Power up your IP assets - Ten rules CEOs need to know

13 minute read
25 June 2024

Author(s):

In today's knowledge-based economy, intangible assets account for as much as 90% of a business's value. For instance, Disney's market capitalisation was once estimated at $52 billion USD, with $47 billion (90%) attributed to intangibles like copyrights, while only $5 billion was in tangible assets (Intellectual Property Asset Management, WIPO. [1]

These intangibles include human capital (employee knowledge, skill, and expertise), relationship capital (customer, supplier, and investor relationships), and structural capital (business processes, databases, and conventional intellectual property such as patents, copyrights, and trademarks).

Whether you are a start-up or a mature business, your precious IP intangibles are embedded within your organisation human, relationship, and structural capital.

 



Managing intellectual property effectively is of growing importance. It requires a distinct skill set, combining a deep understanding of IP law, technology, economics, and finance. This growing importance is recognises by businesses, governmental bodies, research institutions, investors, banks, academics, and more.

In this article, we take a detailed look at our ten "best practices", directed at C-suite executives. They are intended to serve as the starting point in crafting an IP strategy that will stimulate innovation, drive revenue, and enhance an organisation's value.

1. Develop an IP strategy that is rational and clearly articulated

  • Align IP strategy with the overall business plan.
  • Customise strategy based on company size, maturity, and technology.
  • Start with an IP audit and competitive environment appraisal.

An IP strategy should align with and support the overall business plan. Obtaining registered IP rights like patents or trademarks is the starting point, not the end goal. Your IP assets must drive new revenue, protect existing revenue, and achieve your organisation's overall objectives. An effective IP strategy must be customised to fit the unique competitive environment, company size, maturity, and technological standing. Typically, this begins with an audit of the existing IP asset pool and an appraisal of the competitive environment. Identifying the overall strategy flows from there, blending insights from IP professionals, business executives and economists. Once articulated, numerous steps must be executed both internally and externally.

2. Grasp the broader view

  • Address both micro and macro levels of IP management.
  • Reflect on the primary objectives and ROI of IP protection.
  • Focus innovation resources on enabling business objectives.

Successful IP asset management requires addressing both micro and macro levels. While capturing and safeguarding innovations through patents or trademarks is crucial, understanding the broader economic objectives is essential. Is the aim to build a fortress against competitors, ensure operational freedom, or monetise through licensing? Reflecting on the primary objectives, cost-effectiveness, and ROI of your IP protection program is vital. Innovation resources should focus on enabling defined business objectives.

3. Know what IP assets you have

  • Identify and understand your intangible assets.
  • Conduct an IP audit to inventory assets.
  • Value assets and create IP Maps for strategic use.

With up to 90% of a business's value in intangible assets, identifying and understanding these assets is crucial. An IP audit, or inventory, serves as the cornerstone of any robust IP strategy. These inventories encompass internal IP assets and external influences like product certifications, regulatory approvals, export licenses, and raw material networks. Advanced IP audits value these assets in terms of dollars or importance, create IP Maps tracking inventorship and ownership chains, and generate due diligence reports essential for M&A and financing endeavours.

4. Map and interpret your ecosystem, then navigate your path to success

  • Analyse your operating ecosystem.
  • Identify your current position and future directions.
  • Use AI-driven platforms for competitive insights

Analysing the ecosystem in which you operate is crucial. Start with an IP audit to create a 3D landscape of your protected innovations and their types (patents, trade secrets, copyrights, etc.) across different countries. Understand your suppliers' strategies and your competitors' activities, including potential disruptors. This mapping helps you identify opportunities and plan future strategies. AI-driven platforms and public databases can help your team to gather these vital competitive insights.

5. Embrace the CEO's vision

  • Align IP assets with the CEO's vision.
  • Understand IP as a strategic corporate asset.
  • Bridge the gap between IP management and business objectives.

CEOs often view IP as a cost centre rather than a corporate asset that can serve to realise their vision. IP managers or external consultants, with an understanding the CEO's vision, can align IP assets with business objectives, identify emerging competitors, and add value. According to the World Intellectual Property Organisation (WIPO), IP asset managers can build value at least in the following ways[2]:

  • IP asset creation.
  • Reducing costs of third-party IP claims.
  • Creating non-core revenue streams.
  • Creating additional revenue through core business licensing.
  • Reducing costs of unused IP assets.
  • Receiving tax deductions for IP asset donations.
  • Reducing new product development costs
  • Evaluating the IP assets of an acquisition or investment target (due diligence).
  • Assessing business direction and strength.
  • Discovering unclaimed business opportunities.
  • Discovering business expansion opportunities

6. Assess your IP asset viability

  • Evaluate the commercial potential of innovations.
  • Consider factors influencing appropriability.
  • Make informed decisions to maximise value.

Unlocking an invention's commercial success goes beyond brilliance alone. Commercial success depends on "appropriability"—the ability to capitalise on an invention effectively. This involves factors like replication time, market dynamics, consumer acceptance, production capacity, and brand recognition. For example, in the 1980s, VHS videotape format triumphed over the technologically superior Beta.  While Beta was the more technologically advanced option, it received poor market acceptance, whereas VHS format won out as it focused on consumer needs and wants and ultimately, this was the deciding factor (Betamax vs. VHS history: the videotape format war, Analog - A Legacy Blog, https://legacybox.com/blogs/analog/vhs-beat-betamax ).

To capitalise upon an innovation and to address ROI, it is vital to assess appropriability and to tailor the action plan accordingly.

7. Keep your assets fresh and fruitful

  • Manage IP assets proactively in fast-paced industries.
  • Leverage IP assets through sales, licensing, and collateral.
  • Adapt strategies based on market dynamics.

In fast-paced industries, an IP asset's economic lifespan can be as brief as five years, even though formal protection lasts longer. Smart IP management seizes opportunities while they last, utilising IP assets through sales, licensing, collateral, and more. For example, a multinational FMCG innovator, with a substantial patent portfolio and years of costly patent enforcement litigation, rethought its monopolistic patent fortress policy. Under it revised and publicly stated policy, the innovator called for patent exclusivity only long enough to build market share for its new or improved products and then to offer non-exclusive revenue generating licenses to rivals while consumer interest was still high. This approach avoided costly and unpredictable litigation with competitors who were prepared to wait a few years until the promised patent licenses were available.

8. Empower your team with an internal playbook

  • Create a robust, formalized IP policy.
  • Streamline processes for documenting and safeguarding IP.
  • Encourage reporting and incentivize innovation.

Leverage your team's creativity with a robust, formalised internal IP policy. An internal policy should function as a strategic playbook that streamlines processes for documenting, assessing, and safeguarding IP and for clarifying ownership and rules for employees, contractors, and collaborators.

The playbook should encourage reporting new IP, establish filing procedures, and set rules and procedures for maintaining confidentiality of value information. It should also provide transparent and attainable incentives to fuel innovation and drive excellence throughout the organisation.

9. Instill an innovation mindset

  • Foster a collaborative culture for innovation.
  • Champion a shared mission across the organization.
  • Integrate IP strategy into daily practices.

Innovation thrives in a collaborative culture. A shared mission to maximise the impact of an IP strategy requires a culture shift championed by management and adopted across all functions. This culture should be woven into the business fabric, with everyone practicing it daily, especially in organisations with distinct divisions or product silos.

10. "Where's the beef?": reflect on the value of your IP assets

  • Recognise the value of IP assets in and beyond balance sheets.
  • Use traditional and advanced valuation methods.
  • Use IP audits to identify and quantify asset contributions.

IP assets often don't appear on balance sheets despite their organic growth within the organisation. Valuing these assets is strategic for selling or licensing, attracting investors, securing loans, M&A transactions, and spinning off assets or divisions. Traditional valuation methods include the income method (revenue generation), market value approach (comparable asset sales), and cost method (investment in development). In the case of patents, AI-based software platforms are useful tools to assist with patent valuation because there is a large volume of easily accessible published data collected within the patent offices throughout the world.

IP audits assist in the valuation process because a thorough audit identifies and labels assets, making them more tangible and easier to weigh in terms of their revenue contributions.

In the audit process, patents and trademarks are usually the easiest assets to value because they are distinct, clearly identifiable registered rights. Trade secrets and confidential information may be the most valuable assets within an organisation yet, as assets they are the most difficult to quantify in terms of value.

Concluding remarks

IP managers play a crucial role in valuing IP assets by carrying out audits, packaging assets, addressing innovation impact, market scope, and term. By mastering analysis, IP asset managers can bridge the gap between finance and innovation, revealing the hidden value of IP.

Want to know more on best practises for all things IP? Our experienced team of industry leading IP lawyers are on hand to support clients across a wide range of industries. If you have any further questions, please contact David Aylen.


1 Online slide presentation: https://www.wipo.int/edocs/mdocs/sme/en/wipo_smes_bel_10/wipo_smes_bel_10_ref_theme_14_01.pdf

2 Intellectual Property Asset Management, WIPO https://www.wipo.int/edocs/mdocs/sme/en/wipo_smes_bel_10/wipo_smes_bel_10_ref_theme_14_01.pdf 


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.