Managing Intellectual Property & Know-How

Managing Risk in Innovation

For businesses largely involved in outsourcing services, managing their intellectual property may mean managing a trade mark portfolio and ensuring that contractual relationships contain provisions for the outsourcer to obtain the benefit of technology advances over time.

Businesses heavily involved in manufacturing managing their intellectual property may involve ensuring that employees, at least on a legal basis are not entitled to hand in their notice and commence working for a competitor the day after, with the benefit of the skills, knowledge and most important know-how acquired during their employment.

Software and media house houses businesses are almost entirely centred on the intellectual creations of its staff, be it software, designs, editorials or literature.

The differences between these two instances, managing intellectual property means entirely different things, with different objectives and priorities.

The Purpose of the Management

One of the priorities of managing intellectual property is to keep ahead of the competition by setting in place procedures to maintain awareness where a company is positioned relative to its rivals. This increases the prospects of taking market share from competitors. Maintenance of rights assists in increasing the returns from research and innovation.

Software presents an ideal example. A supply chain management system developed within a company for a particular type of manufacturing process, theoretically may be adopted to manufacture of different products of similar complexity and nature. The revenue stream is made available through licensing. Adopting a judicious approach, the licensing know-how need not encroach upon the business’s own priorities and competitive advantage in its own industry.

A further alternative is the prospect of collaborating with third parties. Where a business has made themselves aware of an opportunity in another market, strategic research and development or technology transfer arrangements may be available with a company incumbent in the particular market. This presents an interesting set of possibilities. Where a technology or invention has the potential to provoke significant advances in an industry and present an early entry point to the innovation already in the market, it will be obvious to them that declining the option to take on developing the invention or participating in a joint venture may be at their own peril.

Businesses by having the ability to satisfy diversity in markets, meeting sophisticated customer requirements and innovating to fill gaps in a market comes from either the creation or acquisition of intellectual property rights, be they in the form of software, know-how, business methods or outsourced services to those with particular expertise. All of these transactions or acquisitions require the transfer, licensing and management of intellectual property.

Intellectual Capital

Intellectual capital is a term that encapsulates those assets of a business that are protected by the proprietary intellectual property rights, along with business knowledge and know-how, which is protectable as confidential information. Know-how is typically information known by employees and accrued as a result of significant experience in the particular industry. A priority of managing know-how and intellectual property setting in place procedures to avoid assets and know-how from walking out the door or appearing in a competitors’ business.

Proper management of intellectual property places a business in a position to enter licence agreement to reap the rewards of the expenditure and to enter markets where it may not otherwise be able to participate; expand its business into areas by cross-licensing with other businesses. The intellectual property is then able to be valued and that value contributes to the bottom line of the business.

Management Process

Management of intellectual property takes in a number of distinct stages.

Identification

The management of intellectual property must commence with a stocktake of the information held by a company in the course of its business, to realise the extent of the intellectual property held by the business. The persons performing the task ideally will have an in depth knowledge of the business and its activities over a number of years. A record should be made of the intellectual capital in a structured manner.

Assessment

Following on from identification, some consideration should be given to the nature of the property any costs involved in obtaining registered intellectual property rights. The value of the property may be temporal, whereby value is maintained only for short periods of time, such as editorial content produced for publications. Other types of intellectual property may require maintenance and incremental development over time to keep it competitive. An instance of this may be software, where new features and integration with its established footprint in the market is required. For instance, accounting packages or inventory systems may need functionality to manage an aspect of the supply chain in order to retain an appeal to the market.

Intellectual property should be evaluated taking into account the strength of the legal rights associated with the technology; and whether the intellectual property is owned jointly with another person or company.

Cost Benefit Analysis

The costs of acquiring and maintaining intellectual property rights, such as patents require payment of fees to The Patent Office over time after the first five years of protection. After a consideration of the possible market and licence fees that may be generated, the commercial view may be that the rights should be allowed to lapse as venture capital to move the invention to a marketable state may be out of reach, and resources to seek out venture capital limited.

Following the simple recording of the assets, an assessment needs to be made of commercial value from a number of perspectives. Firstly, are the assets being utilised adequately, and are there further options for exploitation?

Maintenance of Intellectual Property Rights

Copyright, Designs, Patent and semiconductors are governed by long standing legislation. This legislation not only sets out the qualification criterion for protection, but also the requirements for maintaining protection. For instance, registered trade marks rights may be renewed every 10 years - indefinitely. The Trade Marks Act makes a right of action available to third parties to make an application to strike a trade mark from the Register where the trade mark has not been used in trade and commerce to designate the goods or services as that of the trade mark owner for 5 years. However for newcomers to the trade mark system, a point may be missed in the application of the trade mark to goods and services. The trade mark must be used in commerce as it appears on the Register in order to avoid susceptibility to such an application for non-use.

Insofar as copyright is concerned, in the event that an owner of copyright becomes aware that a third is infringing their copyright, a failure to promptly enforce rights may lead to the argument that the copyright owner has acquiesced to the use of the copyright work by the third party. In the context of computer software, copyright protection may be perpetual where the software is continuously developed.

Particular care should to be taken with confidential information, to ensure the maintenance of the confidence, so that the rights are not lost. Utilising the obligations to prevent disclosure do not come with the rigour of statutory protection. Its disclosure must be managed by contract, and for limited purposes. Piecemeal disclosure of a body of confidential information over time will by sufficient to disclose the body of confidential information.

Responsibility of Management

Ideally a person or a committee who are aware of the rudimentary elements of intellectual property rights should be responsible for ensuring that employees’, consultants’, suppliers’, sub-contractors’ and licensees’ contracts deal with the ownership of intellectual capital and know-how.

Asset and Business Acquisitions

A further aspect of intellectual capital is that gained from third parties. During the course of business transactions, IP may be acquired in the purchase of physical assets. Due diligence should be performed to ensure that any intellectual property expected to vest in such assets are owned by the party selling the assets or business and are not encumbered by a fixed and floating charge, mortgage, or other security device.

Of course such an approach does not come without ownership of the concept of value in ownership permeating an organisation from the top down. Since the rise of ecommerce, piracy and the Internet general knowledge of the rudimentary principles intellectual property are more commonplace in business. Developing strategies and introducing organisational change is no mean task. A long term commitment is required, as with any other commercial project that is worth doing properly.

In Conclusion

As an asset, intellectual property rights may be used as a capital asset and as a revenue generating asset. Where it is feasible and possible, reuse of business assets for multiple revenue streams may become reality for some business. Depending on the form of property or know-how licensing models allow the same property to be used in different ways for different industries.

An awareness of intellectual property that exists in a business allows informed decision making in acquisitions and generating revenue from under utilised or resourced assets. These opportunities made available by pro-active thinking and initiative, contribute to the underlying shareholder value, as opposed to the alternative, which is the waste or disposal of intellectual assets that otherwise might hold appreciable value.