Value in modern business relates more to intangible assets than building, plant and product. For while the industrial economy placed emphasis on control of raw materials, products and markets, the modern economy focuses firmly on the control of ideas, innovation and markets. Whether brand names, trade secrets or patents for inventions, intangible assets now constitute major assets of modern business.
Two recent European surveys highlight disturbing gap between the way IP is perceived and the way it is managed in practice.
The first survey of venture capitalists, conducted by law firm Howrey Europe, found that over 90 percent of respondents believed IP:
• gave business competitive advantage;
• enhanced profits of business;
• was important in protecting market; and
• was an important factor in assessing investment.
Venture capitalists clearly see IP as key business asset. Despite these findings, report by global legal services organisation DLA Piper Rudnick Gray Cary found that only half of the major European businesses surveyed had documented IP strategy for their business. Worse still, less than 29 percent had strategy document signed off by the board. Interestingly, the same survey found that businesses with documented strategy rated themselves as more successful than those without.
Chances are that survey conducted in New Zealand would reveal similar gap. The European surveys suggest that lack of board-level commitment to IP management is attributable to lack of understanding of IP and its benefits. Often IP is regarded as cost or goodwill item rather than as revenue generator. It is also regarded as specialist legal issue rather than broader business issue.
Directors have fiduciary duty to oversee IP asset management. The principles and guidelines surrounding corporate governance in New Zealand require continuous disclosure regime. Meaningful information must be disclosed so that shareholders are kept well informed about an organisation’s affairs.
Annual reporting is also required on risk identification and management. Information expected to be disclosed includes key assets and their value, material expenses and liabilities such as for IP infringement.
In the current governance climate there is greater possibility of directors being held personally liable for company losses incurred through negligence or bad faith. Omitting IP from strategic consideration may expose the company to liability and reduce shareholder value. It may also expose directors to personal liability. sound IP strategy, supported by an IP policy outlining how IP matters are to be handled, can minimise risks and facilitate compliance with the disclosure requirements.
Boards should not wait for crisis to highlight the importance of IP. Genetic Technologies recently alleged that number of New Zealand organisations were infringing its IP rights. Until approached for licences, the boards of some of these organisations were only peripherally aware of the implications of IP infringement and the extent of their exposure. It is far better to plan in advance than fight rearguard action.
There is no magic one-size-fits-all IP policy. An organisation needs flexible policy which reflects the nature of its business and is informed by its business strategy. However, any IP policy does need to address some of the following common but critical areas.
What have we got?
Carrying out an IP audit (preferably on an annual basis) will tell you what IP you own. This may cover brands, patents, trade secrets, copyright, contracts including licences, business information such as customer and marketing lists, and financial information. The audit also facilitates the asset valuation process.
How do we capture it?
IP rights are easily lost or their value diminished if not carefully handled. For example, rights can be lost through publication or inadvertent transfer of ownership interests to third parties. Balanced against this are the ongoing disclosure obligations and the duty to preserve asset values. An IP policy should address these issues by identifying the process for capturing IP and monitoring its release.
Who is responsible?
Your IP policy should identify the person or team that:
• captures IP for your organisation, seeks and maintains protection and makes enforcement decisions;
• monitors agreements impacting on IP such as employment agreements, research contracts, confidentiality agreements, licences and material transfer agreements;
• monitors legal and regulatory changes impacting on IP policy and business strategy; and
• monitors infringement of third party rights.
What are we doing with the IP?
An IP policy should match your current business strategy. IP is only tool to assist businesses achieve their commercial objectives. Although it may be easy to accumulate portfolio of IP rights, these can come with significant costs.
A regular audit can help to keep the portfolio strong, current and maximise the value of your IP spend. If you aren’t using it can you generate value, for example, by selling or licensing that asset? Or should the rights be allowed to lapse? If you don’t have the rights you need, how can you acquire them?
You should also address how your marketing and research teams are aligning IP policy with the business strategy.
Competitive intelligence
A regular review of IP databases can provide some valuable information. You may be able to gain insights on who your major competitors are and what they are doing, or ideas about product development and how to minimise infringement risks. You may also be able to identify potential business partners or acquisition targets.
The value of IP for modern business is undisputed. In this context, IP strategy can no longer be left solely to management. IP needs to be given higher profile in board discussions because the risks and rewards are too important to ignore. IP rights need to be treated strategically in line with business strategy and vision. Most importantly, any IP strategy requires the full understanding and endorsement of the board to succeed.
Teresa Griffiths is partner in the Wellington office of specialist intellectual property law firm J Park. [email protected]
