Putting a value on an intangible asset can be testing, but commercialising intellectual property is a lucrative business
From IBM’s software to the music of Taylor Swift, managing intellectual property (IP) is a global industry worth hundreds of billions of pounds each year. It is a vast and varied landscape full of complications and organisations are working hard to make the most of what they can slap a copyright on.
By creating air-tight IP portfolios they can inflate company revenues significantly and secure the future of product lines by fending off copy cats, granting measured access to rivals or selling intangibles wholesale in colossal cash deals.
Increasingly, organisations see IP as a strategic opportunity as well as a mechanism to limit risk – a sword and a shield. They invest heavily in shoring up brands, ideas and innovations to make the biggest possible gains. Monetising IP is nothing new, but the spotlight on this area of business has sharpened significantly.
A single deal passing rights from one entity to another could be valued in hundreds of millions or even billions of pounds
IP is a big-money game. A single deal passing rights from one entity to another could be valued in hundreds of millions or even billions of pounds, so the practice of collating, valuing and sweating assets is taken very seriously by firms in the know.
Companies of all sizes use IP, whether they are conscious of the fact or not, but the larger ones spend time and money making sense of what they have in front of them. The rationalisation process is complicated – what is the value of an idea? – and it requires experienced people with a firm understanding of territorial laws, commercial markets and rival innovations, among many other factors.
“IP is increasingly important in corporate transactions, which is why implementing an intellectual property strategy is so vital,” explains Nigel Swycher, chief executive at Aistemos, a company offering a range of IP, analytical and risk-management services.
“An IP strategy consists of the measures that are implemented and monitored by a company to ensure its IP rights are developed, exploited and respected in a manner which is consistent with, and adds to, its commercial goals and objectives.
“It requires the broad participation of management from all areas of the business. This can be a radical change for some companies, where IP has been the sole responsibility of the legal department and where the remit has been limited to obtaining trade marks and growing a patent portfolio.”
Separating, identifying and valuing IP
According to Stuart Haynes, corporate and commercial partner at law firm Aaron & Partners, companies should take a methodical approach to separating, identifying and valuing individual strands of IP.
This process includes teasing apart each strand’s uses by territory, market sector and application, now and in the future. Licences should be created for each variable, maximising revenue streams without creating roadblocks, says Mr Haynes.
He adds that the strategy should take into account potential revenue streams, which would work in tandem, such as training, installation, supply of tools, marketing material, product installation, ongoing technical support and so on.
By separating and demarking each asset, its uses and its worth, companies can start to incorporate their portfolios into an over-arching growth strategy.
This is obviously quite a laborious process, so software vendors have attempted to take some of the strain. The latest tools help managers gauge their IP across different measures, including geography, technology and industry, as well as the status of infringement claims and competitor analysis.
Joan Mill, chief executive of Novum Global Strategies, a company supplying IP portfolio management applications, says software can save hundreds of work-hours. “As all data and processes are wholly integrated, no time management effort is used searching for missing data or reporting across disparate systems. This is otherwise tedious and in some instances impossible,” she says.
Good software should enable a list of tasks, such as allocating the cost of an IP portfolio, by relating invoices, managing global portfolio performance, enabling quick search for details, comparing internal information with external sources, segmenting portfolios and creating instant reports from data.
Capitalising on IP
It’s no surprise that companies capitalising on IP are the sort of ideas-driven businesses that create a lot of new stuff and have innovation at the very heart of what they do. Global tech firms have thousands of registered patents and are constantly at war with rivals over whether or not these have been infringed.
Companies use their IP tactically to slow down the innovations of others and invest millions guarding the smallest details of their prized products. Not all of this is healthy, of course, but it goes without saying that these companies put so much emphasis on IP for a reason.
“Companies that successfully monetise their IP invariably have an IP culture. They have an IP strategy so they know what to do with IP from creation through to monetisation,” says David Bloom, founder of SafeguardIP, an intellectual property insurance broker.
“They seek expert advice and have board-level buy-in to deliver the strategy. They understand their market and what the goal of their IP is. They recognise innovation when it is created, and have a process for formally recording and registering it, and they ensure the entire concept is appropriately protected.”
Small businesses and non-tech firms, even those without anything obvious to protect, could benefit from drawing on this approach. Understanding what you have to offer puts a new perspective on what generates value in your business.
It helps investors understand why they should back you and tells buyers they should get serious about an acquisition. Companies that stick with finger-in-the-air assessments could be missing out on an IP gold mine.
CASE STUDY: GOOGLE
In April, Google – the famous devourer of cutting-edge IP – announced the launch of a new test programme to speed up the process in which it buys patents from businesses wishing to offload their brilliant ideas and creations.
The Patent Purchase Promotion, which went live the following month, is meant to “remove the friction” from the market and speed up transactions, offsetting the dragging effect of non-practising entities, also known as patent trolls.
Organisations and individuals can list the patents they have available and even set their own prices. Whether Google buys or not is a different story, but the system essentially helps put opportunities in front of the business and takes out some of the leg work.
The offer site was meant to be live for just a few days, but Google is still open for submissions, possibly indicating that the original call to action was a success. It promises swift resolution to deals after working with the sellers on due diligence.
Snapping up patents
Google essentially wants to snaffle exciting new patents and before they end up in the trolls’ hands. The website permits multiple submissions, in English, but will only grant one patent per submission. How Google evaluates each submission has not been revealed.
Successful applicants could expect a decent pay day, however. Google is known for its regular big-money gambles. The company has acquired nearly 200 companies, with its largest purchase to date being Motorola Mobility, bought in 2011 for $12.5 billion.
Other major deals over the years have included YouTube, acquired in October 2006 for $1.65 billion; DoubleClick, scooped in April 2007 for $3.1 billion; and Nest Labs, purchased in January last year for $3.2 billion.