When it comes to risk, the IP industry is like any other business sector – you need to know where the risks lie and guard against them, says CPA’s Vincent Brault

Another high-profile patent litigation hit the headlines this spring. Gemstar-TV Guide, the TV listings business part-owned by Rupert Murdoch's News Corporation, is suing cable group Virgin Media, claiming Virgin had infringed three of its European patents, including claims directed to techniques for providing interactive programme guides, which it had previously licensed to Virgin Media. Virgin Media has dismissed the claim as 'opportunism' and is planning to contest it. But at the heart of the dispute is a licensing deal that had lapsed - an incident which could have easily been avoided, had a proper risk management strategy been put in place.

Insuring against risk
Information and knowledge provide the currency for many business operations, which makes the protection and enforcement of your own IP Rights of paramount importance. But what about the rights of your competitors? You may be aware of some of their intellectual assets, but not all, and the likelihood of stepping on someone else’s toes is not to be underestimated; particularly for smaller, litigation-adverse companies, who often struggle to uphold their legal rights.

As a result, businesses are beginning to turn to the insurance industry to help reduce their liability in such instances; insurers, in turn, are quickly coming up to speed on the potential for growth in the IP industry, offering a swathe of new services and policies in the process. But that’s not to say that businesses shouldn’t also be managing their own risk. Most cases of IP exposure could easily have been avoided with the correct systems in place; for example, for protecting against error in times of data transfer, mergers and acquisitions (M&A) or changes to corporate governance.
Successful management programmes take a structured approach to managing uncertainty through a comprehensive risk assessment, as do the policies of insurers.
‘There is no question that businesses who manage their risks enjoy a significant competitive advantage,’ says Matthew Hogg, vice president of Marsh Insurance’s Technology, Media and Telecoms Practice.

‘Not to mention that they have to. In an environment where a company’s IP portfolio represents the main revenue driver, businesses would be foolhardy to avoid the risks inherent in managing and protecting it. After all, it’s that revenue which is most important, and most apparent, to stakeholders, whether that be the board, the customers or the shareholders.

‘Often, an IP risk management strategy only comes into play when a company gets into trouble or becomes the subject of an M&A agreement.’
- Matthew Hogg

‘The IP industry is no different from any other business sector. Any organisation which takes the lead in being able to take calculated risks, due to its greater knowledge of where threats and opportunities lie, will always have a head start on its rivals,’ he says.

However, the idea that managing directors wake up one day demanding a company risk management strategy is something of a misnomer, according to Matthew. ‘There is still something of a “Rembrandts in the Attic” situation with regard to risk management,’ he explains. ‘So, often, an IP risk management strategy only comes into play when a company gets into trouble or becomes the subject of an M&A agreement. Until that point, few companies fully comprehend the full range of IP exposures that they face in such a competitive and volatile sector.’

But Matthew believes that this attitude is beginning to change. ‘Previously, there wasn’t a huge understanding of the importance of managing IP or the risks associated with it, and there certainly was little comprehension of any sort of business model with regards to risk management. However, the “big players” such as Microsoft, Xerox and IBM really began to push forward the philosophy that, if IP was something from which revenue could be generated, then a comprehensive risk management strategy needed to be in place,’ he says.

And companies are running out of excuses not to follow their lead. Recent legislation, particularly in the US, has meant that companies have had to start organising themselves. The Sarbanes-Oxley Act of 2002, for example, requires companies to conduct regular audits of their intangible assets and to report material changes likely to affect the company’s operations.

Taking the lead
Matthew believes that the industry is still very much made up of ‘leaders’ and ‘followers’. ‘But that doesn’t necessarily equate to the old vision of corporate giants stamping over the innovative work of SMEs and “stealing” their IP assets,’ he says. ‘Companies who place innovation high on the agenda, tend to have a large R&D budget, understand the importance of what they are inventing and, as a consequence, tend to be well versed in the advantages and dangers associated with risk management.’ Ultimately, he suggests, it’s all about business awareness.

But Matthew also believes that companies need to develop a more holistic approach to risk management assessment. ‘They need to understand how IP risk exposure can reverberate throughout the business,’ he says. ‘And how it ties in with the way that IP is used and exploited within the organisation from a financial, operational and strategic legal model. Be it a risk manager, head of legal or head of marketing, it’s important that everyone is involved in the process.’

He suggests building an IP profile according to the five key perils of IP: enforcement, expenses, loss of position or value, cost of defence, damages or injunction and the costs needed to secure and defend it. ‘A risk management assessment can help strengthen a company’s IP capture and development policies and procedures, making them thorough and documented. That gives the businesses the knowledge they need should the worse happen and an ownership challenge present itself,’ he says.


Is your IP at risk?

According to Matthew, the following points should be considered when carrying out a complete risk assessment of your IP assets:

• Is a single person, or a department, responsible for IP capture and development?
• Are trade-secret protection policies and procedures strictly documented and explained to employees and consultants?
• Are non-disclosure agreements systematically used prior to disclosure of trade secrets, and are such agreements reviewed by counsel and archived?
• Have you fully integrated your processes for registering patents and clearing products for launch?
• Are IP ownership rights clearly delineated in joint development agreements and other types of partnering arrangements?
• When acquiring IP assets or companies owning IP assets, do you use uniform and consistent IP due-diligence policies and procedures to verify IP ownership rights?

This article was first published in IP Review, issue 22

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