Archive for August, 2012

Patents Are Intangible Assets Suitable For Framing…!

August 28th, 2012. Published under Investing in intangible assets., University R&D, University Technology Transfer. No Comments.

Michael D. Moberly     August 28, 2012

The difference between a patent and intangible assets is that an issued patent can be framed, while intangible assets are non-physical and are the real enablers of most every patent.  Frequently, much to the chagrin of intangible asset strategists, intellectual property, i.e., patents particularly, are the presumptive ‘brass ring’ which a significant percentage of technology transfer managers, researchers, inventors, and legal counsel set their sights, sometimes for obvious reasons, and sometimes because quite simply, there is no intangible asset specialist -strategist in place to articulate alternatives.

I suspect, somewhat respectfully, that deference is routinely attached to patent (only) strategies based on the time honored perspective that an issued patent conveys ownership, certain rights, and is defensible under law, all of which it does.  However, the costs associated with obtaining, maintaining, and defending a patent are escalating, making that tract increasingly out-of-reach for many inventors and innovation regimes, absent a fairly deep pocket of investment resources.

In today’s increasingly aggressive, predatorial, and winner-take-all global business transaction and R&D environment, patents, in my view, are in a fairly constant state of risk. Too, I might add, there is the widely held, but never-the-less mistaken assumption that an issued patent constitutes a deterrent to, or safe harbor from would be infringers, which it certainly does not.

Yes, it still remains very true that prospective investors, venture capitalists, and to be sure, large multi-nationals who may express interest in an inventor’s research, truly believe the proverbial ‘what is your IP position’ question is both relevant and important.  At the 30,000 foot level, the answers to IP questions like that, can become deal breakers or constitute a significant duty of sorts levied against the inventor.  But, in a large percentage of circumstances, and I say this with the utmost respect, there are comparatively few researchers – inventors working at the 30,000 foot level, rather most are working at the 4,000 foot level, with the ‘gatorade invention and royalties’ (University of Florida, 1965) few and far between.

Patents are expensive to obtain, to maintain, and to defend. And, even if the entire patenting process goes smoothly for an inventor, company, or institution, the patent still remains at risk and the inventor along with any number of individuals associated with the research and/or patenting process could stumble.  That is, the research product could become entangled-ensnared in various legal disputes and challenges, fail to be effectively marketed, and/or resources being withdrawn to maintain the patent.

In far too many instances, I find the intangible asset offspring (enablers) of IP are being overlooked, dismissed, or overshadowed by the assumption that the time honored practice – strategy of pursuing conventional intellectual property, i.e., patent applications, provisionals, licensing, etc., are perceived as either the best or only option.  Of course, I disagree.

To that point, an analogy may be in order.  When one seeks the guidance of SEO (search engine optimization) firms to promote their website and/or blog, the business development – marketing officers’ lead statement will consistently be some variation of ‘we’ll get you on page one of Google’.  The reality is, there is no guarantee that getting a website or blog post on page one of Google will produce the all-important conversions that many assume will come naturally.  Yes, entrepreneurs can rationalize that all it takes is one good (the right) ‘conversion’ to kick start a company down the path to riches.  But, reaching ‘page one of Google’ may not be all that a startup company really needs to achieve sustainable financial success.  Instead, they are likely to be in need of a well-coordinated, focused, and specific strategy that effectively utilizes an array of internet resources and social media that presents many different options for exposure and conversion, not merely one!

So, for 2012 and beyond, inventors, researchers, companies, and institutions who engage in R&D, perhaps their initial call should not be to legal counsel, rather to an intangible asset specialists-strategist who can identify, unravel, and assess the enabling intangible assets and offer a variety of options and strategies that ‘fit best and work best’!

Start-Up Success: The Importance of Identifying, Managing, and Safeguarding Enabling Intangible Assets!

August 27th, 2012. Published under Corporate - University Research. No Comments.

Michael D. Moberly   August 27, 2012

For start-ups, the launch of their first product is an important event because it brings a new venture closer to growth, profitability, and financial independence, says Ans Heirman and Bart Clarysse formerly of Ghent University and now with Scientific Commons, in their paper ‘Do Intangible Assets at Start-Up Matter for Innovation Speed?’ Of course, my answer to that question is unequivocally yes!

Innovation speed is also relevant to startups insofar as sustaining and attracting additional (new) investment.  But, an increasingly crucial factor affecting the speed which start-ups can successfully launch their innovation and enter the market space, is by recognizing, protecting, and managing the enabling (ancillary – complimentary) intangible assets integral to every innovation. 

Unfortunately, in far too many instances, start-up innovators, i.e., university-based or independent, are frequently overly focused on filing – being issued a patent and tend to discount and/or overlook the equally valuable (enabling) intangible assets that routinely serve as the underlying foundation to any spin-off company’s innovation and (new product) launch.  For startups, it’s certainly not unusual for 90+% of their sources of (company) value, revenue, and ‘building blocks’ for growth and sustainability to reside in – evolve directly from intangible assets.

Even though Heirman and Clarysse’ paper was published in 2004, I find it still very relevant insofar as making a convincing case that antecedents (speed) to innovation lie in the recognition, management, and safeguarding of key intangible assets, particularly, in my view, intellectual, relationship, and structural capital. 

Heirman and Clarysse also make a very favorable case that other equally important intangible assets, referred to as pre-founding R&D efforts, e.g., team tenure, the experience level of the start-ups’ founders and/or management teams, and collaborations with third parties, are also important contributors to innovation speed.  To test and test this notion, Heirman and Clarysse collected a dataset on 99 research-based start-ups (RBSUs) and applied an event-history approach.

Experienced entrepreneurs, they conclude, understand that innovation speed is important for many reasons, key among them are to…
• acquire early investment to achieve more (greater) financial independence,
• achieve broader external visibility and legitimacy as quickly as possible,
• establish competitive advantages as early as possible.

Both Heirman and Clarysse acknowledge however, that innovation (R&D development) cycles can vary rather widely based on the number and phases of product development, along with specialized technologies that required.  Being an intangible asset advocate and strategist no surprise here.

This giving additional credence to the view that identifying individual and/or inter-connected clusters of intangible assets that emerge as ancillary and complimentary enablers of RBSUs, should not be dismissed, overlooked, or neglected as potential (additional) sources of value, revenue, and ‘building blocks’ for future (distinct, stand alone) innovations.

Ultimately Heirman and Clarysse found that RBSUs differ with respect their starting conditions, for example…

  • start-ups which are further in their product development cycle (at founding) will likely launch their initial innovation (product) faster.
  • software and other firms that require a beta-version (test) will quite naturally experience slower product launch times.
  • experience of startup founders and management team tenure can facilitate (produce) faster product launch times.
  • a startups’ alliance with other firms does not significantly (favorably) affect innovation speed.
  • startups which collaborate with universities (perhaps as a spin-off, etc.) generally lead to longer innovation development and launch times.

It’s worth noting again, for startups, it’s not unusual for 90+% of their value as a company, sources of revenue, and ‘building blocks’ for growth and sustainability to reside in – evolve directly from intangible assets.  So, it’s easy to understand the importance of identifying, managing, and safeguarding enabling intangible assets!

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Trade Secrets Start Life As Intangible Assets, i.e., Intellectual Capital!

August 20th, 2012. Published under Intangible asset protection, Trade secrecy.. No Comments.

Michael D. Moberly    August 20, 2012

A recent ruling by the USDC (Northern District of California) will, once again, hopefully serve as impetus for information asset protection management specialists and intellectual property counsel to review the agreements, policies, procedures, and practices to reflect the adage that ’all trade secrets start life as intangible assets, i.e., ideas – intellectual capital!

On June 7, 2012, in FormFactor, Inc. v. Micro-Probe, Inc., this court ruled on a case that, once again, delineates the evidence necessary to support an allegation of trade secret theft.

In February 2010, defendant left FormFactor to work for Micro-Probe, a competitor. Both firms sold and provided support for products used to test the performance of semi-conductors. The companies had some overlapping customers although their products conducted different kinds of performance tests.

While employed by FormFactor, defendant had been authorized to remotely access his employer’s internal system on the laptop provided by his employer as well as a personal home computer. When defendant informed his employer he was leaving to work for Micro-Probe, he returned his company owned laptop.  Unfortunately, FormFactor made three procedural errors…

  • it made no inquiries about whether the defendant retained any proprietary data/information (files) on his personal home computer,
  • neither did FormFactor request that defendant return or delete any (proprietary) materials that he may have acquired while working from home., and in addition, defendant
  • never signed any restrictive covenant/agreement while employed by FormFactor.

Shortly after defendant departed FormFactor, at their request, the defendant relinquished his personal (home) computer and other data storage devices for inspection (by FormFactor) to determine if it contained trade secrets or confidential (proprietary) information. This inspection revealed some 4500 files were stored on defendant’s home computer and its storage devices belonging to FormFactor.  Following this inspection and comparison to Micro-Probe’s databases and electronic storage system, only one of those (4500) files appeared in Micro-Probe’s possession.

Consequently, the court noted that any party seeking to recover under California’s Uniform Trade Secret Act for misappropriation, in this instance, FormFactor…

  • must demonstrate the existence of a trade secret
  • must identify the trade secret(s), and
  • carry the burden of showing that the (alleged) trade secrets exist.

Further exacerbating FormFactor’s claims in this instance, was that, of the 4,500 files listed, none met the requisite specificity of constituting a trade secret, thus, the blanket assertion that all of the files were ‘confidential or contained a trade secret was rejected. 

Also, the USDC ruled that FormFactor’s case omitted the requirements that the plaintiff

  • identify each particular trade secret (not just a file that might contain a trade secret), and
  • describe the subject matter of the trade secret, and
  • establish that a trade secret held independent economic value.

It certainly comes as no surprise that requiring plaintiff’s to openly disclose a trade secret frequently deters companies from pursuing trade secret claims.

The court also said, plaintiff’s broad argument that it spends $50 million a year on R&D failed to establish a connection between (a.) the value of the alleged (contested) trade secrets on the defendants home/personal computer, and (b.) FormFactor’s level of annual spending on R&D.

Finally, the court held that FormFactor had not sufficiently demonstrated that it made reasonable efforts to safeguard its alleged trade secrets in that it…

  • never required defendant to sign a non-compete, confidentiality/non-disclosure, or non-solicitation agreement.
  • allowed defendant to retain his contact information after his departure from FormFactor.
  • authorized defendant and other employees to work from home.
  • did not request defendant return any FormFactor data upon tendering his resignation.

Ultimately, FormFactor did not establish the existence of any protectable trade secrets, nor did it demonstrate misappropriation, i.e., improper acquisition or use, under CUTSA.  Mere possession of an alleged trade secret by a departing employee, standing alone, does not presume misappropriation.

Too, the single file that defendant appeared to have taken to Micro-Probe was actually a spreadsheet containing non-confidential information.  That file was in a format that was common to the industry and not unique to FormFactor.  Too, there was no evidence that Micro-Probe ever actually used that documents’ content.

Given the extraordinarily rapid growth of knowledge intensive companies globally, wherein 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth and sustainability reside in intangible (intellectual capital) assets, this ruling should serve as yet one more testament to how companies should strictly follow the ‘six requisites of trade secrecy’, and put procedures-practices in place to sustain control, use, ownership, and monitor the value, materiality, and possession of its proprietary information and trade secrets!

(This post was inspired by a case summary by GreenbergTraurig, dated August 3, 2012)


Islamic Law and Intellectual Property

August 17th, 2012. Published under Intellectual Property Rights, Islamic IP. No Comments.

Michael D. Moberly    January 24, 2014    ‘A blog where attention span really matters.’

Admittedly, I am not an expert in Islamic law, particularly those aspects which pertain to intellectual property and other intangible assets.  I do however, possess a very genuine desire to learn key practicalities of Islamic (and Sharia) law insofar as it relates to engaging in and/or endeavoring to conduct (business) transactions in which intellectual property and other intangible assets are in play, which I presume they are in Islam as they are in non-Islamic  sectors.

After reading and studying numerous, primarily academic, papers on what I respectfully refer to as an emerging business necessity, much of this post, I defer to an excellent paper authored by Silvia Beltrametti, (The Legality of Intellectual Property Rights Under Islamic Law, The Prague Yearbook of Comparative Law 2009. Mach, T. et al. (Eds). Prague, 2010. pp. 55-94).  While I did find many answers to the practical questions I was seeking, I concluded however, numerous questions remain insofar as the actual application of Islamic law to IP (intangible asset) conventions.

Ms. Beltrametti, a JD from the University of Chicago with an emphasis/specialty in IP, states that intellectual property rights, per se, are not regulated by Islamic law and its jurisprudence. Rather, the question or issue, she posits, is whether the principles of Islamic law can be construed in a manner that actually provides for or supports intellectual property rights  protections in a conventional context.

Beltrametti’s paper further discusses the extent to which Islamic law has an impact on the protection of intellectual property (rights).  She does this initially by presenting Sharia’s main sources; the Qur’an, the Sunna, Ijma and Qiyas.  I should note that the term Sharia, as applied throughout Beltametti’s paper, is synonymous with Islamic law.

Very appropriately, Beltrametti points out, tensions and challenges remain between (a.) the predominantly Western, and (b.) Islamic perspectives regarding intellectual property rights, as well as (c.) the role economics plays within Islamic law and society.  To that,  Ms. Beltrametti offers an  intriguing suggestion in which a Sharia based (legal, intellectual property rights) system, is flexible and adaptable.  Such flexibility, she suggests, can be used to address current economic facts/realities, for example,  80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability today reside in or evolve directly from intangible, often IP-based assets.

Another equally informative paper, titled ‘Can TRIPS Live in Harmony with Islamic Law: An Investigation of the Relationship between Intellectual Property and Islamic Law?’ authored by Chad M. Cullen (Baker Botts) provides additional insight and is certainly worthy of one’s time to read and study.

Both authors/researchers, in their respective style…

  • agree that intellectual property (rights), per se, are not particularly new concepts to Islamic rule of law. Some IPR’s are actually strengthened by Islamic rule, while others were never explicitly formulated (as law), instead, they evolved as accepted social norms.
  • point out that since the advent of Islam, the concept of intellectual property (rights) has expanded to include trademarks, patents, and certain forms of copyright by granting limited exclusive rights to works, in exchange for the commercialization of original creations that benefit society, while also allow the owner (presumably the originator) to stop overt – unauthorized use, e.g., presumably acts such as counterfeiting, piracy, infringement, misappropriation, etc.
  • agree that Sharia does not refer to Islamic legal rules only, rather, Sharia encompasses a timeless concept of justice and fairness that may be best understood as constituting a higher rule of law with a divine connection.

After reviewing numerous (other) sources, I concluded, correctly and reasonably I trust, that…

  • there are varying degrees of latitude insofar as interpreting and applying IP and intangible asset matters under Islamic (Sharia) law, but
  • such laws are not being aggressively enforced, at least at the present time.  In other words, infringement and misappropriation, etc., in the Middle East, contributes to substantial losses of revenue for companies and/or individual business persons who rely – are dependent on intellectual property rights.

Obviously, it’s important and necessary to point out that such transgressions pose significant problems globally, not just in countries which practice Islamic law.

Both Cullen and Beltrametti note however, that an Islamic World Trade Organization member state, is obligated to uphold the requirements of TRIPS.  Under Shari’a, this has led many Islamic states to enact intellectual property laws meeting the minimum standards of TRIPS.  Thus, being a signatory to TRIPS essentially verifies (operationalizes) the belief that intellectual property rights are compatible with Shari’a and related Islamic legal concepts and practices.

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.[2] It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994.

The TRIPS agreement introduced intellectual property law into the international trading system for the first time and remains the most comprehensive international agreement on intellectual property to date. In 2001, developing countries, concerned that developed countries were insisting on an overly narrow reading of TRIPS, initiated a round of talks that resulted in the Doha Declaration. The Doha declaration is a WTO statement that clarifies the scope of TRIPS, stating for example that TRIPS can and should be interpreted in light of the goal “to promote access to medicines for all.”

Specifically, TRIPS requires WTO members to provide copyright rights, covering content producers including performers, producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents; new plant varieties; trademarks; trade dress; and undisclosed or confidential information. TRIPS also specifies enforcement procedures, remedies, and dispute resolution procedures. Protection and enforcement of all intellectual property rights shall meet the objectives to contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.  (Wikipedia)

In practice, however, intellectual property rights, be they TRIP’s initiated or otherwise, have respectfully, not been particularly well-received in some Islamic states.  That is, a percentage of the Islamic community believe the concept of intellectual property and the associated rights and responsibilities, particularly intellectual property-based innovations associated with advanced technologies, etc., originate predominantly in the West, and not from (their) religious sources.  This perspective. many agree, serves to elevate reluctance for a broader acceptance of intellectual property rights.

That said, numerous Islamic states have stringent intellectual property laws and regulations in place.  However some, not unlike other non-Islam countries, remain ineffective or experience particular challenges related to actual enforcement of intellectual property rights.

Appropriately then, one question to pursue further is whether this is a government influenced choice or mandate, or an enforcement resource issue?  Taking this perspective several steps further, some assume that forcing WTO membership and TRIPS upon Islamic states through threats of import – export restrictions and high tariffs underlie a perception that intellectual property law, with provisions for the enforcement of intellectual property rights, constitutes another facet or form of Western oppression.  This perception has gained varying levels of strength within some sectors of the Islamic community.  In other words, infringement and/or misappropriation of intellectual property (rights) may not characterized so much as a legal wrong per se, rather a means for seeking revenge against the West.

So, how should all of this be interpreted by businesses wishing to engage in transactions in countries practicing Islamic law where in most instances, there is significant intellectual property and other intangible assets integral to a transaction and its outcome.  Admittedly, having not engaged in or consulted with companies engaging in business (transactions) is Islamic countries, I presume, as in any transaction occurring elsewhere, intellectual property and other forms of intangible assets will play a significant role.  Perhaps readers who are engaging in such transactions, they will find various other posts made at this blog to be relevant particularly those that address intangible asset due diligence and risk assessments.

I am very grateful for the work/research produced by Silvia Beltrametti and Chad Cullen in the development and writing of this blog post and I encourage readers to read their respective papers.

Intangible Assets: Transaction Impact Analysis

August 9th, 2012. Published under Managing intangible assets, Mergers and Acquisitions, Sustainability of intangible assets.. No Comments.

Michael D. Moberly   August 9, 2012

As stated in this blog on numerous occasions since its inception in mid-2008; it’s crucial for business decision makers to recognize that in a vast majority of transactions they will initiate or become engaged, correctly identifying and assessing intangible assets plays an increasingly significant role in achieving a desired and sustainable outcome!

The reason of course, is that steadily rising percentages (65+%) of most transactions’ value resides in intangible assets.  So, if a transaction management team overlooks intangible assets, it’s tantamount to excluding how/where value is created, revenue is generated, and strategic planning is executed.

This makes it all-the-more-important, perhaps rising to a fiduciary responsibility, at the decision maker level, to determine if a transaction management team is incorporating intangible assets in their task.  If so, are intangible assets being addressed in a due diligence, inventory, auditory, or valuation context?   If a transaction management team is doing neither, it’s fair to say it’s time to elevate their operational familiarity and understanding of intangible assets.

As readers know, there is an abundance of research that consistently paints a convincing picture that if and/or when a merger, acquisition, or other type of transaction ‘goes south’, evidence of impending problems and challenges will surface quite early and will likely stem from one or more intangible assets.

One technique to remedy, or at least mitigate this, is for decision makers to receive an advance ‘heads up’ from their transaction management team by ensuring an ‘transaction impact analysis’ is part of their task.  As the term implies, an asset impact analysis can provide decision makers with a more definitive picture of potential outcomes, should a risk(s) materialize and adversely affect one or more of the key (intangible) assets.  This can be achieved…

  • collectively, i.e., that reflects the inter-relatedness of intangible assets’ contributory value and associated risks.
  • individually, i.e., if a key asset is identified as being impaired in some manner, or is found to be already misappropriated or infringed.
  • by assessing the probability that particular risks will materialize to adversely affect the projected economics, competitive advantages, and/or synergies of a transaction with emphasis on mitigation and containment.
  • by assessing the resiliency and sustainability of key intangible assets

The rationale for incorporating an transaction impact analysis is for decision makers to anticipate circumstances – scenarios that if a risk has or will materialize to the point it impairs or otherwise adversely affects key (intangible) assets.  I tend to advocate asset impact analysis’ be initially focused on what I believe to be the three, most challenging intangible assets to sustain – preserve their contributory value, i.e., intellectual, relationship, and structural capital.

Too, a transaction impact analysis can reveal other cautionary circumstances/scenarios while retaining the option to proceed with a (a.) plan for risk mitigation, or (b.) re-negotiate the deals terms in light of the risk(s) and/or asset impairment(s). The objective essentially remains the same, that is to facilitate a more secure and profitable transaction going forward, not impede it!

Intangible Assets: ‘Smart Cities’ Tools For Branding!

August 8th, 2012. Published under Intangibles as strategic assets, Investing in intangible assets., Managing intangible assets. No Comments.

Michael D. Moberly  August 8, 2012

Throughout my former residency in Memphis, I listened to a weekly program on the local NPR station titled ‘Smart Cities’, then hosted by Carol Coletta (CEO’s for Cities).

Of the many takeaways I consistently received from Coletta’s program and her varied guests were the not so subtle references to missed opportunities of various U.S. cities which I come to characterize as overlooked, neglected, deserted, abandoned, and otherwise ignored and undeveloped intangible assets.

In a ‘smart cities’ context, intangible assets are embedded in community’s often rich historical, cultural, architectural, and/or epicurean presence.

To demonstrate this, I engaged a gentleman at an outdoor high school sporting event in St. Louis (my current residence) last year because he was wearing a t-shirt emblazoned with the name of a small, non-descript bar-b-que restaurant located in mid-town Memphis which I had frequented many times.  I asked the gentleman, whom I learned had a son attending a Memphis university, if he had actually eaten at this restaurant. My question sparked a very spirited, albeit one-way exchange, in which he described this restaurant’s bar-b-que cuisine as the best Memphis had to offer and even compared it to other well-known Memphis competitors.  The gentleman went on to describe how he had come to personally know the owner, and that he and his family ate there each time they visited Memphis.  Our discussion concluded with him saying that he routinely had this restaurant’s bar-b-que FedEx’ to his St. Louis residence

An interesting twist to this is, having been a former resident of Memphis, I can say, quite objectively, there are easily 100+ good bar-b-que ‘joints’ throughout Memphis, some of course are the ‘weekend pop-up on a street corner’ variety where one can find very good bar-b-que if they willing to venture away from the mainstream and into the various neighborhoods of Memphis.

Many city’s intangible assets, even though they may be what I refer to as the ‘in your face, seen’em a thousand times’ variety, remain as conveyed above, neglected, deserted, abandoned, ignored and, perhaps worse, overlooked and unrecognized.  Regardless, those embedded assets may well have the potential for being re-captured, re-conceived, re-invested, re-incarnated, and ultimately re-branded to produce and deliver powerful, attractive, and broadly dispersed value to a city, providing, that is, when community leaders genuinely recognize, understand, and initiate viable strategies to effectively exploit existing intangible assets!

Of course, this entails, among other things, identifying them, unraveling them, investing in them, positioning them, leveraging them, managing them, and putting best practices in place to sustain them along with monitoring their contributory value.

All that said, there are, in my view, analogies to be drawn between the bar-b-que scenario and the development of ‘motivational umbrellas’ in cities to form so-called bio-tech corridors and/or re-vitalize commercial areas and art districts, etc.  Colleta may know different, but I have no knowledge of any such initiative being successful absent a foundational starting point in which certain recognizable intangible assets were already in place and embedded within a community’s culture.

When commencing such well-intended endeavors however, those charged with its leadership and execution must include strategies to sustain the foundational (intangible asset) underpinnings necessary for project vibrancy and sustainability.

So, in today’s increasingly competitive municipal governance environments, the viability and sustainability of city projects does not lie solely in the production of patents and other intellectual property centric practices that tend to be quite vertical.  In a ‘smart cities’ context, it’s the consistent production, exploitation, and delivery of competitive advantage driving intangible assets and their contributory value to a community. Intangible assets, when addressed early and managed effectively, can deliver long term strategic value in the form of multipliers and spillovers that spread throughout a community!

Intellectual Capital War…Intellectual Capital Emergency!

August 7th, 2012. Published under Intellectual capital management.. No Comments.

Michael D. Moberly   August 7, 2012

Let me start this post by stating unequivocally, the title is, in no way, a metaphor for the seemingly endless, so-called patent wars!

As far as I know, during the 70th episode of the television series Star Trek: The Next Generation, the phrase “whoever acquires the most toys wins” was expressed.  While many of us, myself included have joked about this seemingly non-descript phrase, or perhaps good naturedly mocked one of our neighbors for their seemingly perpetual acquisition of ‘toys’, i.e., cars, riding lawn mowers, HD TV’s and sound systems, etc.  It’s certainly not inconceivable then to consider something similar is occurring with respect to the rising trend of intellectual capital dependent economies whereby knowledge (intellectual capital) is one of the most highly sought after commodities (intangible assets) aside from the basic necessities for sustaining life, or making life better.

In other words, the demand for intellectual capital (knowledge) from governments, industry sectors, and universities, etc., emanate from the well understood concept that knowledge and intellectual capital equates with economic and its closely linked brother, political power.  Thus, the absolute need to attract, acquire, sustain, and effectively exploit the most current, relevant, and forward looking intellectual capital – knowledge possible is a necessary prelude for developing countries particularly, to achieve the much coveted (a.) respected player status, and (b.) a sought after inviteee to the global innovation table.

Not winning, or at least medaling in some portion of the ‘knowledge wars’ (a phrase I believe was coined by Sean Coughlan, BBC’s education correspondent in an article he authored – reported in late 2011) can be devastating, often irreversible, and puts governments, countries, and industry sectors nearer the ‘intellectual capital cliff’.

Knowledge produces power, more specifically, knowledge produces economic power, Coughlan quite correctly says.  Neither is particularly surprising because we are, don’t forget, in the midst of a very long term, perhaps permanent, knowledge (intangible asset) based global economy which most duly recognize.  However, there are persistent and increasingly predatorial initiatives to acquire the type of economic power that only originates from the development, funding, nurturing, and/or acquisition of intellectual capital and its cousins, structural and relationship capital.  That’s because, among other things, intellectual (relationship and structural) capital, are key drivers that render investments in research and innovation attractive which in turn, hopefully produce innovative and sustainable products and entire industry sectors.

Put another way, most countries, universities, and investor groups are looking for the right combination of intellectual (capital) ingredients that will turn university research and technology transfer projects into corporations, ala Google, Apple, Oracle, and country specific ‘silicon valley’s’ across the globel that are the foundations for skilled jobs to replace those lost in previous financial calamities, and otherwise, merely try to keep engage and keep pace in the increasingly globally inter-connected and intellectual capital dependent economies and business transaction environments.

For any country (government) or company not to invest resources toward developing and nurturing a permanent foundation of sustainable intellectual capital would, and should be “unthinkable”, says Maire Geoghegan-Quinn, the European Commissioner responsible for research, innovation and science, who is trying to spur the European Union to keep pace in turning ideas into industries.  She announced £6bn funding to kick-start such projects in 2012.  The aim of that funding is to support 16,000 universities, research teams and businesses, because a million new research jobs, she no doubt correctly claims, will be needed to keep pace with global competitors in the health, energy and digital economy sectors.

Some characterize the situation this way, ‘we need to re-boot economies with the focus being on permanent growth of intellectual capital’.  I agree!

(This post was inspired by a fine article authored by Sean Coughlan, BBC’s education correspondent in September, 2011)

Intangible Assets Are Not Theoretical Concepts…

August 2nd, 2012. Published under Managing intangible assets. No Comments.

Michael D. Moberly   August 2, 2012

I routinely have the opportunity to talk with a cross-section of business leaders and entrepreneurs about my favorite topic; intangible assets.  Recently, I had the pleasure of having a particularly stimulating conversation with a very astute and intelligent colleague and yes, it was about intangible assets.

This colleague certainly intended no disrespect to me or other intangible asset strategists by suggesting, if I understood her correctly, that the development, use, and exploitation of intangible assets remains largely theoretical.  Without elaboration, I presumed she meant intangibles in general, lacked sufficient testing, practical application, and business (bottom line) relevance to move outside the theoretical realm.  Obviously, I disagree!

Having taught  in higher ed for 25+ years, I can say, without hesitation, that a significant percentage of the time when I uttered the word theory in a classroom or at a professional association presentation, the ‘first blush’ reaction was fairly consistent and would tend to occur in the following order, (1.) a muffled, but audible sigh, followed by (2.) a glazing of the eyes, as if to say, we’re going to take a nap now while this guy (me) tries to explain a theory which we’re already inclined to presume has little, if any, relevance to the proverbial ‘real world’.

As a result, I adapted my classroom presentations to characterize ‘theories’ differently, by merely pointing out that any theory is merely a thoughtful and tested attempt to explain a particular activity, behavior, or overall phenomenon.  This approach appeared to work rather well and one I still apply today as a business founder and entrepreneur.  Unfortunately however, there remain some, who are inclined to rudely characterize theories as merely constituting an academics’ guess, hunch, untested opinion, or supposition.

So, it certainly comes as no surprise today to hear otherwise intelligent, savvy, and successful business persons express dismissiveness or reject certain well established and globally recognized economic facts about intangible assets by characterizing them as unsubstantiated (theories) and will not hold up to the scrutiny, rigors, and stresses of today’s aggressive and competitive business (transaction) environment.

In reality though, a theory is an expression of a concept or idea that is testable, replicable and based upon well-grounded hypotheses.  And, in the world of business management, economics, and organizational behavior intangible assets have become an economic fact and global business reality, i.e., 65+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, stability, sustainability, and profitability lie in – evolve directly from intangible assets.

In my judgment, what prompted Brookings Institution, Athena Alliance, IC Knowledge Center, the Intangible Asset Finance Society and other prominent ‘think tanks’ and professional associations to engage intangibles was by demonstrating…

  • their conspicuous role in business transactions and subsequent need for effective stewardship, oversight, management, and monetization
  • assuming an active and forward looking role by intangible assets in practical business contexts was the unrelenting reality that conventional financial statements and balance sheets no longer conveyed an adequate picture of a company’s entire financial health.

So, identifying and including a company’s intangible assets in valuation and management was a more comprehensive way to accurately describe a company’s value, its sources of revenue, future wealth creation potential, sustainability, profitability, and overall stability. Thus, to respectfully appeal to the reluctant and the skeptics, what follows are real definitions, categories, and examples of intangible assets!

Intangible assets…

  • Are comprised of unique blends, combinations, and/or collections of a particular process, activity, asset, relationship, and/or market condition that companies exploit to differentiate themselves from competitors, and thus create value.  Adapted by Michael D. Moberly from work by Michael Porter, Harvard Business School
  • Can produce economic benefits (profits, royalties) which are anchored in distinctive features, processes, or programs that set a company/business unit apart from its competitors by creating efficiencies, value, and/or generate sources of revenue.   Michael D. Moberly
  • Generally evolve over time within a company and may not always be the result of a planned action or the product of specific capital allocation decisions.  Michael D. Moberly (adapted from Brookings Institution – Understanding Intangible Sources of Value)
  • Lie increasingly in unique and sometimes proprietary intellectual, relationship, and structural capital and processes a company has developed and utilizes and the special value that comes with the unique understanding of how those intangibles can be best used to create a competitive edge.  McKinsey Quarterly, 2004

Categories – Examples Of Intangible Assets…

 Asset Categories                           Examples Of Intangible Assets

  1. Technology:  internally developed (proprietary, unpatented) software, databases, source code, custom applications, and technology sharing agreements…
  2. Marketing:  advertising concepts, focus group findings, subscription lists, music, promotional characters/devices, newsletters, credit information files…
  3.  Engineering:  designs, drawings, blueprints, schematics, diagrams
  4.  Relationship Capital:  customer/client relationships, mailing lists/data bases, retrieval systems, distribution channels, 1-800 numbers…
  5. Competitor Research:  actionable business intelligence, i.e., competitors plans, intentions, and capabilities…
  6. Real Estate: zoning, permits, water/mineral/development rights, easements, location visuals and proximities, options…
  7.  Human-Intellectual Capital: work force in place (experience, education, training), training manuals, operating processes, non-compete/disclosure agreements (if transferable), the sum total of employees’ specialties, skills, attitudes, abilities, competencies, and technical (proprietary) know how, insurance enrollment/expirations
  8.  Internet:  domain names, website design, B2B/e-commerce capabilities, web links, accessibility, use, URL’s…
  9.  Company/Business Identity:  image, goodwill, reputation, trade name, logos, brand name…
  10.  Contracts/Agreements:  most any contract that has a definable life and some form of exclusivity, i.e. employment, affiliation, advertising, sales, subscription, service, long term lease, non-compete covenants, joint ventures, value of future purchases due to special relationships with vendors, royalties, technology sharing/joint ventures…
  11.  Products/Services:  warranties, production capability, order/production back log, operating permits, licenses, renewals, processes, expirations, retail shelf space, distribution rights/networks…
  12. Intellectual Property:  patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, logo design, brands…
  13.  R&D:  (in-process) studies, formulas, processes, assembly data, regulatory agency approvals, collaborative alliances, formulas, outstanding RFP’s, specialized technical repositories, libraries…
  14. Communications:  methods, cable/transmission rights, FCC licenses, certification, bandwidth…
  15.  Structural Capital:  structures and processes employees develop to increase productivity and performance (business process/method patents)

Adapted by Michael D. Moberly from professional experiences, engagements, Weston Anson’s ‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’ and Section 197 of the IRS Code.

Readers are encouraged to examine the categories and examples of intangible assets above, and identify those which you and/or your company produce and possess.  Then ask yourself, in what ways do these assets contribute to and deliver sources of revenue, value, competitive advantages, and serve as ‘building blocks’ for growth and sustainability to your company?