Intellectual Property and Sarbanes-Oxley?

What does the Sarbanes-Oxley Act of 2002 (or “SOX”) have to do with intellectual property you ask? While these two topics have historically made for strange bedfellows, the importance of managing intellectual property assets and issues surrounding those assets under Sarbanes-Oxley is increasingly becoming a potential trap for the unwary.

Passed into law in 2001 in large response to the then-recent corporate corruption and fraud scandals involving the likes of Enron, WorldCom, HealthSouth, Tyco, Adelphia and others, Sarbanes-Oxley represents one of the most sweeping changes in U.S. securities laws in the past 70 years. In the wake of these scandals, SOX attempted to bolster investor confidence by increasing transparency and accountability in financial accounting involving public companies here in the U.S. SOX has proven, however, to be much more than a law addressing financial accounting. SOX is written broadly to trigger obligations with respect to any and all assets that have a material impact on the financial condition of a public company — including IP assets.  As intellectual property assets have come to comprise an increasingly more material part of the value of most all companies (not just “technology” companies, but all companies that rely on technology to conduct their day-to-day operations), intellectual property has come to play an ever more material role in the financial condition of those companies. As a result, intellectual property assets and the management of those assets and issues relating to those assets has (and will continue) to pose an increasingly more important issue with respect to SOX compliance (notably, even as to companies for which it has not posed an issue in the past). While the issue of SOX and IP will be front and center for public companies, even private companies that plan in the future to become publicly traded or that are planning an exit by merger or acquisition with a public company, should be wary of the potential risks posed by IP under SOX.

Earlier this week I covered this topic and discussed the growing importance of the management of intellectual property assets under Sarbanes-Oxley in a presentation at the 2008 Intellectual Property Institute in Denver. I had the pleasure of sharing the stage for the presentation with Dean Salter, one of my partners at Holme Roberts & Owen and truly the “dean” of the Denver securities law community. As usual when presenting with someone of Dean’s stature, I probably ended up taking away from the presentation just about as much as I contributed. The materials from the presentation are available online if you would like to read more about this topic. We will also be giving the presentation as a webinar later this year. Stay tuned for details.

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