Intellectual property (IP), long a valuable legal asset, has even greater potential in a corporate portfolio. This article will help you recognize and use IP as a financial asset as well as a legal asset. Markets demand it and speak with a clear, definitive and unified voice: IP assets are not optional. Any transaction without IP, if it is effected at all, is relegated to junior status.
What’s driving this recognition of IP? How can you create valuable IP assets for your business? How can you showcase your company’s existing IP and get those assets ready for their “coming out party”? Keep reading.
It’s worth taking a moment to define IP. IP includes patents, trademarks, copyrights and trade secrets. It also includes the immature stages of each: patent and trademark applications filed with the U.S. Patent and Trademark Office and applications filed with the Library of Congress for copyright registrations. With regard to patents, IP reaches back even further to include invention disclosures that are not yet applied for or formalized, i.e., the germ of an invention. Trade secrets are defined as any information that is both maintained in secret and has commercial value (actual or potential); the scope is vast.
So you have IP; how do you value it? That’s the easy part, because value is whatever you as the owner perceive it to be. It’s important to ensure that your perceptions are accurate and market-backed. A more interesting question is: How do you monetize IP? Monetization provides a pathway (capital) to reach an end result that puts your IP to work for you. The distinction is even more prescient due to current trends toward strategic use of IP in acquisitions (How can I best leverage the IP I acquire?), versus mere financial accounting of IP in acquisitions (How can I get the best deal on the IP I acquire?).
What are some creative uses of your IP? You likely already know and may even practice many of these. A tried and true way to use IP has been to “EEL” it – exploit it, enforce it, license it. You put your existing IP up against the IP and/or products of competitors in your industry and, as in a Venn diagram, seek to carve out more scope for your business by offensively asserting your IP where and when you can. While this method remains viable and valuable, a newer corollary seeks an ongoing financial value add-on. Using a less confrontational and more collegial mindset, we now seek opportunities to provide a revenue source or stream from IP, instead of a one-time win. Here are some examples:
- IP as a securitization asset. Yes, your “intellectual” property is as useful in securitization as your “real” property. Like real property, the more robust, mature, developed and desirable it is, the more it is worth as security. So you follow the same maxim as you do in dealing in real property: maintenance. Ensure your “neighborhood” remains desirable. Discard outdated items and modernize to keep current. Using IP as a security asset allows your business to advance even if other capital (read: cash) can be difficult to attain at the time you need it.
- IP as a trade or barter vehicle. Licensing IP that supports a platform is not new, but what about cross-licensing IP? Cross-licensing can achieve a specific desired end result, such as avoiding infringement litigation, but it can also accomplish more. For example, it can be a vehicle for each side to gain entry to a complementary new technology without having to do all the legwork and without having to advance capital. If you include trademarks and their associated goodwill with the cross-license, each side gets a ready-made mature market from which it can expand. A win-win result!
- IP as a litigation vehicle. So-called trolls (“non-practicing entities” or NPEs) have already exploited this use of both copyrights and patents to extract fees. It may not be pretty, but it can be effective in generating revenue by working existing IP that would otherwise go untapped. This is particularly true if you have or can obtain expertise in evaluating and charting patent claims and prosecution histories to find and
- exploit informational nuggets. IP can also be used to finance litigations. Say you have a good faith belief that a competitor is infringing your IP, but lack the economic or other resources to finance expensive litigation. You can assert the strength of your IP with a more robust partner doing the heavy lifting. The IP asset’s worth would be assessed by standard cost, market and/or income methods, compared against the cost of the litigation and the likelihood of a desired outcome.
However you choose to “work” your IP, you need to be smart about it. This requires vigilance. While the ideal IP portfolio is dynamic, particular pieces of it are static (the exception being trademarks which, by law, must be dynamic to remain viable). But neither technology nor markets are static, so you must constantly tweak your portfolio to maximize your return on investment. Another unknown factor is consumer or customer preferences – they shift. This requires that your IP portfolio align with your business at the point where you want your business to go, instead of where it’s been (so yesterday!).
Today’s IP decisions are made in the C-suite by business executives; yesterday’s were made in research conference rooms by engineers and scientists. Look at your IP portfolio. Is it a revenue drain, costly to obtain and maintain? Or is it a revenue source that can be optimized and worked to maximize value? Knowledge, empowerment and a change in perspective can make the difference in your outcome.