22 March 2016
Paul Adams / CEO EverEdgeIP
Understanding intangible assets – the old term being intellectual property – is a key item on an exporter’s ‘to do’ list, but most CEOs know comparatively little about them. That’s not surprising - advice around intangible assets tends to be theoretical, legally-orientated and expensive.
Today intangible assets are more important than ever: they make up 80% of the value of most companies and often mean the difference between increased offshore margins and market share, or watching as competitors copy your products with impunity.
So to help New Zealand exporters understand intangible assets we are busting a few myths..
Myth 1: ‘Intangible assets = patents’
Most people think intangible assets equals patents and trademarks. This is not the case: there are many different kinds of intangible assets, including ‘soft’ intangible assets such as confidential information, unregistered trademarks, copyright and regulatory approval rights. Interestingly, for most companies the overwhelming volume and value of their intangible assets is not in hard (registered and not free) patent and trademark rights but in soft intangible assets. This is important because: a) these soft rights are free and b) the intellectual property strategy used for them is completely different from the approach used for the hard rights.
Myth 2: ‘I don’t have any intangible assets’Most companies have intangible assets - they just do not recognise them. As I said earlier, 80% of most companies’ value is in intangibles such as staff know-how, brand and copyrights. Your customer list, your bill of materials, your brand, your production expertise – all of these are intangible assets. If you don’t believe they are important try not using them for a week and see how hard it is create revenue! The first step in leveraging your intangible assets is to understand that you have them. From there you can identify the kinds of intangibles you have, what the best options are to protect them and how you can make money from them.
Myth 3: ‘Intangible assets aren’t important’Some CEOs believe intellectual property is not important because it is ‘impossible’ to enforce and the only solution is to ‘run as fast as you can’. In the long run a strategy of constant, rapid product iteration to offset a lack of intangible assets is simply unsustainable. It requires substantial, continuous injections of resource to stay ahead. In a global economy new competitors continually spring up and you need to be prepared when a large competitor shuts you out of the market using their intangible assets or duplicates your product at half the price. Intangible assets can be useful in many different ways and open new opportunities – so you need to understand how to use them.
Myth 4: ‘Intangible assets can wait for later’Intangible assets are seldom a burning issue and are all too easy to put off. They only get to the top of the agenda when something goes wrong: management discovers a distributor, not them, owns a core piece of intellectual property or their latest breakthrough technology actually broke through 10 years ago and they are now infringing someone else’s rights. Intellectual property issues are extraordinarily expensive to fix if things go wrong. It is important to note that boards and management teams can be directly liable to shareholders for failing to manage their intangible assets and risk effectively.
Myth 5: ‘If I’ve got a patent, I’m safe’Many companies believe that having their own patent means they are ‘safe’. That is, people cannot use their patented products and that they cannot be sued for patent infringement. This is incorrect on both fronts. A useful analogy: a patent is a sword not a shield. First, to use your patent (your sword) you have to enforce it (hit someone with it). Second, you can still be sued by someone for patent infringement even if you have your own patent – the patent functions as sword (to attack) not a shield (to defend).
Intangible assets shouldn’t be left to patent attorneys. Intellectual property strategy is a core business function and needs to be driven by the board, CEO and senior management team.
Paul Adams is CEO of EverEdgeIP, a global intangible asset specialist. EverEdgeIP assists senior management, boards and investors to identify, manage and generate value from their intangible assets. www.everedgeip.com.
This column was originally published in the National Business Review