Notesale: Turn your study into money

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What is “intellectual property”? Intellectual property (IP) refers to creations of the mind: inventions, literary and
artistic works, and symbols, names, images, and designs used in commerce
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Rights related to copyright include those of performing artists in their
performances, producers of phonograms in their recordings, and those of broadcasters in their radio and
television programs
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They are visible to competitors and can often be purchased on the open
market
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A similar process has occured in the auto industry as
companies have successfully imitated Toyota's production system, which gave it the competitive advantage during the
1970s and 1980s
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One crucial way of doing so is by
legally protecting intangible assets and also acquiring and maintaining IP rights in particular for the following categories
of intangible assets

Before addressing how companies can capitalize on Intellectual Property (IP), first we must discern what IP is and how they
encapsulate knowledge as a core competency
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It is, subsequently, the
transfiguration of intellectual knowledge into private property
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If IPR did not exist, only the welfare state would benefit
and so no private firm would commercialize the IP
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uk, 2015)
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Faberberg et al (2005) also state that breeding rights and
database rights are more recent forms of IPR
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IPR enable companies to capitalize on their IP in an increasingly globally connected, knowledge- intensive economy
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Adding to that, business leaders before the new
millennium perceived the importance the strategic management of IPR as a matter concerning a company’s legal function,
not as a strategic issue (HBR
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However, recent decades have given rise to IPR as a mandatory strategic apparatus
for multinational blue chips as well as SMEs
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Sectors that are most likely to possess value-driven intellectual
property are the design, mechanical engineering and electronics sectors (Blackburn & Kitching, 1998)
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They suggest that at the top is the ‘visionary’ approach, whereby companies have a
lengthier time horizon in the industry and exploit their IP to extract and “craft” commercial value from it (Davis & Harrison,
2002)
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These merely
treat their IP as a legal tool
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and Samsung Electronics Co
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They also treat their IP as defensive legal tools, using litigation to protect their
IP, as made evident when Samsung Inc
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Apple Inc
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co
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This illustrates that a company can take a
visionary approach, as well as a defensive one
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This grants a firstmover advantage and consequent IPR-centered incumbency (Reitzig, 2004) and innovation proactivity (Dodgson et al,
2008)
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This does not, however,
imply competitive advantage sustainment
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An initial niche market is created not with reduced
competition, but an absence of competition
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IP is now used as a strategic value source and revenue-generating asset and not just a legal tool
...
These companies are placed within the ‘integrated’ and
‘profit-centered’ level on the Davis & Harrison’s aforementioned pyramid
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Licensing, first of all, is when a licensor gives the licensee permission to use their IP, within
agreed limits, in return for compensation
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Unrelated to any product manufacturing, IBM receives over
$1billion annually from licensing agreements alone (Davis & Harrison, 2002)
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Rather than for
monetary compensation, cross-licensing agreement is the mutual trade in IP, with mutually agreed conditions regarding the
limitations of IP use
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This exemplifies cost-saving measures
...
Examples of
IP in cost saving and revenue generation purposed have been cited
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TYPES OF INTELLECTUAL PROPERTY
IP as an asset category can be divided into four distinct types—copyrights, trademarks, patents, and trade secrets
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A copyright protects a tangible form of expression (i
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a book, work of art,
or music), rather than the idea or subject matter itself
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However, the Copyright Act of 1976 changed this
requirement, and copyright protection now applies to any original work of authorship immediately from the time that it is
created in a tangible form
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A trademark, as defined by the U
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Patent and Trademark Office (PTO), is
“any word, name, symbol, or device, or any combination, used, or intended to be used, in commerce to identify and
distinguish the goods of one manufacturer or seller from goods manufactured or sold by others
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S
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Patents
As compared to other types of intellectual property, patents are among the most valuable, costly, and difficult to obtain
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”
Patentable items may include objects or processes such as new technology or business methods, but excludes more
abstract items such as web sites or ideas
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Once received, a patent owner may grant licenses to others for use of the invention or its design and may charge a fee
for such usage
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Trade Secrets
Any idea or fact that is not disclosed by a business comprises the fourth type of intellectual property: trade secrets
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e
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A trade secret, by definition, is proprietary or business-related information that a company or individual uses or to which
they possess exclusive rights
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Examples of trade secrets include the aforementioned recipes, business
methods, strategies, tactics, or any other piece of information that gives the business a competitive advantage
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In addition to these systemic changes, U
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and international
accounting practices place pressure on firms to recognize and value all identifiable intangible assets of a firm as part of
a transaction (in a merger or acquisition, for example)
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Federal Reserve Chairman Ben Bernanke recently validated this
notion during the “New Building Blocks for Jobs and Economic Growth” conference, where he discussed the
importance of intangible capital and that its accumulation has accounted for more than half of the increase in U
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output-per-hour during the past several decades
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Cost-based valuation takes into consideration both how much it cost to create the asset historically and how
much it would cost to recreate it given current rates
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Income-based valuation looks at the stream of income attributable to the intellectual property based on the
historical earnings and expected future earnings
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There are several important factors to establish and take into consideration when performing an IP valuation
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WHAT SHOULD BE VALUED AND WHEN
Different types of IP assets are treated differently when it comes to the frequency, focus, and organizational level where
the valuation will occur
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In addition to annual testing, many asset classes have
guidance requiring impairment testing to be performed
when a triggering event—defined as an event or change
in circumstance indicating that the carrying amount of an
asset may not be recoverable—occurs
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In some cases, buildings or other assets have
been severely damaged or destroyed
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Assets potentially affected and in need of review include goodwill, intangibles, other long-lived assets, investments,
inventories, and receivables
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Auditors are unable to perform these services for their audit clients as it constitutes a
conflict of interest under the Sarbanes-Oxley Act of 2002
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IP Infringement Coverage
IP infringement coverage, also known as intellectual property liability coverage, defends from patent infringement claims
against the insured and defends the insured’s ownership rights in the IP
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This is the most typical type of
coverage purchased when customers think of or ask for IP liability insurance
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IP Enforcement Coverage
IP enforcement coverage is a fund provided by insurers to indemnify the insured for its legal expenses in seeking to
enforce or protect its IP rights against infringement
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This coverage does not insure against counterclaims or
against any loss
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This extension can also include investigation costs to determine if there are grounds for
pursuit
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It certifies that the IP
involved in the transaction is valid, similar to the function of title insurance in home purchases
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It is designed specifically for the representations and warranties applying to intangible assets,
whether the sale or purchase of a single asset, a portfolio of assets, or as part of a corporate sale or merger
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It is
triggered by legal claims against the IP that result in loss of revenue or value associated with invalidity of findings or
other legal claims against patents in an insured’s portfolio
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INTELLECTUAL PROPERTY RISK MANAGEMENT
Another important element in the discussion of intellectual property valuations and protection in the modern economy
involves the strategic management and mitigation of IP risks
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In this context, there are several trends emerging within the space
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Second, IP risk management is migrating from a defensive to an offensive effort, which will have significant implications
for firms’ overall risk management strategies
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Enabling technologies, such as cloud computing, will allow for greater sharing of
intellectual property in defined ways as firms look for heightened efficiencies
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Namely, who is the custodian for maintaining the integrity/security around the IP while in electronic, sharable form?
While IP risk represents, at times, an opaque and ambiguous topic, developing risk management strategies to address
the issue involves the implementation of several programmatic fundamentals—defining the value of its IP, and then
identifying, assessing, and evaluating risk impacts
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While such measures can prove challenging, the realities of the contemporary business environment require a robust
valuation and risk mitigation effort to realize the upside potential of an organization’s intellectual property
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Dow Chemical’s filing strategy was historically driven by R&D, with patents reflected in promotion rates within the
company and not necessarily the technical direction the company was moving
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It can most likely be inferred that with the realignment of the filing strategy for both Motorola and Dow Chemical, that the
value of their patent portfolio was highly skewed due to dilution with irrelevant innovations
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One has filings that focus on incremental innovations on existing technology while the other moves towards filing broad
and innovative provisional applications very early on in development phase
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As a small firm it is important to realize the initial strategic patenting
decisions that are made can have a large influence on the future strength and direction of their portfolio
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—> Over ten years ago Philip Morris in the US bought out Kraft for $12
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This was considered a fair price for this
acquisition
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3 billion
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6 billion
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This is a tough concept for many managers who devote most of their efforts in
managing 13/129th of their businesses
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Companies at this level use their IP for defensive purposes only
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The costs in filing fees,
enforcement and other legal expenses can be high
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Profit center level Companies reach this level once they begin to license out their IP, or otherwise to use it in support of
their company business activity
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Here the company’s business units have grasped the power of using IP for a range of business roles
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Visionary
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They seek to use the company’s IP to create more strategic value
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What matters is to determine which level best suits the needs and capacity of your particular company
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What business roles can IP play?
The companies participating in the ICM Gathering (Procter and Gamble, Hewlett Packard, Microsoft, Philips, Visa,
Johnson, Du Pont – to name but a few) have identified over 40 different business roles that their companies have
assigned to their IP
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To determine which of these roles make sense for your company, bearing in mind the company’s expectations for its IP
management, try the following: First, review the company’s strategic vision and its corporate strategic plan
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Thirdly, look at the table and select the IP business roles that seem most applicable to your company
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)

Objective
Conflict
avoidance/
resolution

Revenue
generation

Cost
reduction

Strategic
position

Patents
• Protection
(exclude others)
• Design freedom
• Cross-licensing
(defensive)
• Litigation
bargaining power
• Patents: sales,
licenses,
infringement
policing
• Increased
bargaining power
• Market penetration
• Increased speed to
market
• Tax donation
• Litigation
avoidance
• Access to
technology of others
• Improved
knowledge transfer
• Reputation / image
• Competitive
blocking
• Barrier to
competition
• Consumer/
supplier control
• Optimization of
core technology

Trademarks
• Protection (exclude
others)

Know-how
• Protection (trade secret)

Relationships
n/a

• TM: sales,
licenses, cobranding,
infringement policing

• Sales, licenses, joint
ventures, strategic
alliances, integration,
increased speed to market

• Litigation
avoidance
• Access to
technology of others

• Litigation avoidance
• Improved knowledge
transfer

• Reduced
marketing costs

• Name recognition
• Consumer loyalty
• Barrier to
competition
• Joint venture
• Strategic alliance

• Reputation / image
• Barrier to entry

• Reputation /
image
• Consumer
loyalty
• Barrier to
entry

Basic IP strategies
There are a range of IP strategies available to your company, many of them tailored specifically to unique business needs,
industry position, or business tactics
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These correspond broadly to the levels of expectation described in the pyramid of IP management:
A path to minimize risk
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Programs to minimize risk are
usually grounded in the legal department, and focus on process compliance, processing product clearances and protecting
innovations in the marketplace
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A path to cost reduction
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They look to maintain the effectiveness of their IP protection program while cutting the cost of doing so
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A path to value
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IP is
managed centrally, with the company seeking out business opportunities for its IP (e
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out-licensing and use in joint
ventures)
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A path to strategic value Companies following this strategy see their IP as corporate and business assets which can
produce a range of value (both revenue and strategic value) for the organization
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Extracting value from IP
If you follow strategies 3 or 4 above, you will be concerned with extracting value from the firm’s IP
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g
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Alternatively (and simultaneously) you may convert the IP
directly into revenue
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Few companies are capable of using more than two, but
those that can are able to generate significant additional revenue
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The greatest advances have been made in North
America, driven by the need to produce ever more sustainable revenue streams to satisfy the capital markets

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