U.S. public companies have been developing and implementing procedures to comply with the Sarbanes-Oxley Act (the "Act") since the Act's passage in July, 2002. Among other requirements, the Act requires a public company to provide enhanced disclosure in its filings with the U.S.

Securities and Exchange Commission ("SEC") of matters that materially affect, or are likely to have a material impact on, its business and financial performance.

In light of the Act's stringent requirements, it is prudent for every public company to implement some form of "best practices" and disclosure processes and controls with regard to intellectual property ("IP") assets. Many if not all of these best practices are also beneficial to non-public companies seeking maximum protection of and value from their IP.

At the core of the Act is the requirement that public companies establish and maintain "disclosure controls and procedures" to ensure that information required to be disclosed by a public company in its SEC reports is communicated to the company's management in a manner which allows timely decisions regarding required disclosure.

The effectiveness of disclosure controls and procedures must be reviewed and evaluated on a quarterly basis. The Act does not prescribe the steps a public company must take regarding timely and accurate disclosure of matters related to its intellectual property assets, and neither the courts nor the SEC have provided any guidance on this issue.

While it is not possible to predict what a court or the SEC could determine at a later date as to appropriate disclosure controls and procedures regarding intellectual property assets, listed below are five steps that we recommend public companies take to implement IP best practices in light of the uncertain requirements of the Act regarding intellectual property.

Implementing IP Best Practices

Step 1 – Inventory Intellectual Property Assets

Every public company has IP assets. For some public companies, these are the most important or key assets. However, it is not possible to make any meaningful assessment of how these assets contribute to the financial performance of a company without doing an inventory to determine the types of intellectual property the company owns or on which it relies in order to conduct its business.

The areas to examine include at a minimum (i) patents and inventions, (ii) works of authorship such as videos, books, manuals, plans, specifications and software, (iii) business processes, know-how, trade secrets and other proprietary information, and (iv) brands, trademarks and service marks (collectively, "IP Assets").

There is no easy way to gather the necessary information to create the inventory of IP Assets. However, we recommend that an audit team of internal legal and business personnel, coupled with outside financial and/or legal advisers, be assembled. This team can decide on the best information gathering process based on the organization and culture of the company.

One vehicle that companies often use is to solicit this information through an electronic questionnaire sent to the heads of business units, as well as to the legal department. The questionnaire will ask the business unit heads through appropriate questions to list the IP Assets on which they rely for the functioning of their business unit.

The legal department is asked to supply, among other things, (i) a list of all patents and pending patent applications, (ii) a list of all trademark registrations and pending applications, and (iii) a copy of all form consulting and nondisclosure agreements. With some companies, personal interviews need to be conducted in order to obtain the information. Whatever approach is taken, the creation of an inventory of IP Assets is an essential first step.

Step 2 – Determine the Value of Each IP Asset

Once the information is collected from th