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IP under the microscope: how auditing your IP can protect business value

14 May 2020

As businesses look to save money, it can be tempting to see spend on intellectual property (IP) as discretionary.

Now more than ever, when preserving businesses, and safeguarding and realising their value, is at the forefront of agendas, looking carefully at IP and how it is managed and structured is not only important, but an essential business need.

IP can not only can add competitive advantage in a difficult or re-emerging market, but it can also be leveraged to inject cash into or realise the value of a business. IP can be sold and licensed, and it can be used as security if finance has to be raised. Taking a proper look at IP can generate savings and efficiencies in the longer term, as well as enable businesses to identify risks and threats, and strategies to manage them.

We are working with a number of clients to put IP under the microscope by means of an IP audit. We are assessing whether IP is fit for purpose, whether it is structured and protected in the best way, and whether it can be deployed to generate value or savings, both in the context of businesses which are struggling or worse insolvent, and as part of more general business risk assessment.

IP audits are essentially a check of the IP that a business has and uses, to see whether it is properly protected and whether it dovetails with the business’s commercial operations and plans. IP audits can also assist in identifying opportunities to realise value, as well as savings and threats. For example, it is not uncommon for IP audits to reveal opportunities for creating value by selling or licensing IP, or to save spend by implementing more cost effective protection and enforcement strategies, or by letting obsolete registered IP lapse.

Typically, an IP audit comprises several phases:

  • an information gathering phase, to gather information from a business about what it does, how it does it and where it does it, and to identify related IP;
  • a review phase, to search relevant IP registers and to review relevant documents, such as internal policies and procedures, licences, employment and contractor contracts, and documents relating to disputes; and
  • a report and recommendation phase, to feed back our findings and recommendations.

However, we can work with you to design an IP audit which best fits budget and business needs. Our IP audit menu includes analysis to identify:

  • what IP the business actually has and uses, and how it is created and acquired;
  • whether IP used and generated by a business is adequately protected, including through registration, and in the most cost effective way;
  • whether a business has the right contracts in place to ensure it owns or can use the IP it needs;
  • whether a business has adequate policies and procedures in place to maintain and safeguard its IP;
  • what IP risks a business faces, whether from inadequate IP protection or policing, or because third parties are misusing its IP or own IP which the business is using;
  • how much value can be attributed to IP and how it may be able to be monetised; and
  • whether internal and external licences of IP are structured in the best and most tax efficient way, and what the tax implications are for particular IP arrangements.

Working with colleagues in our tax team we can also help assess how the changes to tax frameworks which most countries have had to introduce, affect tax structuring around IP, and whether they have been complied with.

In the UK, many new rules have been introduced, which will affect businesses who license and deal with IP.

These include:

  • new rules from 2019 to tax those in the UK where business income has been paid to overseas structures – for example to overseas IP companies;
  • a completely new tax from 2015 looking at companies operating in such a way so as to avoid establishing a UK taxable presence, or associated enterprises providing inter-group goods and services on preferential terms;
  • rules to require tax to be withheld at source on payments of royalties to overseas companies; and
  • rules to bring into tax, online sales made in the UK by overseas companies, linked to IP abroad.

If you would like to discuss how your IP is protected, managed or structured, please contact Shireen Peermohamed or Gary Ashford.

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