Intellectual property (IP) is one of the most important asset classes of any business. It is often responsible for higher-than-average margins, and can be critical to the long term sustainability of a company’s financial prosperity. For start-up and scale-up businesses, and those seeking investment funding, IP can be crucial to the success and sustainability of the business.
Why then are IP assets not managed based on their financial contribution?
Traditional IP management involves identifying, protecting, enforcing and managing a company’s IP. An overarching strategy governs the principles of a decision making framework, which is used to manage these activities.
IP strategies normally fall into one of four categories:
- Cost reduction
- Risk mitigation
- Tactical
- Value maximising
The first of these is the most common. The cost reduction approach is predicated on the assumption that securing IP rights is a cost that should be minimised. This approach often fails to appreciate the potential of IP rights as an asset class which can be leveraged to improve the company’s profitability and/or investment potential.
The risk mitigation approach does seek to leverage IP rights, but only in the reduction of risk. Companies often use this approach to avoid litigation, for example through defensive patenting or cross-licensing.
Tactical IP strategies leverage IP rights more broadly, by prioritising the nature and direction of IP development and protection to achieve their strategic commercial goals. These strategies tend to be more sophisticated, involving input from across the business.
Value maximising strategies are normally used by businesses that profit from the direct use of the IP rights, such as licensing houses. This approach focuses on the revenue potential of IP rights, and decisions are made with a view to maximising this revenue.
The financial contribution of IP rights can normally be understood readily in cases such as licensing houses, but it can be modelled for the other IP strategies as well, using well established valuation techniques.
If done properly, this can simplify the decision making process, and improve the effectiveness of your portfolio.
If you would like to explore how you can use these techniques to manage your IP portfolio, our next IP clinic at NetPark is on 6th September and/or please email Lucy Johnson at ljohnson@hgf.com.