The Sarbanes Oxley Act (SOX) became effective in the United States on July 30, 2002. In response to some notorious accounting, audit, and management debacles, such as Enron and WorldCom, this piece of watchdog legislation was crafted to help monitor and avoid such occurrences in the future.

SOX has already created a tremendous ripple effect throughout American business accounting standards and behaviors. However, the second “wave” has yet to come: dealing with intangible asset management under SOX. Intellectual property (IP) will eventually come under scrutiny and management, just as have tangible assets.

Clients ask us:

1. Now that we’ve made changes to our tangible asset accounting practices, what do we have to do regarding tracking and valuation of IP under SOX?
2. Should we be proactive to include IP in our SOX compliance program, or should we wait until further-detailed legislation is promulgated?
3. What is the best structure for collecting and managing information for compliance?
4. What can we do to avoid shareholder concerns, now that we hear that SOX-related allegations may become more prevalent?

Unfortunately, there are few specifics that can be offered, in terms of the regulations and actions required for IP management. So far, there are no set of “safe harbor” actions that are guaranteed to be SOX-compliant. However, ipCG believes that following a set of best practices around IP management is the practical solution for companies that worry about the questions posed above and SOX compliance.

1. “Know What You Know”: Conduct a baseline inventory of your IP –from your R&D/laboratories all the way up to corporate. This will provide a starting point from which you can measure changes going forward. We can assist in this effort via our ipScan^® service.

2. Create IP stakeholder/team: Designate someone in the organization (and, depending on the size of the organization, a team) that will be responsible for compiling IP information. This may require representatives from multiple divisions and multiple disciplines (R&D, legal, sales & marketing, manufacturing) to “roll up” the data.

3. Keep good records: IAM recordkeeping may include activities such as (1) cataloguing internal files (electronic or paper); (2) tracking the status of IP assets throughout documentation and issuance of patents; and (3) documenting confidential information and trade secrets, as these assets remain assets only if managed and kept confidential. ipCG’s Microsoft^® Access^TM-based, open architecture software tools may be appropriate solutions; also, there exist enterprise-wide software programs that can provide access and management to assist in this effort.

4. Establish and implement IP processes: establish a systematic, repeatable process for identifying and protecting IP strategically, across your business. The tools and best practices cited above are available to build processes and workflows for management of IAM, and show diligence toward anticipated Section 404 control requirements.

5. Support financial data preparation: ensure that product/manufacturing information can be summarized for disclosure to the right internal finance contacts, and establish a periodic review of IP assets with your finance department. The software tools used (see number 4, above) should have the capacity to provide output reports, as needed, to financial team members. In addition, ipCG has developed IP valuation tools and methods for determining IP portfolio values, which can help in defining inputs for the finance department.

6. Document transactions that involve IP: define a purpose for the transaction, keep clear records, track ownership and impact on assets, and monitor who owns improvements.

7. Enforce rights: establish processes to identify misuse of your IP by others, develop an enforcement program to handle misuse, and establish policies and procedures that not only show you value IP, but defend your patent rights.

8. Educate your staff: a culture of disclosure is needed to ensure that material information is passed to the IP stakeholders/management team for tracking and reporting. Further, your team needs to know what IP is, why it is valuable, how to handle it properly, and the benefits it provides. This should extend beyond R&D and legal departments to other areas of marketing and sales, financial staff, and manufacturing departments. ipCG delivers a wide array of IP courseware that we have used successfully with teams that range from executive to technical and manufacturing staff.

Development of a corporate IP strategy is one of the best steps to ensure that IP issues have been considered and addressed company-wide, and it helps particularly with executing item numbers 2, 3, 6, and 7, above. ipCG can help facilitate development of an ipStrategy^®, with specific attention toward SOX compliance.

If companies take rational steps to build into their IAM programs practical tools and reporting structures that can reduce the risk of radical compliance efforts when IAM is brought formally to light under SOX.

To obtain more information or discuss your unique challenges please contact us.