Intellectual capital: not a black and white issue

Like insurance, intellectual capital protection is best understood before it is too late.

Many companies have talented individuals or teams who come up with wonderful inventions. Finding a practical use for these ideas, marketing them and then fully exploiting their potential, however, can require quite different skills, which may not always be found in the same individual, team or even company that came up with the original idea. And one area that is often neglected by organisations is not just protecting, but also commercialising, those designs and inventions.

Many organisations are not clear on how best to value their intellectual capital, to protect their ideas and inventions against theft by competitors, or to make themselves attractive to potential investors or organisations, who might be interested in eventually buying them.

 In many businesses - particularly start-ups - there is usually enough to worry about just to ensure that the day-to-day activities are taken care of, without worrying about someone stealing your intellectual assets. It is perhaps not surprising, then, that many companies still function without taking even basic measures to protect themselves - and this applies even to some quite large organisations.

Even if an organisation has taken measures to protect its intellectual capital, they may still not understand how to exploit it fully. Protection, although important, is not enough. An organisation needs to understand just what its intellectual capital consists of, and then not just how to safeguard it, but also to commercialise it.

Deciding which assets to retain, protect and then commercialise at the start of a new venture - or even further down the line - needs careful consideration. Intellectual capital is not just about patents and other formal intellectual properties (IPs) such as trademarks, designs and copyright. A company's value is contained in its wider intellectual capital, where know-how, branding, skills and processes all have a part to play. Ideas and inventions provide a company's heartbeat, but it is the wider intellectual capital that drives growth and sustainability.

For example, do your company's employment contracts stop those you recruit taking ideas to a competitor? Are their ideas and processes at the core of your business proposition? If your suppliers are developing novel material for you, do you own the arising intellectual property? Many organisations do not realise that intellectual property is part of a much larger piece of the jigsaw known as intellectual capital which includes workforce skills, business processes, customer and business relationships, branding, reputation and the know-how of employees.

Surveys show that awareness of IP issues, and the best way of harnessing them to the benefit of the company, is still very low in the boardroom. And the Intellectual Assets Centre in Scotland has undertaken studies that show that Scottish organisations are sitting on billions of pounds of unrealised IC assets. Another threat is a growing band of organisations willing to try to exploit those who do not look after their intellectual property, as in recent cases where Scottish companies were asked to pay thousands of pounds by a team claiming they had the rights to their company name. These so-called 'trademark trolls' are increasing in number and can potentially be a real threat.

However, some smart organisations are starting to understand the value of intellectual capital and the importance of ensuring the robustness of the IP as part of their investment decisions.

Driving forward

Each year, the UK motorsport and high performance engineering industry undertakes development programmes to produce leading edge technologies and yet very little has traditionally been protected for wider commercialisation.

Coller IP Management undertook a programme of work that was designed to improve the capture and commercialisation of IP for companies serving the UK motorsports sector. The programme was aimed at small- and medium-sized enterprises (SMEs) that characterise this sector, many of which were unfamiliar with the need to protect their intellectual capital. The programme was grant-funded by Motorsport Development UK, and operated across the UK with a focus on three regions and in partnership with the Motorsport Industry Association.

The work undertaken encompassed:

  • IP audits of 27 companies and the subsequent development of IP action plans
  • Organisation and delivery of five training workshops
  • Benchmarking of each company's approach to IP management
  • Development of training material on intellectual capital and its value in underpinning commercialisation.

Participating companies included Alcon Components, B3 Technologies, BR Racing, Buzzpro Motorsport, Cosworth, Crompton Technology Group, Engenuity, Renault F1, Richard Hurdwell Engineering, RML Group, Superchips, Tyre Technology, Ultimate Sports Engineering and Xtrac.

Howard Partridge, project manager at Motorsport Development UK says: "The project succeeded in making these issues relevant to the industry and was effective in helping companies to understand the hidden potential of IP and its importance in driving commercial success."

Patent offices are getting busier, as the number of patents an organisation has is increasingly seen as a sign of the value of a company. There has been a surge in patent applications over the past decade. Well over one-and-a-half million patent applications were filed in 2005 showing an increase of around 5 per cent year on year since 1995. When 80 per cent of a company's value is now in intangible assets there are also new financial rules forcing companies to recognise this value on the balance sheet. 

The trend is not just in the West. There was a 33 per cent rise in applications filed through the China Patent Office, making it third in the national rankings, trailing only Japan and the US. Interest in protect--ing IP is happening at a time when the UK's manufacturing base is also transferring to Asia, placing even more emphasis on industry staying one step ahead and protecting its ideas and inventions if it is not to lose out.

An invention may never actually get to the stage where it is commercially exploited but the mere fact of having applied for what is shown to be valid and robust patent demonstrates to potential investors not only that an organisation has ideas but also the business acumen to know how to protect them. It often shows up an R&D pipeline that is not obvious on an organisation's balance sheet.

IP on its own, however, can be a potential liability if it leads to inventorship disputes or expensive patent litigation. In developing IP, market issues need to be factored into the process to guide and inform key IP decision-making steps.

Taking the next step

What should organisations do to ensure that they are fully protected and are commercial-ising their IP effectively? Those trying to value their IP portfolio often turn to outside IP specialists to help. The best of these organisations will undertake a range of activities, including checking that patents are enforceable and that an organisation can maintain and defend them. Clever patenting can provide many benefits, including an incentive to investors and a deterrent to competitors, and ultimately company survival and success.

One recommended strategy is to build an IP portfolio not in isolation, but factor in market issues. Managers should take a strong lead in understanding how IP protects and how its value can be built and optimised, and should not leave it to company technologists or the legal department. Senior management needs to realise that intellectual capital is the lifeblood of their company.

Many people think of IP being made up of patent protection, copyright and the like. However, if broadened out to include intellectual capital and intellectual asset management, a company cannot only protect its ideas and products from infringement but can actively commercialise these so-called 'intangibles' and put a real value on them - vital when raising finance, entering into partnership agreements or when engaging in investor due diligence for venture capital, mergers and acquisitions activity or a company sale. 

Protecting and marketing your assets need not be difficult or even expensive. The optimum way of ensuring success is to integrate IP with the business plan right at the start. Putting the right IP protection in place is an important part of the commercial strategy for a start-up or growing business and its investors. All can then rest assured that the IP underpins investment decisions going forward. The business is then free to focus on what it is good at - engineering and technology.

Taking steps to protect their IP is something that many companies think they will get round to later - and never do. Yet, if done early on, it can save a great deal of heartache - and possible insolvency.

Jackie Maguire is CEO of Coller IP Management, specialist in helping engineering companies to protect, understand, value and commercialise all aspects of intellectual property and intellectual capital. Visit www.colleripmanagement.com [new window].

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