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Intangible assets Featured

9:34am EDT July 22, 2002

Intellectual property (IP) is one of the hottest commodities of the new economy, in which the value of new ideas for products and business models can far exceed that of hard assets.

IP provides the key competitive advantage by which companies can command a premium in their markets. But many still do not have a clear grasp of their IP portfolio, much less those of their competitors. This information is essential to all business.

Understand the components

There are four basic types of IP -- patent, trademark, copyright and trade secrets. Patents protect inventions of products, processes, software and methods of doing business. Trademarks are words, names, logos, symbols, shapes, colors, sounds or scents that are uniquely associated with a product or service.

Copyright is the right to control copying of works of authorship such as literature, artwork, photographs, Web site content or source code. A trade secrets is nonpublic information that has economic value to a business, such as production processes, order fulfillment methods, product recipes or formulas, customer lists or pricing structures.

Given this scope of legal protection, nearly every business has some form of IP. You would not run a business without knowing in great detail its capital assets and inventory, yet many companies do not have a good system for cataloging and tracking their IP assets and correlating these assets to their products and services.

Valuable patents and trademarks remain stuffed away in file cabinets.

Devise a protection plan

Matching IP assets to products can be done with a database arranged according to a company's divisions or product lines, with links to corresponding IP documents, such as electronic copies of patents and trademark registrations.

Sales of protected products are a logical starting point for the valuation and accounting of IP assets. This information can also be accessed from an IP database, so that management can make informed decisions on filing and maintaining property rights worldwide. In this type of database -- accessible on a company intranet -- management personnel can view IP information and make business decisions with this key information in mind.

Even fewer companies have an accurate assessment of their competitors' IP assets, or a map of the competitive landscape which can be used to avoid infringement and identify unclaimed technology territories. Sophisticated software programs can perform this type of analysis on patents and present the data graphically.

Correct use of such systems requires legal interpretation of the scope and validity of IP rights, particularly with respect to patents.

Execution is the key

Accurate knowledge of your own and others' IP rights is essential for any company which deals with proprietary products or processes. Although the task of constructing a database of proprietary and competitor IP is formidable, the benefits are real and immediate.

This database will help:

  • Clearly identify where the company has distinct competitive advantages as a result of the legal right to exclude competition, which may influence pricing and R&D decisions;

  • Provide a starting point for valuation of IP as an asset class for accounting purposes;

  • Identify and eliminate the cost of maintaining any obsolete IP, or identify underutilized IP which may be licensed or sold;

  • Avoid costly infringement of others' rights;
  • Provide a strategic roadmap for R&D and product development, and even an overall business strategy.

Once such a database is constructed, it is relatively easy to maintain and can be updated with automated search engines which retrieve electronic copies of patent, trademark and copyright documents from the Internet and enter them into the database.

The importance and value of IP demands a structured approach to its management. The days of a company's patents and trademarks being locked away in a lawyer's file cabinet are over.

Manage your IP assets. They are your legal claims to the future economy. Jim Scott is an attorney at Arter & Hadden LLP and a member of the E-Group, a multidisciplinary group of attorneys which focuses its practice on entrepreneurs, Internet, e-commerce and emerging growth companies. Reach him at (216) 696-1100.