trademark Act 1999, a trademark protects the logo or a unique mark of a product or company for a stipulated amount of time. In its essence, it is Intellectual Property rights which are given to an owner by someone of authority (sovereign) after having a thorough check of its authenticity.

Trade Secrets:  Even though this is not mutually agreed on, trade secrets are commercially valuable and are not available for anyone and everyone to access. In India, there is no law specifically for trade secrets but is maintained by the Supreme Court through general principles of confidentiality and equity. The reason why they are conflicted to be a part of intellectual property is because they are not publicly published, and the 1989 General Agreements on Tariffs and Trade even categorized them as not intellectual property. For this Article, trade secrets will be mentioned, but the author does not take a stand on this conflict. 

Importance

Intellectual property holds a major significance, and enterprises should be aware of these rights. Intellectual Property rights give credibility to ideas and innovations, which in turn can be monetized and these rights award you exclusivity to the same. An enterprise can tap into unknown potentials with copyright and patent, which will in turn help the market growth of the enterprise itself. 

The importance of a brand logo or a brand mark makes the company/enterprise stand out from the others, and the authenticity of the mark remains with the trademark owner, hence giving them an edge over all those who may or may not have similar looking logos. Apart from this, when an enterprise identifies itself with a logo, they become easier to recognize for the consumers, hence promoting their brand and leading to growth.

A major reason why being aware of intellectual property rights is important, is that the risk of being duplicated always remains. When the enterprise or the individual files for copyright, patent or trademark, the risk of the duplicated product gaining more popularity theoretically reduces, due to the legal ownership which lays with the original owner. 

The importance of intellectual property hence boils down to competition in the market. The enterprise has its own identity, which makes their standing in the market stronger. It is important to safeguard ideas and original products in a market full of competition, and these rights give an enterprise the ability to do so. 

Intellectual Property comes with its benefits, but it is necessary to keep in mind that it also has a long-drawn process with it, to generally safeguard the interests of those who genuinely want to enjoy the items and to find balance in the system; hence they come with their own limitations and drawbacks. 

Intellectual Property in India

In India, Intellectual Property does not have one legislation to cover all aspects of it, but has multiple acts to do the same. India, having signed the Trade-Related Intellectual Property Systems (hereafter, TRIPS) Agreement, follows the general guidelines laid down by the World Trade Organization. The TRIPS Agreement mainly deals with the role and importance of Intellectual Property and lays down the principles which are to be followed for the operation of these Intellectual Property rights, on both an international level and at national levels, respectively. 

India has the Designs Act 2000 (previously known as the Designs Act 1911), the Trade Marks Act 1999, the Patent Act 1970 (amended in 2005), the Copyright Act 2001 (previously known as the Copyright Act 1957 and was amended in 2012); it also has Acts to lay down Geographical Indications such as the Geographical Indications of Goods (Registration and Protection) Act 1999 and the Protection of Plant Varieties and Farmer’s Rights Act, 2001

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The laws pertaining to Intellectual Property came to importance in the 1990s, and have been strengthening since. It has been observed that Intellectual Property (as already mentioned above) is an important aspect of the market system and to have proper management and checks and balances to keep up with these rights is a necessary part for an enterprise, which is why Intellectual Property audits play a monitoring role in the system. 

Intellectual Property Audits

  • What is an Intellectual Property Audit?
  • An audit is a monitoring process of formal examination and verification of an enterprise or a product to understand its standing in the market pertaining to financial metrics. Audits are then followed by long detailed reports of the examination, which further help in deciding what out and ought to not be done for progressive growth. An Intellectual Property Audit is also similar, but as it is a growing field, most companies have a lot to discover with respect to their Intellectual Property. These audits help in understanding the potential of the Intellectual Property owned by the company and identify what could and could not be used under patents and trademarks, which in turn help their company standing. Intellectual Property Audits also assist in increasing revenue for the enterprise by identifying what technology can be used to increase partnerships and joint ventures. From the perspective of the company/enterprise, an Intellectual Property Audit helps in the following manner: 

i) a systemic assessment of the assets and proceedings to understand the ownership and protection of Intellectual Property

ii) a blueprint of how the future plans of the company should be and what are the steps that could be taken to maximize the profits

iii) identifying the threats and needed protections to safeguard the Intellectual Property

  • When should an Intellectual Property Audit be conducted? 
  • A question which a lot of companies/enterprises struggle with is that of “When is the correct time to conduct an audit?” Theoretically speaking, an audit can be called for at any given point, but it is beneficial to call for one in the times when:

a) an enterprise has an addition of an Intellectual Property Centric entity

b) an enterprise needs to make an assessment of their Intellectual Property assets

c) to frame further procedures and to discuss the plans to maximize the revenue from            these assets  

d) to enforce Intellectual Property rights or in the case where the rights are under threat

  • What are the kinds of Intellectual Property Audits? 
  • These audits can be of two forms, depending on what the enterprise needs at that point in time. Additionally, the enterprise may choose to have an internal or external audit, which is conducted by internal resources or third-party external resource persons respectively. The two forms of Intellectual Property audits are: 

i) General Purpose Audit: These audits are conducted in routine, for the regular check and assessment of the Intellectual Property assets. In another scenario, whenever there is a change in the laws which might affect these assets, a general-purpose audit is conducted.

ii) Special Purpose Audit: Audits of this kind are called upon whenever there is an addition or subtraction with respect to the Intellectual Property assets. For example, when an enterprise is planning to have an addition of a company with their own Intellectual Property assets and need to assess their own, or when the plan which is going to be carried out for the purposes of this partnership need to be formulated. 

  • What should be the Objective of an Intellectual Audit? 
  • The objective and aim of an Intellectual Audit differ according the need of the company, it is usually to assess the growth and overall development of the assets, there is no specific area of concentration while in the case of the scope of the audit, the enterprise usually prefers to focus on the product they wish to discuss, or the practical threat there is to the enterprise. 

Importance of Intellectual Property Audits

It is important to have regular Intellectual Property Audits as they help in giving a system of checks and balances to the enterprise to monitor their growth in Intellectual Property. It is very probable that some aspects may or may not get overlooked, or there are miniscule factual errors, which is what regular audits help to overcome. Taking various examples, such as that of a production house, or a commercial product with untapped potential because of their Intellectual Property rights. An audit would further help them to identify the assets they already possess, and to assess the importance of the same. Even if the enterprise is aware of their Intellectual Property assets, there might be a high probability that it is actually undervalued, or not in consonance with the current status of laws and positions in the market. 

Another reason why it is very important to conduct audits is to be aware of whether any other enterprise is infringing one’s own Intellectual Property rights. This is vital for an enterprise because copyrights, trademarks and patents are intricate processes, and the position of an enterprise depends on the ownership of these. These audits are not just to compare enterprises, but also for self-evaluation of the internal standings of the enterprise. It is vital to have a clear idea of what the enterprise has or does not have to know the way forward. In a competitive market as that of India, to stay a few steps forward with respect to an enterprise’s standing is needed to not get outed from the market. Only when there is knowledge of the present, can an enterprise precisely make a blueprint to move forward and maximize their assets and capitals. Intellectual Property audits are a managerial tool to understand the capacity and potential of the enterprise and hence, should be given value to. 

Also Read  The Growth and Development of Indian Economy from 1950-2020. 

Is India in consonance with the International Conventions of Intellectual Property Rights?

As India has signed the TRIPS agreement, which automatically means all the laws in India are supposed to be in consonance with the guidelines laid down by the agreement. The objective of the agreement is to harmonize international Intellectual Property rights so that the global market is not disbalanced as such, with Intellectual Property rights being the tipping point. It is important to note here that the nations can choose to apply these guidelines in whatever context would suit the people more, but the very essence of the guidelines should remain, and there should not be any discrepancy between enterprises which originate in the country and those who carry out international production. 

As was mentioned in the case of Gramophone Company of India Ltd. V. Birendra Bahadur Pande, the Supreme Court held that the incorporation of these guidelines should be put aptly so that it is acceptable to the people of the country and those who will actually have to deal with these laws on a regular basis. Conflict of course is inevitable, but it is the National Laws that have to be placed in priority in front of International Conventions. As was further clarified in a different case of Vishakha V. State of Rajasthan, when there are fallacies found in the national laws, that is when the International Conventions are used to fill up the gaps, but priority still remains with the former. 

Conflicts as such shall always arise, especially given that India is still not a developed country; the laws, perspectives and judgements of the State are still to be changed, which is why to draw a final conclusion with respect to India’s stand-in Intellectual Property is not possible. India is still growing and has the essence of the principles of the TRIPS Agreement imbibed in the laws, which indicated that there is conformity to the guidelines laid down by the agreement. Yet, the country’s laws have not really developed to a point where it can handle any and all kinds of conflicts that arise in this field. 

Conclusion 

Intellectual Property is still a growing concept in India, and even with its shortcomings, its importance is increasing rapidly within the industries. The importance of this concept, and the awareness of the same is being brought to light which is further helping in maximizing capitalization in the country. Audits for Intellectual Property will help in further understanding this concept and help the enterprises lay out their blueprints for growth.

The unexplored potential of Intellectual Property is a major tool, as there is a lot that can still be done and found, which means there is space for enterprises to grow as far as they wish, given that this is an evolving discipline. One aspect which might be worked towards would be that of the clashes between the international and national laws, something which can be ironed out more intricately. As this discipline is evolving, there is much to be changed in the way people perceive Intellectual Property. 

Sources 

  1. The Trade-Related Intellectual Property Agreement, World Trade Organization, 1995 <https://www.wto.org/english/tratop_e/trips_e/intel1_e.htm>
  2. Sahai Bisarya, ‘Significance of Intellectual Property in This Era’ (Monday, 29 December 2020) <https://www.mondaq.com/india/trademark/1020686/significance-of-intellectual-property-rights-in-current-era>
  3. AA Thornton, ‘The Importance of Intellectual property’ (lexology, 22 January 2019)< https://www.lexology.com/library/detail.aspx?g=0b676aa6-7a3b-4bcb-8570-ccb90699eeef>
  4. Yash Jain, ‘IPR Law – History’ (legalserviceindia) < http://www.legalserviceindia.com/legal/article-3581-ipr-law-history.html#:~:text=Origin%20In%20India%3A,as%20Act%20XV%20of%201859.>
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  7. Nithish Desai Associates, ‘Intellectual Property Audit – A Legal Perspective’ (NithishDesaiAssociates, December 2013) < http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Intellectual_Property__IP__Audit.pdf>
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  9.  Channel Punnoose, Valli Shobhana, ‘The Intellectual Property Audit’ (2012) (17) 417, 424 JIPR< http://nopr.niscair.res.in/bitstream/123456789/14765/1/JIPR%2017%285%29%20417-424.pdf>
  10. Tulika Rastogi, ‘IP Audit: Way to a healthy Organization’ (2010) (15) 302,309 JIPR < http://www.nbpgr.ernet.in/pgs-503/012_IP_audit.pdf>
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  12. Mahima Puri, Anjali Verma, ‘Intellectual Property Conventions and Indian Law’ (2005) ICRIER series <https://icrier.org/pdf/wp166.pdf>

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