Many businesses focus on their physical assets when recording the monetary value of their assets, concentrating on fixed assets such as plant and equipment, and current assets such as inventory. They are less interested in their “intangible” assets, such as intellectual property and know-how, which give them a competitive advantage in the marketplace.
This is a mistake. In today’s economy, the market value of many companies’ intangible assets considerably outweighs the value of their physical assets. In fact, recent studies have shown that as much as 80% of the value of a typical business is intellectual property. Despite this, many companies fail to recognise the true value of, or extract the most value from, their intellectual property.
Small businesses in particular might not have even thought about what intellectual property they own, let alone its value. This is all the more reason for the business to carry out an audit to identify this key asset, and use the audit as a starting point for accurately valuing, and more effectively protecting, enforcing and commercialising, the intellectual property of the business.
Intellectual Property Audit
Before conducting an intellectual property audit, you will need to understand the different types of intellectual property that exist, how each comes into existence and which types of intellectual property are relevant to your products and services.
Intellectual property rights can be divided into registered and unregistered rights. Registered rights include patents, trade marks and registered designs, while unregistered rights include copyrights and trade secrets. Many businesses only look at their registered intellectual property when they think about their intellectual property, but unregistered rights can be equally valuable.
While an effective audit will enable a business to identify all the important intellectual property assets (and how important they each are), there are other benefits too.
Once a business has identified its key intellectual property, it can then have it accurately valued. Any valuation should only be carried out by a specialist adviser working in this area.
The valuation may well find there is more value in the business than management expected, which is good news (for example) if a business is looking for financing, investment or a possible sale of all or part of its undertaking, or is entering into a joint venture and is trying to assess the value of its contribution to the joint venture.
Many businesses establish a holding company for the intellectual property, as they find there are various benefits (including legal and tax benefits) in doing so.
For example, from a legal perspective, putting your intellectual property into a holding company will enable you to ring-fence your valuable intellectual property from potential claims against the trading activities of the business.
The maxim “If you don’t measure it, you can’t manage it” summarises one of the key benefits of conducting an intellectual property audit. Having your intellectual property catalogued and in one place will enable you to more efficiently manage it.
Knowing more about your intellectual property portfolio will allow your business to better prioritise future research, development, and intellectual property creation. Where are your strengths and weaknesses? What opportunity is there for innovation? What is the marketplace calling for, and do you have the resources to offer or contribute towards?
Protection and Enforcement
Once you have identified and valued your intellectual property, you can better assess which strategies you should employ to protect and enforce the intellectual property, so that you can sustain your competitive advantage.
By way of example, IT companies are the fastest growing businesses in the world. They also apply for more patents than any other type of business, and the high value they place on intellectual property is a strong platform for their spiralling growth. However, patents may not suit every business and there are other highly effective means of building an intellectual property asset base.
Finally, knowing more about your intellectual property will ultimately help you to extract more value from it, though various means such as licensing, partnering and sale.