Conducting the Audit

1. APPENDIX 1
CONDUCTINGTHEAUDIT
“IF YOU DON’T KNOW IT, IF YOU DON’T MEASURE IT, YOU CAN’T MANAGE IT”
Source: Ian Cockburn
CASE STUDY:
The EUROCOM STORY
Prepared by Heather Baldwin-Mc Dowell -PR/IP Practitioner
SCENARIO: A famous music mogul/artiste, Mr. B after careful consideration decided to create a
digital music streaming company called STREAMTRON. The disaffection with the remuneration
from other digital music streaming sites in part, led to this decision. As the story goes Mr. B armed
with a proper business plan and very inviting profit projections arranged investment discussions
with other famous artists who he felt were like minded. They bought into becoming part owners
of STREAMTRON.
STREAMTRON will provide a platform to digitally stream their works with more direct control of
the quality/distribution/revenue and profits. So STREAMTRON went into full operation. Calls
were made by the investors to other influential musician friends to get them involved. A key
selling point of STREAMTRON is its major goal to create a personal connection between
musicians and their fans.
Mr. B is a man of influence in the music industry so he used that strength to gather a star- studded
cast for STREAMTRON’s streaming service. Some critics concluded that STREAMTRON’s line-up
of world-famous musicians has been its major selling point, but one critic said, it could also be its
undoing.
Mr. B decides to expand streaming capabilities by acquiring a company called EUROCOM.
EUROCOM was a niche European media-technology company mostly known for its high-end,

2. expensive music-streaming service called RIWiP. It was a small player in the music-streaming
world, so little attention was paid to it.
Soon after Mr. B acquired EUROCOM it has become one of the most discussed technology
companies in the world. Its acquisition by Mr. B was through high confidential meetings,attended
by other key STREAMTRON investors. EUROCOM was then hurdled into prominence at an all-
star media conference.
Bad News for EUROCOM: Soon after the big launch, EUROCOM was required to come to grips
with the loss of a number of very important executives. It was also sued by one of the record
labels it was eager to assist. In the midst of all this, its newly acquired fame was immediately
obscured by the unveiling of a huge competitor’s new streaming technology.
THE CHALLENGES FOR EUROCOM:
 loss of key employees
 being sued by one of the record labels it was eager to assist
 unveiling of huge competitor’s new streaming technology
 STREAMTRON streaming music at twice the price of other providers
WHAT CAN BE DONE IN THE SCENARIO?
SOLUTION: It is recommended that EUROCOM undertake a Limited Purpose Focused IP Audit. A
Limited Focused IP Audit is narrower in scope and used to justify a legal position, prepare for
litigation and when a company suffers a serious loss of important personnel. This is very apt for
EUROCOM given its aforementioned challenges.
PREPARING FOR THE EUROCOM LIMITED PURPOSE FOCUSED IP AUDIT:
STEP 1: Identify the purpose of the audit. Clarity of purpose for all concerned is essential. In this
case it is to facilitate a comeback for EUROCOM by finding solutions to the following issues:
 loss of key employees

3.  being sued by one of the record labels it was eager to assist
 unveiling of huge competitor’s new streaming technology
STEP 2: SELECTION OF THE EUROCOM AUDIT TEAM: The team should comprise:
 EUROCOM: CEO; Head of Technology: Head of HR and an IP lawyer
 STREAMTRON: CEO; Head of Technology: Head of Marketing and an IP lawyer
The CEOs of both companies must be in charge of the audit. If any services have to be acquired
externally such persons must sign a Non-Disclosure Agreement (NDA) prior to the start of the
audit. In fact, all employees of both entities should have signed NDAs.
STEP 3: GATHER ALL BACKGROUND RESEARCH FOR THE PREPARATION OF AUDIT PLAN.
Background research will be the basis of the audit and will provide the auditor(s) with the
required background information for preparing a plan for conducting an audit that is
comprehensive, focused, timely, and cost‐effective.
STEP 4: CONDUCTING THE AUDIT
Prepare a detailed checklist. An IP auditor normally starts work from a detailed checklist, which
is modified for the type and size of the company's business, relevant IP laws of the relevant
countries, desired purpose(s), and the desired outcome(s) of the audit.
The first step in the conduct of the Audit is to find the easy to identify IP Assets. Such assets can
include registered trademarks, copyrights, designs or patents owned by the business, licenses to
third parties and any licenses from third parties, inclusive of cross-licenses. In-house work
manuals, databases, franchise agreements, publications and product/process know-how can also
be included.
The second step is to itemise what might be termed external or market influences. These will
include the company brand, product brands, company and product get-up, goodwill, product
certification, export certifications, regulatory approvals, distribution and raw material networks,
client lists, and marketing and advertising programs.

4. In trying to estimate the value of any of these items, a good question to ask is how much will it
cost to replace the item if it were lost, what is the expected income, e.g. in the next five years,
that can be generated by the underlying IP assets and how is it being used. Several IP valuation
methods can be used to establish the value of an underlying IP asset. In the case of EUROCOM
the Income Method can be used.

5. Table 1 – An Example of a Provisional IP Audit (Source: IP AUDIT - A "HOW TO" GUIDE by Ian
Cockburn
The above example merely illustrates the hidden assets found in any company (in this case an
SME) and how an IP audit can facilitate the identification of importance, in terms of contribution
to company’s competitiveness and bottom line, different IP assets it owns or use.
Having done the IP Audit EUROCOM used its findings to attend to the challenges it faced.
STREAMTRON is still in business despite lower prices from other online competitors. This could

6. be because cost is not always the deciding factor, if customers get what is promised a personal
connection between musicians and their fans.
In effect Mr. B acquired an unknown entity like EUROCOM hoping to cause a revolution in the
music industry on behalf of artists who are of the view that they are not being adequately paid
in an age where fans no longer buy CDs.
Disclaimer: This is a fictitious case study created as an illustrative education tool for IP Auditing.
Any resemblance to real persons or existing companies is coincidental.

7. Jay Z took over an obscure Scandinavian telecoms company in the hopes of staging a revolution
on behalf of artists who feel they aren’t being properly paid in a world where no one buys
CDs anymore.