Connecting with IP

Businesses must learn to include IP in their strategic portfolio of assets, and examine how to accurately value, protect and maximise that value, says Melanie Butler, partner at PwC

Just 30 years ago, most company valuations were determined by ‘pure’ company assets, such as buildings and equipment. IP value was never really considered. However, this outdated philosophy is changing, and IP is, and should be, regarded as an increasingly important asset class. In today’s business climate, intangibles account for more than half of market value for the average company listed worldwide. This is particularly true in the case of technology companies, whose business models are IP-based by definition. Technology companies own enormous stores of IP, but it is obvious that much of that value is being squandered by these firms.

Wasted potential
Navi Radjou, vice-president and principal analyst at Forrester, estimates that US firms waste US$1tn annually by failing to extract the full value of their IP through partnerships. Considering that IP is now the most critical component of value creation for companies around the globe, it is time it was regarded as such. PwC’s own research indicates that technology executives currently don’t believe their companies are extracting IP’s full value. We found that companies have historically expensed tangible assets, and even IP, acquired through a merger or acquisition, has often been classified within goodwill under acquisition accounting if at all.

The value and management of IP portfolios are, therefore, major areas of concern. Although technology executives say they are capable of competent IP management, the indication is that there is substantial room for improvement. Indeed, our survey revealed that 60% of technology executives said that their companies could extract significantly more value from their IP by means of active IP management. Executives, in general, do not express a high degree of confidence that their companies are doing all they can, or all they should be doing, to maximise their IP assets. Part of this can be explained by the difficulty of valuing IP. For example, it is extremely problematic to obtain the information needed to manage and enhance the value of IP. That, together with the sensitivity of such information, can hold companies back, making it difficult for them to assign any true value to their IP portfolio.

A clear IP management strategy, alongside a robust monitoring system and an effective enforcement programme, can help companies increase revenues, improve licensing compliance and maximise value.

However, technology is synonymous with innovation, and the key to technological success is continuous innovation. IP management is just as essential in that it protects and sustains competitive advantage in all technology endeavours. So how do companies maximise their IP assets? A clear and workable IP management strategy, sitting alongside a  robust monitoring system and an effective enforcement programme, can help companies increase revenues, improve licensing compliance and of course maximise value. But  the pace of change is notoriously slow, and these aims are not always achievable. It can happen, however – and it can happen a lot quicker if closer links are developed between business units and R&D activities.This leads to a more accurate valuation of existing IP assets as well as tighter alignment of research with the realities of customers and markets.

A new approach
Companies need to treat their IP as a portfolio. They need to regularly revisit their processes for determining which technologies they will protect, and when, where and how they will protect them.  Companies should also review their approach to emerging markets. Is IP being created in off-shore research centres and, if so, how is it being protected?

Finally and perhaps most importantly of all, companies need to ask themselves if they are moving fast enough to keep pace with the dynamic and ever-changing world of IP. Patents, for example, are important, yet any company that looks exclusively to patents to preserve its value will soon have little of value to preserve. The technology sector is not being singled out here. It is not alone in at last waking up to the fact that its IP assets are one of its most valuable commodities. What is important however, is that these assets are utilised and managed properly.

PwC’s report is based on a survey conducted by the Economist Intelligence Unit, taking 197 responses from senior executives. To download a pdf or order a complimentary hard copy of Exploiting Intellectual Property in a Complex World , visit www.pwc.com/techconnect.


This article first appeared in IP Review, issue 20