A company's stable of intellectual property (IP) rights can arguably be viewed as a barometer of how innovative a business is – and it seems a lot of economic activity is currently associated with IP intensive industries.

 

Recent studies to determine the economic impact of IP intensive industries in US and European markets suggest that businesses have been transforming and restructuring to make IP rights their primary on-book assets.

To remain competitive, local businesses and manufacturers need to be able to generate company value outside a traditional fixed asset type business structure.  By providing monopoly-style access to local and overseas markets, which is especially important in highly competitive industries, IP rights are hot property.

The rise of intangibles

Intellectual property rights are traditionally referred to as "intangible" assets, as in many cases, they lack the real and tangible characteristics of a fixed asset. These include a huge range of things from brand names to industrial designs, proprietary production processes to database rights and many more.

Current research shows that over the last few decades, the centre of corporate wealth has been shifting from tangible, physical assets and capital, to "intangible" or knowledge-based capital.

Charting this shift, a comparison of Standard & Poors 500 companies shows that in 1978, the asset distribution of corporations was 95% tangible assets and 5% intangible assets.  In 2010, however, this distribution had been turned on its head, with 20% tangible assets compared to 80% intangible assets.

While an 80/20 mix of intangible versus tangible assets may not be appropriate for all businesses, a regular IP review might assist a business to follow and manage a similar asset shift. 

Whether it's the reputation of the brand, or a new design for a time-saving piece of factory machinery, an IP review can identify potential areas where investment can be made to capture or establish new IP for the business, and generate increased economic activity.  Indeed, valuation of IP rights is now a regular function of major accounting practices.

Intellectual Property as a financing mechanism

Intangible assets can have enormous value - Microsoft recently purchased Nokia's mobile phone business, and a suite of IP rights, for $7.2 billion; and Apple was awarded $1 billion in damages against Samsung in the 

US for infringement of IP rights.  But value doesn't have to come through buying and selling, or contentious Court action.

IP rights can be used to generate regular income through sales or licensing. Consider the revenue generated from the Cochlear Implant or the ladder and access systems produced by Hedweld Engineering Pty Ltd. Or other forms of IP rights such as the broadcast rights of major sporting events or the sale of a proprietary product, such as the Dyson vacuum cleaner or a pharmaceutical.  Pfizer has made tens of billions of dollars from Viagra.

Securing local and international markets

Several mechanisms can assist companies locally, while improvements to the IP system in China and a new Global Patent Prosecution Highway program are good news internationally.

Government funding, grants and R&D tax incentives are all available to assist Australian businesses to foster and develop their knowledge-based capital, both locally and overseas.

In China, once a safe haven for infringers and counterfeiters, an overhaul of the IPR enforcement system, and an increasingly affluent population – a major consumer market in itself – means that China is now emerging as an important destination for protecting intellectual property.

Filing patents overseas was made easier this year, with 13 countries, including the US EU and UK , signing the Global Patent Prosecution Highway (GPPH) which fast tracks the examination process for corresponding applications across participating patent offices, minimising the costs associated with protracted international patent prosecution.

The business value of IP rights internationally is significant and businesses should be taking steps to review their IP rights (IPR) portfolios and strategies.  To remain competitive and viable, companies should be investing more in development and innovation.

Integrating an IP strategy into the business can increase local market share and open more secure options for international markets.  Although not a definitive measure in its own right, the more IP intensive an industry is, the more likely it is to be trading internationally.

For more information on this article, contact:

Damon Henshaw Partner and Patent Attorney at Davies Collison Cave

T  8869 6200

E  dhenshaw@davies.com.au