The Business of IP

In February 2006, IP Review Live gathered IP professionals from a wide range of backgrounds and industries to discuss the future trends of IP. Key presentations focused on driving business strategy and the growth of licensing, and with 10 hot topics to discuss over two days, there was plenty to cater to the delegates’ interests and needs.

We all know that IP is playing an increasingly prominent role in today’s business environment. Many in-house IP departments are already working in tandem with finance, marketing and research and development (R&D) departments to better deliver a tactical IP strategy that aligns to business objectives – and that situation is only set to continue. Over the next five years, intangible assets will increasingly become a boardroom issue. IP departments will be called upon to provide CEOs with strategies for dealing with IP as a corporate asset. But are today’s IP professionals able to quantify the value of their IP in order to inform business decisions at this level?

CPA Global and Intellectual Asset Management (IAM) set out to provide them with assistance in February when we launched IP Review Live, a conference that set out to discuss 10 questions the CEO will ask in the next five years.

Over two days of lively debate and discussion, expert speakers offered informed and practical advice on how to correlate business and IP strategy for effective financial gain. Presentations outlined best practices for valuing, enhancing, exploiting and protecting IP, using insight from companies that are already maximising the value of their IP Rights. Others offered perspectives from private practice attorneys, in-house counsel, government bodies and academics, while inventor Trevor Baylis parked debate with a controversial speech that wrestled IP away from patent attorneys and back into the hands of the inventor. Delegates said Trevor Baylis was one of their favourite speakers when we asked for feedback on the event. They also enjoyed presentations by Lucy Nichols from Nokia, Paula Nelson from Nestlé, Diane Mellet from Cambridge Antibody Technology and Suzanne Harrison from ICMG. Delegates told us that they found the seminars useful and thought provoking. Find out more in our round-up of questions and answers.

1. What is our tax position with regard to our IP?
Isabel Verlinden from PricewaterhouseCoopers talked about IP from a tax perspective. ‘Over three quarters of the value of public companies is held in IP,’ she explained. ‘Unsurprisingly, the tax office wants to tax this value. Yet, many companies still only consider their tax position as an afterthought; which can often be a costly mistake. ‘Careful tax consideration throughout the IP lifecycle is key,’ she emphasised. ‘R&D, corporate partnering and licensing all have an impact on the tax status of IP. Rules and responsibilities must be defined in agreements with third parties.’ Her advice to CEOs is clear: intangible assets may represent a significant portion of corporate value, but accounting rules are not keeping pace with it. Only by properly recording and auditing the value of your IP will you be able to assess your tax position.

2. We own a lot of IP – how can we raise money on the back of it?
Twenty-five years ago, IP was simply registered as a defensive tool,’ said Bruce Berman of Brody Berman Associates. ‘Today we know it is an asset that can be exploited for financial return.’ Yet, it is still difficult to discern value from IP Rights, and few banks or financial institutions will lend capital based on IP assets alone. So how can IP value be quantified? Michael Black, vice-president of CDT, offered a company perspective. Licensing for profit was a vital part of CDT’s business model from the very beginning. ‘Validation of technology was key to assessing patent worth, quantifying value in the process,’ he said. ‘It enabled us to generate funds through financial underwriting. Keith Bergelt ended the discussion by explaining why IP Innovations Financial Services invested the funds: ‘Innovation-drive companies are replacing bricks and mortar,’ he said. ‘The mortgaging of IP is the next generation of asset-based lending.’

3. We spend a lot of money on creating and protecting IP – how much is it actually worth?
‘Value your IP as you would any other asset,’ said Jeff Maddox from CPA Global. ‘Focus on the cash flow,’ Danny Ryan from LECG Corporation agreed. He spoke on the subject from an accounting perspective, explaining recent changes to accounting standards and offering tools for recording assets on the balance sheet. ‘The context of the valuation is critical,’ he explained. ‘For example, patents can be worthless if they don’t come with the necessary know-how or trade secrets to apply them.’ However, he was positive about the change in accounting rules: ‘As CEOs and financial institutions begin to understand more about IP valuation, it will result in an increased belief in balance sheet values of IP as a result,’ he said.

But what if you want to understand the worth of assets in the present climate? Jan Lindemann from Interbrand, set out techniques for valuing IP using a combination of marketing and financial analysis.

4. IBM makes big money out of licensing why don’t we?
‘Non-core licensing is like playing the lottery,’ said Peter Spours from ThinkFire, as he opened the discussion. ‘Winners are the rare exception. For the best chance of success, companies need to align their corporate and IP strategies, focusing on the lucrative rights they own.’ Beware the ‘illusion of exclusion’, he stressed. ‘Licensing valuable technologies brings greater profit than keeping them to yourself.’

Diane Mellet from Cambridge Antibody Technology agreed: ‘Ask yourself how you are using your IP. Is it simply being registered to protect inventions or is it core to your business strategy? You need to understand your assets, quantify them as strategic business aims and understand your market to generate revenue through licensing.’ Ultimately, they concluded, IBM was a fantastic success because it owned fantastic assets and knew how to use them.

‘Innovation-drive companies are replacing bricks and mortar. The mortgaging of IP is the next generation of asset-based lending.’

5. What’s IP insurance – and is it worth it?
‘As we discovered when applying for updated liability insurance, underwriters have never been as concerned with the risks that law firms present,’ said Rob MacDonald from Gowlings Lafleur Henderson. ‘Setting up a risk management programme can have positive benefits for your firm and offer significant reductions on liability insurance.’

Margaret Briffa, founding partner at Briffa, talked through some of the options available to companies in the UK. ‘Insurance is particularly important for small and medium-sized enterprises, as it often provides the funds needed in cases of litigation,’ she said. ‘The opposing side may pursue litigation knowing that the SME can’t afford the cost, irrespective of the validity of its case.’ Of the premiums available: ‘after the event’ and ‘before the event’ insurance policies exist, but rarely cover every eventuality. Passing off and trade libel, for example, needed to be added for a better form of coverage.

6. What is the competition up to – can you tell me?
‘Market needs are evolving,’ said CPA’s Jason Resnick. ‘Most companies are actively seeking ways to extract more value from their IP. Similarly, attorney firms are being asked to provide more information and advice about their clients’ IP portfolios. Both are turning to patent analysis to keep them up-to-date with changes in the market.’

Patent analysis provides fast and easy access to competitive information through statistical analysis of registered patents. Often the findings will help a company to better align its corporate IP strategy and plan its future in the marketplace. CPA’s Christian Bunke outlined examples of the kind of reports that companies and attorney firms should expect, while Lars Kellberg, vice-president of Corporate Patents at Novo Nordisk, provided a corporate point of view; the company used patent analysis at an early stage of drug discovery to verify validity against existing patents and potentially blocking existing patents. ‘After all, it’s better to abandon a drug at an early phase before investing in clinical trials when it stands little chance of success,’ he said.

7. I know about IP – tell me about IA and IC; what’s in it for US?
Iain Russell, chief executive of Scotland’s Intellectual Assets Centre, introduced this popular talk by explaining the meanings of Intellectual Capital (IC) and Intellectual Assets (IA), using examples of ‘non-IP assets’, such as know-how, process procedures and technical insight, confidential information and trade secrets, management systems and infrastructure, and employee market knowledge. ‘Around 80% of corporate value lies in intangible assets,’ he said. ‘And that includes non-traditional IP assets, such as IA and IC.’

Suzanne Harrison, co-founder of ICMG and co-editor of Edison in the Boardroom, agreed: ‘An increasing number of companies are now proactively managing their IP,’ she said. ‘However, there is also value to be derived from non-IP intangibles, or ‘I-Stuff’ as we term it. Only a small percentage of I-Stuff can be protected, but quantifying it can help companies better understand the value of their assets and extract financial return from them as a result.’

8. IP Litigation is costing us a lot of money – is it our only option?
Attorneys Michael Smith, in-house counsel at Colgate-Palmolive, and Jeremy Dickerson joined forces to outline alternatives in cases of infringement. IP litigation isn’t the only option they argued. Companies can often use Alternative Dispute Resolution (ADR) processes without having to resort to the courts. ‘Two formal methods of ADRs exist,’ said Jeremy. ‘Arbitration and mediation. Companies need to select the process that best suits them. However, as a general introduction, rulings in arbitration are made through independent assessment and are normally contractually binding. Mediation is less informal and rarely contractually binding. It is more common in contractual disputes than cases of infringement.’

9. The IP department is costing us a lot of money – why do we need you?
Lucy Nichols, Global Director of IPR for Nokia Corporation, chaired the penultimate talk, which united registered patent attorney Steven Lundberg, Paula Nelson from Nestlé and Suzanne Harrison back to the stage. Steven and Suzanne outlined proper practice in an IP department, by stressing the need for both an offensive and defensive IP strategy. ‘To raise its profile in the company, the IP department needs to show its value in terms of revenue,’ said Suzanne. ‘It should be informing businesses at a boardroom level.’ Lucy agreed: ‘If IP is going to have a place of importance, it has to be represented on the board,’ she said.

‘The profile of the IP department also needs to be raised in the company as a whole,’ said Paula. ‘At Nestlé we actively explain IP to different areas of the business, through in-house presentations. Outlining the rights we own and the importance of protecting them can make a huge difference. It also educates other departments to ensure that they, in turn, do not infringe the rights of others.’

10. What are we going to do about IP crime – can we ignore it?
Jeremy Phillips, professor at Queen Mary Intellectual Property Institute, took to the stage with six anti-counterfeiting experts to discuss methods of dealing with IP crime. Two representatives from the UK Patent Office opened the debate by outlining the government’s attempts to crack down on IP crime. Then Ruth Orchard explained the importance of the Anti-Counterfeiting Group and its work lobbying government and raising public awareness.

Frances Jagla, senior attorney at Microsoft, offered a brand-owner’s perspective. ‘Customs can be your friend,’ she said. ‘But only if you show you are serious about prosecuting infringers.’ David Wilson from Bird & Bird agreed, drawing on his experience representing Pfizer after illegal shipments of Viagra were discovered by Customs and Excise.

Author Tim Phillips argued that consumers would not take anti-counterfeiting drives seriously until they were properly educated about the ramifications of counterfeiting. Katrina Burchell from Unilever, agreed. ‘We should be pushing for a fundamental change in society’s approach to IP crime,’ she said. ‘At Nestlé we actively explain IP to different areas of the business, through in-house presentations. Outlining the rights we own and the importance of protecting them can make a huge difference. It also educates other departments to ensure that they, in turn, do not infringe the rights of others.’

This article first appeared in IP Review, issue 14