Michael D. Moberly   July 27, 2010

Increasingly important questions for entrepreneurs and SME’s is the extent to which their management teams and boards are (a.) familiar with and making effective use of the intellectual property system, and (b.) if not, are there particular barriers that either prevent or inhibit them from doing so?

The larger question perhaps, according to Bill Payne of the Kauffman Foundation, is how many SME’s elect to not pursue conventional intellectual property (IP) protections, i.e., patents particularly, because they recognize, in advance, that they do not have the (internal) resources to rigorously defend their patent position(s) should challenges or disputes arise, or pursue the infringers and/or misappropriators that are all but certain to evolve?

Operational familiarity with IP has become, in my view, an essential business management skill set particularly among SME’s in all industry sectors.  Though, while creating and capitalizing on - exploiting innovation to achieve a business (competitive) advantage can become a key differentiator for a company, it can materialize generally only if a company’s management team and board have the necessary foresight to put in place best practices to ensure control, use, and ownership of the assets can be sustained, but not solely through subjective assumptions about the deterrent affects of conventional IP.

Where does this leave the 20+ million entrepreneurs and SME management teams and boards who are essentially faced with many, if not most, of the same complexities and challenges as their larger Fortune 5000 brethern, in terms of being able to effectively safeguard, utilize, and exploit their IP?  The reality is that SME’s, are often without the resources compared to their larger counterparts and find themselves managerially, administratively, and fiscally stretched insofar as overseeing their IP and the ability to accommdate the complexities and expense associated with IP processes and procedures.

It’s important to recognize also that we’re operating in knowledge-based global economies, in which 65+% of most company’s value, sources of revenue, and future wealth creation lie in - are directly related to intangible assets.  This makes achieving a certain level of familiarity and competency in IP management (oversight and stewardship) matters a necessary underlier to not merely achieving success and profitability, but sustainability!

It’s useful then, for SME management teams and boards to frame their IP (and intangible assets) as strategic business assets, not merely the product of a research activity to remain stagnant or hidden, and otherwise not put to good efficient use.

Unfortunately however, most higher educational (business management) programs and academic units approach intellectual property, patents particularly, as a narrow legal specialization only to be acquired through law school.  I hardly believe that’s how we should proceed to build and sustain a strong and sustainable entrepreneurial and SME pipeline.

(This post was inspired by IBM’s The Inventors Forum, Global Innovation Outlook project.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at m.moberly@kpstrat.com.

Michael D. Moberly   February 18, 2010

In the current global, knowledge-based economy and business transaction environment in which intangible assets and IP are routinely in play, there is, unfortunately, little direct insight about how or whether c-suites and boards assess and/or attach concern about doing business in country’s that do not have, apply, or enforce intellectual property laws and protections. 

Admittedly, I know several instances in which this issue is not only a routine fixture in c-suite and boardroom agendas, but is deliberated in the context of known vulnerabilities-probabilities, i.e., those left unchecked, ill-considered, or ill-conceived will surely become inevitabilities!

A key second question those company’s seek consensus is (a.) their (business, strategic) tolerance for IP - intangible asset risk, and (b.) if losses - compromises to those assets occur, how quickly will either begin to erode, dilute, and/or undermine company value, market share, competitive advantages, and revenue?

In other words, are that countries IPR’s protections (enforcement scheme) particularly weak or sufficiently strong enough to satisfactorily protect a company’s IP for the duration of its admittedly, abbreviated life-value cycle.  This argument presumes, that the value, sustainability, defensibility, and projected returns of IP developed and/or brought into a country with weak IPR’s, will experience lower projected returns.

I am aware of a few instances, in SME and SMM arenas, in which companies have actually elected to wholly withdraw operations (and their IP and proprietary competitive advantages) from a country they found to be especially weak in IPR’s.  I can’t say for sure whether those company’s were exercising particularly forward looking or risk averse strategies on behalf of their investments in IP and intangible assets, or whether their decision was influenced by a significant loss or compromise?

A 2004, University of Minnesota study/survey of U.S. headquartered companies titled ‘Doing R&D In Countries With Weak IPR Protection: Can Corporate Management Substitute For Legal Institutions?’ reasoned that (1.) technologies developed in weak IPR countries will be used more for internal purposes, and (2.) companies conducting R&D in weak IPR countries will likely have tighter IP-asset protection measures in place to compensate, and therefore, try to take advantage of such gaps across countries.  

Insofar as whether ’doing R&D in countries with weak IPR protection’ is a relevant action item for c-suites and boards, prudent starting points for either to consider are, (1.) if the decision is made to conduct IP bearing R&D and/or bring IP into a country in which a signficant percentage of that country’s GDP is linked to - dependant on the production, distribution, and sale of infringed or pirated (IP) products, it’s likely your company’s IP will experience the same or similar fate, and, (2) the presumption that my company can invent, innovate, and produce IP faster than others can steal or infringe it, and even it it does occur, the stolen/infringed IP will rapidly become obsolete and therefore hold little, if any, market value; therefore, why devote extraordinary resources to its protection and preservation, beyond the minimum?, is likely ill-conceived.

Michael D. Moberly   October 9, 2009

There’s an analogy to be drawn to the passage of the IPREA (Intellectual Property Rights Enforcemet Act in 2008 and the Immigration Reform and Control Act of 1986 (also known as Simpson-Mazzoli).  In the latter, federal legislators believed that to be effective, immigration law should contain provisions to discourage domestic ’demand’ for undocumented workers, i.e., (a.) make it illegal for U.S. employers to knowingly hire or recruit undocumented workers, and (b.) require U.S. employers to attest to their employees’ immigration status.

It’s reasonable to suggest then that the IPREA should have included comparable provisions, not so much directed to diminishing ‘demand’ for infringed counterfeit-pirated products as that is far beyond the control/influence of legitimate businesses.  Rather, inserting provisions that would have placed more responsibility on U.S. business management teams to secure quality training and engage in best practices to effectively safeguard their IP, know how, and intangibles, as requisites to engaging in business transactions in which those assets are in play - part of a deal.   As advocated here, such training and best practices would reach well beyond conventional IP protections, i.e., patents, trademarks, copyrights.  The objectives of such provisions (training) would be clear; that is, to increase the probability company’s would be able to effectively protect (sustain indeterminate) control, use, ownership, and value over their hard earned and valuable intellectual property, intangible assets, and proprietary know how!

After all, the ultimate managerial - enterprise wide weapon (defense) to mitigate and/or prevent the costly adverse affects of infringement, misappropriation, and product couterfeiting and piracy is education and training that measurably elevates awareness, alertness, and accountability of the developers, owners, and holders of their assets.

It also seems there is a large business - economic reality that the IPREA either overlooked or did not convincingly convey.  That is, 65+% of of most company’s value, sources of revenue, sustainability, and foundations for future growth and wealth creation lie in - are directly related to the production and utilization of IP and intangible assets.  This means that now, for most business deals and transactions, a company’s IP, intangibles, know how, competitive advantages, etc., will be in play in one form or another.

Any presumption that the IPREA will produce a greater sense of deterrence among the growing global cadre of sophisticated and organized infringers and product counterfeiters and pirates is shortsighted, or worse, merely ‘window dressing’ and conveys little, if any, genuine appreciation for the concept of deterrence.  While the passage of the IPREA and the supporting (largely political) rhetoric deservedly raised the ‘hue and cry’, it falls short of fully conveying how IP infringement and product counterfeiting have become culturally, politically, and economically embedded in - integral to many county’s GDP.  Any presumption these realities will favorably change merely as a consequence of IPREA is optimistic at best.  So, training and education remain the key for those company’s that wish to experience unchallenged profitability and lay foundations for sustainability and future wealth creation.