Owners and managers of businesses with intellectual property (IP) assets –whether a corporate name or more complex technology - need a good understanding of how these assets contribute to corporate value and whether or not that value can be assessed and be recognised in financial statements. For legal, accounting, banking and venture capital professionals these are crucial issues. For most businesses today some of their value is tied up in technology, products or brands that are the subject of IP rights protection. These rights give an owner or licensed user the right to prevent others offering the same products or services or using the same brand without permission. This is lawful restriction of competition. Some IP rights are more restrictive of competition than others and as a consequence potentially more valuable. The strength of the type of IP right - say patent or trademark - will vary depending on circumstances.

The value of IP should be looked at in two ways. First, the ability to generate above normal profits by enhancing margins or securing greater market share by restricting the activities of competitors. Secondly, the ability to earn revenues from licensing the rights either to competitors for core use, or for ‘non core’ uses which do not compete. Achieving this requires effective utilisation of the IP in business, which will improve shareholder value and the returns on capital employed.

So think of existing IP assets as like a classic car such as a Ferrari bought as an investment. To preserve it is value, you must know or be able to find out about buying a good one, you need to keep the mileage low, have the car serviced at a specialist service centre, know a good service place, keep a full service history, and, of course, not damage it by poor driving. Managing existing IP successfully requires a similar approach. R & D – future IP assets - can be thought of as similar to investing in bloodstock. Blood stock is a gamble but the odds can be reduced by knowing or being able to find out about buying a good young horse, by buying a few, knowing who to use as a trainer, what training regime will be appropriate, being able to decide at any point if any of the string is not worth keeping, disposing of these horses in the most appropriate way, and finally which races to run them in, and when to sell or keep for stud. Managing R & D requires a similar approach.

Posted: October 31st, 2007 under Intellectual Property.
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