Keeping the value of creation in mind

Intellectual property is now the most valuable asset that many businesses have and must be protected in law against potentially ruinous incursions


From the latest blockbuster cancer drug to a new avenging slayer taking the gaming world by storm, exploiting the commercial benefits of intellectual property (IP) has never been more lucrative. But the legal terrain is also infinitely more complicated than at any time in modern business history.

Stealing a know-how march on competitors is crucial, as is having brand power in the market. Intangible intellectual property assets can form the vast majority of a business’s value, but without protection they are increasingly vulnerable.

Wild wild east

No market on the planet better demonstrates just how vulnerable IP assets can be than does China. Until the late-90s, the only IP issue in that country was debate over whether state manufactures of zhongshan – Moa suits – should churn out versions in grey or blue.

Now China is the wild, wild east for owners of IP and those trying to protect their rights. Or at least that is the popular perception. But specialist lawyers working in the jurisdiction warn against stereotypes.

They acknowledge that 90 per cent of fake luxury brand products in South-East Asia originate in China. But they maintain the authorities are not turning a blind eye.

“The tendency in the West is to blame all the intellectual property problems in China on the government and the Chinese legal system,” according to Paolo Beconcini, a consultant lawyer with the Beijing office of San Francisco-based law firm Caroll Burdick.

But, says Mr Beconcini, the authorities are increasingly cracking down on piracy and establishing rules. A tangible example of this effort has been the recent opening of three intellectual property courts in Beijing, Shanghai and Guangzhou.

So prevalent is IP in modern commerce that some suggest as much as 80 per cent of any business’s value consists of this intangible asset

IP activity hotting up

IP issues are by no means limited to China. There is huge global growth in activity, with the latest figures from the World Intellectual Property Organization (WIPO) showing that in 2013 worldwide filings for patents and trademarks grew for the fourth consecutive year.

The WIPO statistics show an estimated 2.6 million patent applications were filed worldwide in 2013, a 9 per cent rise on the previous year. Over the same period, trade mark filings increased by 6 per cent.

But dry statistics can only illustrate the story to a point. IP makes a real-life impact on ordinary consumers.

For example, a case earlier this year in the English High Court involved a challenge to the Innocent smoothie drink’s ownership of its familiar Dude logo. Innocent prevailed, but the challenge came at the worst possible time just at the point global fizzy drinks giant Coca-Cola was aiming to purchase the business.

Indeed, so prevalent is IP in modern commerce that some suggest as much as 80 per cent of any business’s value consists of this intangible asset. However, making a value equation is not so straightforward.

Valuing intellectual property

“There is no doubt that the balance between fixed assets and intangible assets has changed for ever,” says Nigel Swycher, chief executive of IP consultancy Aistemos and a former specialist lawyer with London law firms Slaughter and May, and Olswang.

“Fixed assets for a business now form the minority of the value of a corporation,” he says, attributing the shift to the profound evolution of the global industrial economy. “The most valuable companies in the world today were not around 20 years ago and they have brand new business models.”

But, say Mr Swycher and other specialists, the percentage formed by intangible assets and IP varies widely from sector to sector. Property, for example, is at the lower end of the IP-intensity spectrum. While at the high end are businesses such as international mini cab company Uber and online accommodation business Airbnb.

Indeed, at that top end, businesses probably exceed the 80 per cent mark as the only fixed assets they are likely to have include a handful of employees and a computer. The rest is brand, connections, technology, patents and trade marks.

“Experts would say it is entirely sector and definition relevant,” adds Neil Nachshen, a partner at D. Young & Co, a London-based trade mark and patent attorneys. “They will shrug and say, it could be 80 per cent or it could be 30 per cent. In big pharma and the bio-tech industries it will always be 80 per cent; others will be lower.”

Regardless of exactly how much of a company’s value consists of IP, those doing business in Europe need to start weighing up the implications of the long-awaited European Union unitary patent package and unified court.

The court, which will have a branch in London, still does not have an opening date set in stone, but when the system kicks in, the practical effects will be profound.

For the first time, 25 EU states will have a unified patent, which will harmonise procedures for a population of some 418 million. And the Unified Patent Court, which will also be sited in Paris and Munich, will have jurisdiction over all disputes.

While experts generally welcome harmonisation, there are potential problems. “Small and medium-sized enterprises are going to find themselves potentially in a situation where bigger companies are able to injunct and obtain damages against them in one go in 25 states,” warns Morag Macdonald, joint head of the international IP group at London law firm Bird & Bird. “It will be very hard for the court to resist that bullying tactic being applied in some situations.”