Patent information can be a treasure trove of business intelligence. However, the challenges come in mining, organizing, and interpreting that information so that it can be transformed into actionable knowledge. In the circles of patent information analysis there are many techniques that can be used to extract intelligence. Some of the more common techniques include landscape studies, white-space examinations, market and technology research, valuation assessments, as well as freedom-to-operate and claims evaluations. However, for any business that has even a small patent portfolio, the foundation of all these techniques is the patent portfolio audit.

Similar to how a financial audit can provide strategic understanding of a business’s finances, a patent portfolio audit can add significant insight into the strategic development of intellectual property. Moreover, an effective patent portfolio can be a significant enabler of a business’s ability to differentiate itself in its focus markets, and that can have a meaningful impact on its financial growth prospects. In much of what’s written about patent portfolio audits, the relationships to these strategic differentiators and growth drivers is often muted or nonexistent. This article, in contrast, will focus on those aspects and present a patent portfolio audit description that’s framed in a strategic business and market research-based perspective. The following begins with a brief description of a patent portfolio audit, but then enhances that with a more detailed list of business-oriented objectives. A generalized step-wise process for executing this type of audit is presented in conclusion, as an overview of the implementation framework.

The Patent Portfolio Audit:
A patent portfolio audit is typically defined as a process by which a business reviews the status of all its granted patents, pending patent applications, and other licensed patent rights. It can also be an opportunity for a business to review its policies and strategies for patent portfolio management. The initial focus of this process usually involves a complete inventory and general organization of all the information related to patents filed, owned, and licensed by the business. But to maximize the value derived from a patent portfolio audit, an additional business-oriented tact is needed. In fact, from a business development perspective, it’s best if the audit is principally designed and executed to produce results that provide actionable insights into business fundamentals and growth mechanics. So, it’s not just an inventory of the patent assets, but rather a fundamental business development initiative.

Business-Oriented Patent Portfolio Audit Objectives:
Below is a list of objectives for a patent portfolio audit that’s been heavily fortified with a business fundamentals perspective. For example, one of the most often-stated audit objectives is for the patent portfolio strategy to align with the business strategy. While this is true, a realistic approach to accomplishing this alignment requires a much greater level of detail and often includes various additional research initiatives. This list is designed to be a collection of possible objectives, not specifically a checklist to complete in a portfolio audit project. In fact, depending on what needs to be accomplished, an audit project may only focus on one specific objective or it may focus on a subset of these objectives. It all depends on what best suits the interests of the stakeholders.

• Inventory all granted patents and pending patent applications.
• Validate the basic information associated with the patents and pending patent applications.
  • Including patent or application numbers, prosecution history, patent family information, patentee information (inventors, applicants, assignments and ownership), filing dates and priority dates, due dates for maintenance fees, expiration dates, geographic areas of patent enforcement, etc.
• Review, research or implement a patent information repository system and methodology.
  • Does the system and methodology enable the desired level of organization and insight into the patent portfolio? Can it present graphical relationships between patents, and between patents and products or services? Can the system adapt to new analytical techniques for analyzing patent information?
  • Does the system present a collaborative, yet secure and archivable, environment for all the stakeholders who need to utilize the patent information?
  • Should a review of commercial services be pursued or is a customized internal solution a better or more economical fit?
• Catalog any patent licensing agreements.
  • Record licensing agreements that obtain patent rights from another entity or surrender patent rights, in an exclusive arrangement, to another entity.
  • Identify and document the trade-offs, risks, and rational associated with licensing agreements.
  • Document any analysis (financial, technological, market, etc.) utilized in the licensing decision evaluation, such as licensing vs internal development vs third-party solutions, etc.
  • Identify any royalty payment schedules associated with licensing agreements.
• Determine how well the patent strategy aligns with corporate strategy.
  • Identify current and future products and services that are patent protected, and what specific features of those products and services are protected by specific patents.
  • Evaluate how well the patents protect the specific products and features. How well do the patents block competition? Are the patents easy to work around? Are there any geographic patent enforcement issues?
    • Additional research may include competitor-oriented patent landscape studies, and freedom-to-operate and claims analysis.
  • Appraise the specific economic value derived from patents. Is there premium pricing that can be attributed to the patents? Are there exclusive product or service features that directly improve sales due to the patents?
    • Additional research may include market and technological analysis.
  • Identify patents that are not associated with current and future products or services but may be valuable from a defensive perspective. What are the scenarios and defensive strategies that these patents enable?
    • Additional research may include market and technological analysis.
  • Identify patents that are not of strategic value and can potentially be licensed or sold.
    • Additional research may include valuation assessment and market and technological analysis.
  • Identify areas where additional patent rights need to be obtained by either the pursuit of focused R&D and the filing of new patents, or the licensing / acquisition of patents from other entities.
    • Additional research may include product and technology market analysis, valuation assessment, and technology-focused patent landscape studies and white-space analysis.
  • Assess the competitive positioning of the patent portfolio. How well does the patent portfolio compare to the portfolio of other competitors and more importantly, how well do those portfolios result in meaningful market advantages? Are there cross-licensing deals that make sense?
    • Additional research may include competitor-oriented patent landscape studies, and market and technology research.
  • Assess merger, acquisition, or joint venture opportunities to better position the business and its ability to leverage its patent portfolio.
    • Additional research may include market and technology research, competitor-oriented patent landscape studies, and valuation assessments.
  • Assess patent infringement risk and opportunities. What are the risks that existing products or services infringe on competitor’s patents? Do competitor’s products or services infringe on the patent portfolio and thus present licensing or litigation opportunities?
    • Additional research may include market and technology research, competitor-oriented patent landscape studies, and freedom-to-operate and claims analysis.
  • Assess the need to continually monitor patent activity related to competitors or technology to maintain a competitive edge, identify cross-licensing opportunities, or protect against litigation.
  • Assess relevant information associated with industry standards or patent pools that are applicable to the focus products, services, and markets.
    • Additional research may include market and technology research.
  • Assess the use of open source software or hardware that may impact the ability to enforce patent rights.
  • Assess the strategy associated with the expiration of IP rights and the impact on products and services.
• Catalog any documents associated with previous litigation, disputes, analysis or research.
  • Research and collect any documents related to the patent portfolio regarding litigation and disputes occurring in the court systems (U.S. or worldwide), the USPTO PTAB (Patent Trails and Appeals Board), or other international patent enforcement / dispute institutions.
  • Assemble any previous research such as prior patent portfolio audit information, prior art searches, landscape studies, market and technological analysis, white-space research, freedom-to-operate and claims analysis, legal opinions, valuation assessment, etc.
• Review patent portfolio management plans and company policies regarding the patent strategy.
  • Review plans for continued patent portfolio management and future periodic audits.
  • Review employee assignment obligations, confidentiality and non-disclosure agreements, on-boarding/off-boarding procedures, etc.
  • Review employee training procedures regarding patent strategy and reporting of inventions.
  • Review independent contractor agreements.

Patent Portfolio Audit Process Overview:
The steps below are intended to be an overview of the general process and provide a framework for organizing a project procedure. A more detailed process and execution plan is typically customized to the specific situation, business and objectives.

1. Recognize the need and get buy-in from stakeholders, such as executives, in-house legal counsel, outside legal counsel, M&A team, business development managers, sales and marketing managers, product managers, engineers, etc. From a need perspective, a patent portfolio audit may be executed on a regular periodic basis as part of a proactive management strategy or it may be prompted by an event or transaction, such as introducing a new product, entering a new geographic market, a merger or acquisition (of business assets or just IP), a joint venture, or a divestiture.
2. Identify the interests of the various stakeholders and how those interests can be addressed in the patent portfolio audit.
3. Establish specific objectives for the patent portfolio audit (use the list above as a guide).
4. Establish / review the information and document repository methodology.
5. Develop a detailed and customized execution plan based on the objectives and stakeholders’ interests.
6. Formulate a reporting methodology that best enables stakeholders to utilize the audit results
7. Execute analysis and research.
8. Assess needs for additional analysis and research.
9. Review company policies regarding patent intellectual property development.
10. Review plans for patent portfolio management and periodic audits.