Corporate Intellectual Property Management Programs
- A Tool to Increase Business Value
Dave Tyrrell and Gary Floyd, Vertex Intellectual Property Strategies Inc.
A principal goal of any CEO of a publicly owned company is invariably to increase its share value. Similarly, in the case of a privately held company, the primary goal could be to improve the value of the business for a future sale.
The value of the business as perceived by the shareholders or prospective purchasers can be described as being based on two components. One factor is related to the net fixed assets that the company possesses. The second component relates to the intangible factor often referred to as "goodwill". Goodwill is generally comprised of a number of elements including:
- Market Position - future sales, company recognition in the market place, franchise position, and the effectiveness with which the capital is employed.
- Human Factor - the assembly of competent, trained, and loyal employees.
- Intellectual Property - the existence, documentation and protection of trade secrets, patents, trademarks and proprietary business information, which provide a competitive advantage.
The chart below shows an example of a company whose fixed assets represent slightly more than one-half the total value of the company with the balance being classified as goodwill, which is split equally among Market Position, the Human Factor and Intellectual Property.
In reality, these proportions will vary considerably from business to business. For example, the value of a computer-based business such as Microsoft and an Internet business such as Amazon.com will have a very low proportion of fixed assets and a very high proportion of goodwill. Conversely, for a capital intense business in an unchanging industry whose work-force skills are readily available, the level of goodwill would likely be very low.
Businesses generally give careful consideration to making capital expenditures. Once a capital expenditure has been made and a fixed asset has been acquired, care will be taken to maintain the value of that asset through proper management. The depreciated value is meticulously tracked over its life. Similarly, most businesses have programs to select, train and inspire loyal and competent employees. Hiring is undertaken carefully, training is provided to assure that the employees have the necessary skill-sets to do their jobs, and incentive programs are developed to ensure that the key employees don't leave for more attractive opportunities. In other words, the human resources are managed. Also, companies have sales and marketing functions to maintain existing customers and develop new ones - the lifeblood of their business. Without customers, no business would survive for very long. Accordingly, a company's market position is managed.
Despite having programs in place to manage capital assets, human resources and market position, many businesses do not have a program in place to manage their Intellectual Property. When IP is discussed, it is easy to come to the conclusion that only a small percentage of businesses have a formal process in place. In many cases they haven't even inventoried their intellectual assets, particularly with regard to trade secrets.
It is evident that companies that don't have a process in place to manage intellectual property, or believe that intellectual property is not an issue for them, are not maximizing the value of their intellectual assets. They are likely missing out on some significant business opportunities.