SHOW ME THE MONEY - How intellectual property assets are becoming the better class of property to own. 

By Blair Beven*

They say “cash is king” but in my view Intellectual Property is king!

So what is Intellectual property? IP is a specific set of legal rights. These rights largely cover the expression of an idea or brand (not the idea itself!). This includes the following:

Trade Marks – a trade mark is a legal term for a brand such as a sign, logo, and word, combination of letters or numbers. A trade mark can also include a colour, smell and shape. You should as a business owner remember that having your company name or business name registered does not provide you with a legal basis to use the name. Trade mark registration secures your right to the name of your business provided the name itself is distinct.

Copyright – Copyright results from the particular form of expression of information and ideas (‘things of the mind’). Copyright does not reside in the idea itself. Copyright typically takes the form of a photograph, graphic, multi-media, literary work (books, novels) and musical works.

Patents – usually refers to a right granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. Typically, an invention must be new, non-obvious, and useful or industrially applicable to be patentable.

 Economists believe that up to 40 percent of all gains in productivity and growth over the course of the last century directly relate to innovation.

It has also been calculated that 70% of the value of the world’s largest businesses can be traced directly to their intellectual property (IP) of patents, copyright, and trade marks - most often called intangible assets. In some cases, some companies have realised that their IP assets are worth more than their physical assets.

Until a few years ago, IP was not at the forefront of many people’s minds. Instead, talk was about streamlining, cost cutting, mergers and strategic alliances. Many businesses forget that a majority of its inherent value is tied up in their IP and it is this value that can be exploited – yes for CASH! Toney advocates THINK BIG. Well you should be “thinking big” about your IP (in any business you have). Securing your IP can help generate significant revenue for your company.

In addition, if you operate a business with a number of competitors IP protection plays a very important role in securing your market share, stopping your competitors from gaining the edge, securing investment as well as using your IP to form strategic alliances and licensing partners.

Innovation can take the form of new efficiencies, for instance, doing something quicker with less man power or through completely new technologies that creates new markets and supply of goods or services (think MICROSOFT or the APPLE IPOD).

The legal protection of intellectual property turns these intangible assets into exclusive property rights for a limited period of time. It enables your business to claim ownership over these intangibles and exploit them to their maximum potential. If the innovative ideas, creative designs and powerful brands of your business are not legally protected by IP rights, then these may be used by other businesses. However, when your IP is protected, they acquire concrete value for your enterprise as they become property rights which cannot be commercialized or used without your authorisation.

Increasingly, investors and financial advisors are becoming aware of this reality and have begun to value IP assets highly. Enterprises are acknowledging the value of their IP assets, and, on occasions, have included them in their balance sheets. Many companies, have begun to undertake regular IP audits. In a number of cases, some companies have realized that their IP assets are actually worth more than their physical assets. This is often the case for companies operating in technology focused and highly innovative sectors. Unlocking the value of this IP within these businesses could well be the lifeline they need to prosper in these uncertain times.

In the current climate more should be done to protect, value, and manage IP within a business to extract its full potential and to link the IP to the goals of the business. This may mean working with third parties or in some instances competitors to extract the full value of the IP created. Until recently a lot of companies have kept their IP hidden without realising its full value. In addition, there are some business owners that do not know what IP is, how it is created and the value it represents for them. As an example, I hear almost on a daily basis the comment “oh I registered my business name so that means I must own the name” – WRONG! A company or business name registration gives a business no ownership rights to the name. It is only through trade mark registration that you are given a monopoly right and full ownership for the name.

Some of the secrecy surrounding IP relates to fear of piracy or illegal exploitation but some of the uncertainty relates to indecision on how the IP can be leveraged to create a competitive advantage.

The value of IP 

Until quite recently most company valuations were calculated using tangible assets such as plant and equipment.  The real value in some companies is tied to its ideas, the knowledge, and potential of its IP.

Today intangible assets now account for more than half the market value of the average company around the world. Intellectual property is now one of the most crucial components for companies around the world. A report by PwC has estimated that up to US$1 trillion dollars is wasted every year from companies failing to extract the full value of the IP it owns.

Therefore, IP management is one of the most neglected of all management issues facing companies. Some key questions that companies face include:

1. What IP do we have?
2. Is our IP sufficiently protected?
3. What is the value of the IP?
4. How can the business exploit the value of its IP?
5. How does the business create better synergies between IP creation, protection and its core business strategies?
6. Are there any outside partners willing to licence the IP?
7. How can we earn money from the IP we own?

Not enough attention is being paid to intellectual property. Uncertainly is often created because companies don’t know what IP they have, its value or the ways to effectively protect that IP. In addition, a number of companies are cautious about expanding its knowledge base beyond its direct markets for fear of exploitation and piracy. Uncertainty is often created because the creation and protection of IP is not aligned to the business strategies of the business. But because IP is becoming the main driver of value, processes and management tools should be developed to best harness that potential.

 It maybe that the value of some IP goes beyond its direct business and in fact the IP maybe more valuable to another business thereby creating synergies between companies or creating additional revenue streams through royalties and licensing models. According to recent business reports, alliances and partnerships through IP mining and IP convergence will be a primary source of growth for a number of businesses in the years to come.

But this has some pitfalls for business that do not have sufficient IP management structures in place that accurately captures a complete picture of the IP it owns, sufficient protection models and knowing the value of their IP.

Business development managers need to start thinking more strategically about the IP the business owns. What does this IP do for us? Does it help your customers or deliver a measurable benefit to the business? Is the IP properly protected? Are there ways the business can utilise the value in the IP by creating synergies with other business partners?

IP is not just a legal issue but it should be given a broader business focus.

Conclusion

Many companies admit that they have some intellectual property. But often the underlying IP of the business is never given priority it deserves. Most IP is never valued.  IP should be thought of as a competitive business tool rather than just a legal issue. Companies need to start linking the IP to its core business strategies and look at ways to extract the potential for convergence with others or through other revenue streams such as licensing.

So in Toney’s words start “THINKING BIG” about your IP. Establish a clear strategy to protect your IP, value it, and/or think about the big picture in using the IP to generate additional revenue to the business.