It’s well known that a company’s intellectual property can be a valuable asset. But as general counsel, how much do you think about your IP portfolio?

Do you have a clear view of your company’s patents, trademarks, copyrights and trade secrets? Do you have a strategy to protect the portfolio’s value? Have you considered how to maximize the value of innovations your company has created to enhance the portfolio?

If you’re not as clear as you’d like to be on any of these questions, you might consider an IP audit as a smart investment for your company. 

Emerging threats

An IP audit is a systematic review of a company’s IP assets, policies and procedures. It identifies the properties the company owns, determines whether they are suitably protected and recommends how to leverage them to support the company’s business goals.

The surge that’s making AI increasingly accessible to new industries creates new complexities that make IP audits even more crucial. Understanding the basics will help your enterprise address emerging threats.

AI impact

If your business isn’t involved in high tech, you might assume AI is of little concern to your operations. However, it’s becoming common across all industries, even those not traditionally associated with technology such as natural resources, maritime and manufacturing.

The natural resource industry is using AI to design more energy-efficient buildings, monitor deforestation, detect wildfires and manage energy resources. In maritime, AI is being used to generate automatic navigation and route optimization, predict fuel consumption and develop strategies for resource and cost management, as well as predict machine downtime. The manufacturing industry has begun to use AI to predict maintenance, generate designs that mimic an engineer’s approach and forecast the prices of raw materials. Regardless of industry, if your company suddenly enjoys a capability that a few years ago seemed impossible, there’s a good chance that capability was driven by AI.

When technology evolves rapidly, a clear understanding and management of IP is essential for companies to maintain a competitive edge. Besides providing an understanding of your company’s patents, trademarks, copyrights and trade secrets, an IP audit can help to flag privacy issues, mitigate risks related to the implementation of AI and ensure compliance with legal standards. Regular IP audits are in fact a strategic necessity in an AI-driven world.

Audit basics

During an audit, outside counsel identifies and catalogs all of your company’s IP assets – its patents, trademarks, copyrights and trade secrets. 

For each asset, counsel assesses the strength and scope of your company’s IP rights and identifies any gaps in their protection. The audit also includes an evaluation of the procedures your business uses to protect its IP. An audit not only helps you understand the breadth and depth of your company’s assets but your IP-related policies and procedures, agreements and competitors’ properties as well.

Counsel also evaluates how your business identifies protectable IP and the procedures it uses to obtain further IP rights. IP-related agreements are analyzed to ensure they protect your company’s rights. The audit entails checks to ensure your company is marking patented products and using copyright and trademark symbols appropriately. Counsel might research competitors’ IP and activities to avoid infringement risks. Finally, they assess your company’s trade-secret practices to ensure that confidential documents are marked and secured.

Value creation

The proper management of AI-related IP is critical. Generally, an IP audit offers many concrete benefits. Conducting an audit maximizes your protection and enhances the value of your assets. IP audits identify opportunities to expand your portfolio into untapped areas, analyze commercial values and spot potential infringement risks and other vulnerabilities. Through the audit process, you learn whether your IP policies and procedures align with best practices and acquire information to develop or update a comprehensive IP strategy. The audit can also empower you to budget appropriately for IP application, prosecution and maintenance costs. Such audits also position your portfolio for increased leverage in licensing deals or mergers and acquisitions.

The specific benefits of an IP audit vary, depending on whether your company uses third-party AI tools and services, develops AI tools and services or owns data or content that may have been scraped to train third-party AI.

Using third-party tools, services

An IP audit can be a valuable tool for firms that use third-party AI tools and services. The audit recognizes all third-party AI components, including open-source software, and reviews licensing terms to ensure compliance. It can assess risks related to data sourcing and use, which may ensure your company acquires and processes data legally in accordance with privacy regulations. The audit also evaluates algorithm transparency and audit rights, since a lack of transparency poses IP risks.

The audit equips you to review supplier relationships and service agreements and clarify IP ownership provisions for custom tools or co-developed AI. This establishes whether vendor AI services infringe on the IP rights of others, creating potential legal liability. It can also assess the cybersecurity practices of vendors concerning AI data and models. Poor security could introduce liability.

Regular IP audits on third-party AI usage can create awareness of IP-related risks and opportunities, to align strategy with management for responsible and effective AI adoption.

AI companies

For companies that develop proprietary AI tools and services, IP audits offer further advantages. They can identify AI-related intangible assets for protection such as patents, trade secrets and copyrights. An audit reviews the inventor(s) and owners of internally developed AI innovations and assesses the strength of trade-secret practices to protect valuable training data, models and algorithms. 

The audit might flag privacy issues. For example, it can discern whether the company used lawful tactics to acquire training data used to design its models and ensure the company did not violate third-party services or websites’ terms of use. The audit can also determine whether the company lawfully used personal information for its models, and if so, whether your firm can continue to comply with privacy laws when it provides AI services.

Looking to the future, the audit process gives companies an opportunity to evaluate the patent landscape and inform patenting strategies for AI inventions. The process can pinpoint licensing opportunities for AI technologies, models, training data, and other IP. The audits might spot open-source AI components and ensure compliance with licensing. Finally, a company might use an IP audit to analyze competitor patent activity for signs of infringement or IP threats.

For companies that design AI, regular IP audits present vital insights into the state of AI-related IP, while identifying risks that demand mitigation. In short, IP audits equip companies to maximize the value of their AI innovations.

AI-impacted companies

An IP audit can serve as a critical tool for owners who suspect their data or content may have been scraped for use as training data for third-party AI. These audits play a vital role in protecting intellectual property rights.

First, the audit can discern unauthorized uses of your content and track down instances of scraping and data extraction for AI training. Once unauthorized use of your content has been spotted, you can take legal action to protect your intellectual property rights. Counsel can identify legal remedies available to your company, such as initiating a copyright infringement lawsuit, or filing for copyright, trademark, or even patent protection, if applicable. It can also empower you to explore potential licensing or contractual violations.

Once legal action is taken, it can prompt you to take proactive steps to secure data that might be scraped in the future. You might choose to implement stricter access controls, encryption, and other security measures to prevent future scraping incidents. This may include tools like web-scraping detection software, monitoring of online activities, and educating employees about risks and prevention methods.

In some cases, business owners may choose to monetize their content by licensing it for AI training purposes. An IP audit can identify opportunities for legitimate partnerships or licensing agreements with third-party AI developers.

An audit can ensure compliance with data privacy regulations for personal or sensitive data, such as the General Data Protection Regulation or the California Consumer Privacy Act, by identifying potential breaches and guiding corrective action. Protection of your content from unauthorized use can also help to maintain your firm’s reputation, by demonstrating that you take your intellectual property rights seriously and are willing to defend them.

Last, the audit might reveal gaps in your policies, terms of service, or contracts that ought to be updated to protect your intellectual property more effectively. You’ll be properly armed to make necessary changes to your properties.

Audit process

Depending on its scope, the audit might include any combination of the following steps. 

• Counsel should start by determining the types of intellectual property to be reviewed — patents, trademarks and copyrights, for example — and identifying the areas within the organization to be covered. All of these IP assets are categorized and added to an inventory of IP assets.
• After that, the ownership and legal rights associated with each IP asset should be assessed. This entails a review of agreements, contracts, licenses and employment contracts to determine whether the firm has proper ownership or licensing rights to the IP.
• The audit also evaluates the protection and enforcement measures for each asset. The process includes an analysis of the status of registrations, the strength of protection and any ongoing enforcement actions or potential infringements. The commercial value and potential of each IP asset may also be scrutinized. Factors such as market demand, competitive advantage, revenue generation and the potential for licensing, partnerships or sales might be assessed.
• The audit might identify risks or vulnerabilities in the IP portfolio such as potential infringements, inadequate protection or outdated strategies. It also investigates potential opportunities to expand IP rights, enter new markets or leverage IP assets for business growth.

Based on the findings, legal counsel should develop a comprehensive IP management strategy. It might include recommendations for strengthening IP protection, updating policies and procedures, pursuing additional registrations, implementing licensing or monetization strategies or taking legal action to enforce IP rights.

Ideally, the recommendations will be executed, and the IP portfolio monitored to ensure ongoing compliance, protection, and value creation. Regular audits may be conducted at intervals to review and update the IP management strategy as the organization evolves.

An IP audit is indispensable for organizations looking to appraise and maximize the value of their assets. It’s an essential tool for any organization that seeks to safeguard its intellectual property and leverage it for business growth. In the era of artificial intelligence, periodic assessments of your intellectual property are essential to enhance its value and maintain your competitive advantage.