Part 2

Identify the assets – Determining what you own

First step for proper management of the IP within a business identification and audit of IP assets.

• You need to know what you have and own, in order to be able to manage the assets.

Principal objective of such IP audit

•  to identify and record systematically the IP that a business has developed in-house or acquired, and determine the extent of the business’ ownership of such assets.

Summary of key audit objectives:

•  to identify and record existing and hidden IP acquired or developed by the business,
•  to determine the origin and legal ownership of the IP identified.

The next step –

to assess the importance and the value to the company or business of the identified IP assets which constitute the broad portfolio of the organization’s intangible assets.

In categorizing and identifying assets, it is useful to group the assets into three or four categories.

Individual intellectual / intangible assets, like copyrights or patents, do not exist in a vacuum. IPRs are always related to know-how, trade secrets or proprietary information – they tend to move in clusters.

A company’s intellectual capital (or assets) could be categorized into three groups:

• marketing group,
• technical group and
• knowledge or skills group of intangibles.

Each has real and verifiable value, and each will vary considerably from company to company.

In some businesses, the marketing group will clearly be dominant while in others, the technical group,
or the knowledge or skills group may carry the weight of value.

Marketing Group of Intangibles

• Corporate name and Logo
• Worldwide trademark registrations, Secondary trademarks
• Copyrights, Label designs, Slogans
• Graphics – design and colours
• Package design and Copyrights
• Marketing umbrella and Brand name
• Sub-brand names and Trade dress
• Consumer advertising, Marketing strategy
• Product warranties,
• Promotion concepts, worldwide Public Relations effort
• Advertising and Graphics review

Technical Group of Intangibles

• Patents, Process technology, Proprietary processes
• Trade secrets, Know-how, Formulae,
• Environmental (green) manufacturing techniques
• Packaging technology and sourcing
• Shapes and sizes,
• Design technology, Technical exchange meetings
• Product consistency/fingerprint, Technical training
• Technology updates, New product technology
• Secondary research, Secret blending techniques
• Technical data sheets, Evaluation data
• Proprietary test results, Clinical tests,
• Test facilities and research
• Plant and production design, Production specifications

Knowledge / Skills Group of Intangibles

• Office management, Mailing lists, Databases
• Processing methods, Exchange of technological ideas
• Purchasing/Procurement procedures, Customer lists, Sales leads, Sales knowledge,
• Quality control standards,
• Customer relations, Customer surveys, Proprietary MIS
• Non-compete clauses, Manuals, Instructions, Codes
• Training on-site, Employee education, Marketing/training,
• Trade relationships, International research clearing center
• Pricing policies, fee structures, Asset management processes
• Regulatory agency filings and approvals
• Security systems processes, Record keeping systems
• Business licenses and characters

Assess the value and importance of the assets

• Once the IP assets of a company have been identified, it is important to assess their value
  • for the company and its business operation (current and future)
  • for the clients and consumers – how they appreciate / view the company’s intangible assets in relation to its products / service
  • for the competitors – are they trying to copy/use the company’s intangible assets
  • for potential users of these intangible assets – are they interested in using/acquiring the company’s IPR for their own business development

All aspects should be reflected in the assessment and valuation of the company’s intangibles and on this basis the strategic decision to be made – what to do with these intangible / IPR assets.

• Examples that the process of identifying and using intangible assets effectively can be seen everywhere.

One impressive example is IBM.

In the late 1990s IBM undertook a comprehensive audit of its intellectual property assets to find that many research results were protected by patents or other IPRs, but these were largely underused by the company.

Income from licensing and royalties (generally from technology): around 30-40 Million US$ annually.

Following the IP audit exercise and a subsequent review of internal policies and management practices, IBM’s annual revenue from licenses and royalties jumped in the early 2000s to over 1.7 Billon US$.

Protect the assets

• Assessment and valuation of IP assets will facilitate their protection, and establishing an IP policy of the company
• Not all intangible assets can be protected as IPRs and therefore special provisions have to be made to ensure protection against unsolicited disclosure and illegal use
• Clear procedures should be established for the protectable IPRs (inventions, designs, trademarks, etc.) concerning the different decisions to be taken by management in line with the business objectives and applicable legislation: e.g., invention disclosure procedures, for which IPRs and when to start the procedures, where, in respect of which markets, periodical review of IPR titles and their maintenance, etc.
• Special attention should be given to the protection of trade secrets and know-how. These are very often in the core of the company’s manufacturing and service activities. And leaking trade secrets and proprietary information can result in considerable, even irreparable damages to the core business of the company.
• In this context attention must be given to sensibilization of staff and consultants to keeping secret company’s trade secrets, know-how and proprietary information
• Since IPR protection has costs a clear and long term decision on the protection and use of IPRs should obligatory be accompanied by proper financial commitments
• Medium and long term protection of IPRs and their use (internally or externally (e.g. licensing)) should be subject of periodic reviews and assessment – at least once a year.

Use the assets to create value, gain competitive advantage

• Identified, categorized, valued and protected IP assets are pre condition / sound basis for decisions on how to better exploit IPRs through use and/or commercialization.
• Good IP governance will provide the business with numerous commercial and bottom-line benefits (see Annex II) including improved:
  •  accountability of resources;
  • better operational and financial performance;
  • better risk management;
  • competitive advantage; and opportunities for growth and strategic investment
  •  improved earnings per share and share value

Материалът Management of Intellectual Property Rights main Principles, Challenges and Objectives е публикуван за пръв път на IP Bulgaria.

With increasing importance of intangible assets and intellectual property for companies, national economies and in international trade relations, management of intangible assets and intellectual property rights becomes a priority task for managers and decision makers at companies, R&D organizations, the academia and national policy makers. In such context it is very important to be able to identify, value and manage intangible assets effectively.

PART 1

What gives a business or a country its competitive advantage?

Is it

• the technical superiority or innovation or quality of products or services?
• the efficient manufacturing or business operations developed and used?
• the training and education system?
• or simply marketing of products or brands?

Are the things that make your business profitable protected?

These are questions that any business owner or manager should ask and give a frank and honest answer if he believes that his enterprise or company is part of the innovative business undertakings.

INTANGIBLE AND INTELLECTUAL PROPERTY ASSETS IN THE MODERN ECONOMY

Over the last 30 years the source of value shifted from tangible to intangible value. Today the main value drivers are intangible assets

• such as human capital,
• relationships with business partners and R&D institutions, and
• a company’s capabilities to innovate and launch innovative products

and not any more financial capital and tangible assets (such as property, equipment, materials, etc.)

If an organization or company is able to use the full potential of its intangible assets wealth creation will develop at an unseen speed and level.

If the IP assets are neglected, if management does not understand the new logic, the power of the new value lever “intangible assets” will be the same but in the opposite direction: value will be destroyed at a before unseen speed and level.

Intangible Assets – Challenges to Management

The basic principles of management of all kind of assets can be summarized as follows:

• Identify the assets,
• Assess the value and importance of the assets for company or business,
• Protect the assets, and
• Use the assets to create value and
  gain competitive advantage.

Responsible managers have a duty to ensure that the assets for which they are responsible are properly and well managed.

Intellectual Property is a type of intangible asset that can be created or acquired by any business.

Unlike tangible assets, such as premises, equipment, commodities and products, IP assets are not physical in nature and are inherently invisible.

Over the last 200 and more years, tangible assets have been vigorously identified, valued, protected and always reported in the balance sheet.

In general, even today, intangible assets are rarely considered to be part of a company’s balance sheet.

Like tangible assets, intangible assets must be systematically identified, protected and maintained to maximize their intrinsic value and strategic advantage, and minimize the risks of third-party abuse or inadvertent loss.

Until the end of the ‘90s of last centuries, the companies included the leading industrial indexes – Dow Jones, S&P 500, etc. were companies with huge tangible assets (property, equipment, natural resources, etc.).

Over the last 20 years this changed dramatically and today you will find in the top part of the industrial indexes companies, where intangibles constitute over 90% of the assets.

Types of Intangible Assets

• Intellectual Property
• Intellectual Capital
• Goodwill

• Intellectual Property
  • Patents for inventions and utility models
  • Trade marks (distinctive signs, including domain, company and business names)
  • Copyright
  • Software (including databases, digital libraries, etc.)
  • Confidential information (trade secrets)
  • Industrial Designs
  • Layout of integrated circuits
  • Plant breeders’ rights
  • Geographical indications (and Appellations of Origin)

• Intellectual Capital
  • Human capital
  • Enterprise knowledge
  • Enterprise innovation
  • Enterprise relationships (including contractual rights, licenses, permits, franchises, distribution rights, non-compete covenants)
  • Business methods and models
  • Training schemes
  • Quality control systems
  • Customer and suppliers lists and networks

This list is not exhaustive and can be extended

• Goodwill
  • An intangible but salable asset, such as reputation
    or location of a business, that engenders the expectation
    of continued customer or client patronage
    if the business is sold to a potential buyer.
    (see www.smallbusinessdictionary.com)

A very substantive difference between tangible and intangible assets explains why the later are by far more productive, if properly managed.

Tangible assets, or physical property, such as equipment, premises, goods and products can be used only by one person at a time and at one place. At the same time intangible assets, such as music recordings, software, inventions, know-how, proprietary information, etc. can be used simultaneously by many persons and in different places.

WHY INTELLECTUAL AND INTANGIBLE ASSETS ARE IMPORTANT

Although today nobody challenges the importance of intangibles, intellectual and intangible assets continue to be the most undervalued group of assets of the majority of companies and organizations.

All companies, small and large, who every day are facing various problems and resolving them, are advised regularly to review the existence of innovative solutions, assess the presence or not of IPR elements and decide on actions to document and to protect such potential IPRs.

The reasons for identification and valuation of such intangible assets comprise the following:

• need to maximize return from all assets, not just tangible assets.
• expanded global marketing and global use of intellectual property such as patents, trademarks, software, copyrights, etc.
• increasingly competitive business environment.
• increased product parity: parity in quality, appearance or function, so that an intangible asset may be able to differentiate a product.
• licensing and leveraging of intangibles is increasingly seen as a strategy to build value.
• growing awareness that protection of these increasingly valuable assets is critically important. 

Материалът Introduction to Management of IPR е публикуван за пръв път на IP Bulgaria.