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What Is Intellectual Property and What Are the Risks?

Posted by Protiviti KnowledgeLeader on Thu, Feb 21, 2019 @ 05:15 PM

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Copyright pirates, brand impersonators, patent flouters and trade secret thieves are a major threat to businesses, given their increased aggressiveness towards intellectual property (IP) theft. These, and any other original creative works that have economic value and are protected by law, can be categorized as IP.

IP laws reward the creators of original works by preventing others from copying, performing or distributing those works without permission. They provide incentives for people to produce scientific and creative works that benefit society by allowing them to profit on these ideas. Some types of IP are automatically protected by law from the moment of their creation, whereas others require a specific grant of rights from a government agency before they can be protected by law. Although nearly every nation has laws protecting IP, some do not vigorously enforce them. As such, counterfeiting is a major problem in these areas.

The principal types of IP are patents, copyrights and trademarks:

  • Patent law protects inventions that demonstrate technological progress.
  • Copyright law protects a variety of literary and artistic works, including paintings, sculpture, prose, poetry, plays, musical compositions, dances, photographs, motion pictures, radio and television programs, sound recordings, and computer software.
  • Trademark law protects words and symbols that serve to identify different brands of goods and services in the marketplace.

Intellectual property includes certain related fields of law, such as trade secrets and the right of publicity. Trade secret law protects confidential information that belongs to a business and gives that business a competitive advantage. For example, the formula for making a soft drink is a trade secret protected by IP laws. Right of publicity law protects the right to use one's own name or likeness for commercial purposes. For example, a famous athlete may profit by using his or her own name to endorse a given product.

IP differs from other forms of property because it is intangible – a product of the human imagination. Because IP is intangible, many people may use it simultaneously without conflict. For example, only one person can drive a car at a time, but if an author publishes a book, many people can read the work at the same time.

IP is also easier to copy than it is to create. It may take months of work to write a novel or computer program, but with a photocopier or a computer, others could copy the work in a matter of seconds. Without IP laws, it would be easy to duplicate original works and sell them for very low prices, leaving the original creators without any chance to secure economic rewards for their efforts. As a result, it is against the law to reproduce various forms of IP without the permission of the creator.

Most IP rights expire after a specified period. This permits the rest of society to benefit from the work after the creator has had an opportunity to earn a fair reward. For example, after the inventor of a patented telecommunications device has profited from the work for a specified period, anyone may manufacture that same device without paying the inventor royalties, thereby encouraging competition that allows others to benefit from the invention as well. The one exception to limited periods of IP rights is in the field of trademark law. Trademark rights never expire, so long as a merchant continues to use the trademark to identify a given product.

The Intellectual Property Issue

This is the “golden age” for IP, with IP being the lifeblood of many companies. Companies are built around patented technology. "Innovate or perish" is the motto that defines our times. Patent filings and issuances are skyrocketing, so much so that there is talk of a patent "revolution," "explosion" or “frenzy." The courts are pro-IP, as is legislation – even the Antitrust Division of the U.S. Justice Department is pro-IP. Courts read the riot act to infringers – billion-dollar damages have been awarded as a result. Treble damages, once rare, are now the order of the day and injunctions are not stayed during appeals.

As more patents are issued, companies must be aware of potential setbacks that may arise. The risks that are associated with IP include:

  • Availability Risk: It is necessary for a company to make information available, and yet it is necessary for all information to be well-protected against possible infringements.
  • Compliance Risk: Due to the number of legal issues pertaining to IP rights, it is important to be aware of their legal implications.
  • Brand Risk: A company’s brand is part of its IP and can be one of its largest assets. It is important to protect the company images and brand reputation.
  • Access Risk: Access risk includes the risk that access to information (data or programs) will be inappropriately granted or refused. Access risk ensures protection of trade secrets.
  • Business Value: It is important to be aware of and track a company’s IP and know its associated business value.

For more information on audit committees, you can find the following tools on KnowledgeLeader and many others under the intellectual property topic:

Third-Party Licensing Process Audit Report

Licenses and Royalties Policy

Business Partner Royalty Audit Report

 

Topics: enterprise risk management, risk assessment, strategic risk, data security,, performance management/measurement, KL Tools, intellectual property

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