Business IP and Intangible Asset Blog, Michael D. Moberly

Valuing IP And Intangible Assets – A Litigator’s View

October 15th, 2009. Published under Analysis and commentary, Intangible Asset Value. No Comments.

Michael D. Moberly   October 15, 2009

Some intellectual property litigators are taking the position, as reported in CFO Magazine recently, that there are potential ’perils’ if/when company’s assign a specific dollar value to their IP or other intangible assets and report same on their balance sheet.

To illustrate this position, suppose, for example, an ’on the shelf’ patent a company holds rightful ownership to, but is not utilizing, is valued at $50,000 and is reported as such on the company’s balance sheet.

Then, let’s suppose the company learns that their ($50,000) patent is being infringed, i.e., an adversary has created, marketed, and is selling a product that’s achieving $500 million in annual sales that’s literally underpinned by the infringed IP.   According to some IP litigators, this could present a dilema should the rightful patent holder elect to legally pursue the infringer, which, of course, they have an obligation to do if they wish to retain the rights to that patent.   In other words, patent holders cannot ‘cherry pick’ the infringers they will (legally) pursue.

The dilema, should the matter proceed to court, is that the patent holder and their counsel may find it challenging to frame – present a credible (sympathetic) argument that their patent is now (suddenly, post infringement) worth much more than its initial $50,000 valuation relative to the $500 million in annual sales the adversary/competitor has allegedly developed by exploiting the infringed IP.

Any inference that this example should serve as a rationale – justification for company’s, management team’s, and board’s to push back from their fiduciary responsibility to (a.) fully utilize their intangible assets, and (b.) sustain (preserve) control, use, ownership, and monitor the value of their intangible assets would surely be shortsighted. 

Why Spy: Is There A Global Rationale To Economic Espionage?

October 13th, 2009. Published under Analysis & Commentary: Studies, Research, White Pap. No Comments.

Michael D. Moberly   October 13, 2009

For 20+ years, I have been a consistent contributor to helping companies prevent and mitigate the adverse effects of economic espionage, trade secret theft, IP infringement, etc.  Recently however, I re-read a 1999 paper authored by (then) University of Calgary researchers’ Merrill Whitney and James Gaisford in which they consider how ‘economic espionage can yield desirable strategic effects as well as cost savings for firms in a spying country.  Duh!! 

A particularly unique argument offered by Whitney and Gaisford is that when two technology producing countries spy on each other it is possible that both will be better off because the technology transfer, implicit in economic espionage, makes the outcomes beneficial to consumers.  Professionally, I find any potential mutuality of the benefits (from economic espionage) elusive, especially, if your firm is the victim.  

More often, a consequence of economic espionage, when successfully executed, is that it produces (a.) a distinct winner; defined as the spying country and/or company gaining significant ‘time to market’ advantages without incurring the time and extraordinary cost of R&D, pilots, marketing, supply chaining, etc., and (b.) a distinct loser; defined as the target/victim company-innovator being unable to realize the full and rightful economic benefits (and recoup a return-on-investment) from their time, labor, and costs, etc.

Continual innovation (for a country and/or individual company) is a significant factor in economic growth. It requires substantial and consistent investments in time, money and resources.  If innovative – technology producing companies are consistently vulnerable to economic espionage, i.e.,  losing all or significant parts of their innovation and competitive advantages, etc., it becomes increasingly challenging, if not impossible, for them to achieve sustainability insofar as being able to fully utilize and exploit the intangible assets they produce.  In addition, if a company (victim of economic espionage) is unable to recoup their ‘investment’, its equally likely their motivation and/or receptivity to engage in more innovative initiatives will be depressed/curtailed. 

Other probable consequences to economic espionage are pollution of legitimate supply chains with inferior – counterfeited products, along with (personal, business) privacy being threatened when economic espionage is condoned, promoted, and ultimately becomes profitable as it is today. 

While some readers may interpret the Whitney and Gaisford premise as merely being ‘wacky’ and out-of-touch with (global) business realities, I am inclined to characterize it as perspective and insight for elevating understanding not solely about economic espionage, but, our globally predatorial economic – competitive advantage adversaries who consistently engage in it. 

(Adapted by Michael D. Moberly from the work of Merrill Whitney and James Gaisford,  ‘Why Spy? An Inquiry Into The Rationale For Economic Espionage’ published in the International Economic Journal, Vol.13, No.2, Summer, 1999)

‘The Intangible Asset Handbook’ – A Book Review

October 12th, 2009. Published under Book Review. No Comments.

Michael D. Moberly   October 12, 2009

‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’ by Weston Anson is one of those rare business (management) books that should always be close at hand as a forward looking/thinking reference (reminder) of the sometimes hidden and/or under-the-radar value of a company’s intangible assets.

Essentially, Anson’s book achieves three important objectives to benefit the business community’s recognition, appreciation, and utilization of intangible assets. First, it is an excellent primer for intangible asset intensive company’s and their management teams and boards for defining, identifying, and unraveling, intangible assets through actual case studies.  Second, it brings much need clarity, simplicity, and insight to utilizing and valuing intangibles.  Third, the book puts forth an important, but underlying, notion that intangible assets are not the sole province of Fortune 500 types of companies, rather, they’re found - embedded in and integral to most every SMM and SME regardless of industry type or sector.

One of the book’s most important take aways is the authors’ characterization of the present state of (global) business as the ‘intangible asset economy’.  This very meaningful and timely phrase accompanied by the economic fact that today 65+% of most company’s value, sources of revenue, sustainability, and foundations for growth and future wealth creation lie in – are directly related to intangible assets, collectively frame the authors’ perspectives throughout the book.  

For a variety of reasons though, some prospective readers (business decision makers) may remain suspect (skeptical) of either of the above premises.  For them, they’re encouraged to jump straight to pages 32 thru 35 where Anson makes three important points by (1.) providing guidelines for practitioners to discover, identify, and quantify (intangible asset) value, (2.) conveying that intangible assets are not merely addendums to conventional IP, and (3.) distinguishing intangible assets from goodwill, IP, and intellectual capital which have long served as the catch alls for declaring and reporting intangible assets.

While there are parts of the book that require real study and reflection, the book is very readable and current. The readers’ pay off is understanding the relevance of intangibles and being able to more confidently and effectively execute the many practical concepts that are unfolded.

An important question not thoroughly addressed by the author though, is that its not fully explained in the case studies, why the decision makers for those particular companies were apparently ‘clueless’ about (a.) how to identify the intangible assets their company produced, (b.) how to value them, (c.) how they could be positioned, leveraged, maximized, and value extracted, and perhaps most important of all, (d.) the necessity to protect, preseve (sustain) control, use, ownership, and monitor the value of those assets!

(The Intangible Asset Handbook: Maximizing Value From Intangible Assets.  Weston Anson. 2007. American Bar Association  ISBN 978-1-59031-743-3)

Intellectual Property Rights Enforcement Act – IPREA

October 9th, 2009. Published under Analysis and commentary, Intellectual Property Rights. No Comments.

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.

Intangible Asset Management: It’s Defined As Sustaining Control, Use, Ownership, and Value!

October 5th, 2009. Published under Intangible asset strategy, intangible assets. No Comments.

Michael D. Moberly   October 5, 2009

Intangible asset management is defined here as consistent stewardship, oversight, and monitoring (of the assets) to ensure control, use, ownership, and value are sustained and preserved indeterminately to reflect the owners’ – holders’ will. 

But, when management teams and boards are dismissive of (a.) the economic fact that 65+% of their company’s value, sources of revenue, and sustainability lie in intangible assets, and (b.) the execution of essential asset management requisites (as noted above), it’s likely they will find few, if any, economic benefits, competitive advantages, or efficiencies flowing to their company from their intangibles. 

Board and management team responsibilities underlying effective intangible asset management include:

1.  identifying and unraveling the origins and development of the assets that are developed internally or acquired externally, etc.

2. assessing the assets relative to, among other things, their contribution to company value, revenue, competitive advantages, and reputation, etc.

3. ensuring the assets are aligned-integrated with the company’s core mission and strategic objectives, etc.

4. consistently monitoring the assets to determine if erosion or undermining of value or competitive advantage has occurred or reputational risk has elevated, etc.

5. consistently putting intangibles on management-board agendas to, among other things, consider ways to ‘bundle’  the assets to (a.) make them more revenue/value useful, (b.) increase their ‘attractivity’ to investment, (b.) position-leverage them to enhance market position, (d.) deliver more competitive advantages, and (d.) create operational efficiencies, etc.

Managing Reputational Risk

October 1st, 2009. Published under Reputation risk.. No Comments.

Michael D. Moberly   October 1, 2009

The ability of management teams to sustain (enhance) the long term (strategic) value of their company’s reputation lies, in part, with the manner in which the firm’s reputational risk management (oversight, monitoring) function is initially conceived, organized, executed, and ultimately comes to meld with existing enterprise risk management (ERM) platforms.

In today’s extraordinarily competitive and intertwined business environment, reputational risk, i.e., stakeholder expectations and perceptions are increasingly global, fragile, and vulnerable to a range of (spontaneous, inadvertent, and/or purposefully malicious) acts – events.

What makes reputational risk management even more necessary today is the hyper-competitive, nanosecond and assymetric information dissemination technology platforms that exacerbate events and/or acts to elevate exposure – vulnerability to reputational risk.  These must be consistently monitored and integrated with highly proactive (reputation risk) identification and assessment processes coupled with a repertoire of effective and targeted responses/reactions that carry a measurable probability of mitigating the adversity.  A company’s reputational risk response repertoire should be articulated in a manner that strengthens, if not enhances, relations with those stakeholders whose (continued) support is essential to the company’s long term – strategic (business) objectives.

Why should reputational risks be addressed and articulated responsibly and rapidly?,  it’s because a company’s reputation affects stakeholders’ in many different ways, e.g., their inclination to be engaged – associated with a particular company through supply relationships, customer relationships, employment relationships, or even decisions to reside in communities where that company has operations.

Again, an effective starting point for conceiving an ERM reputational risk initiative is to ensure its management and oversight function(s) are synchronized (aligned) with (a.) the company’s core business, and (b.) the dominant stakeholders’ perceptions and expectations.  That’s because, those stakeholders continued support is essential to achieving the company’s strategic (financial) objectives.  

Reputational risk management does not have to be an extraordinarily time consuming or resource intensive undertaking.  When management teams and c-suites execute it correctly, it will deliver returns, especially when its conceived in the context of this economic fact – business reality…

65+% of most company’s value, sources of revenue, sustainability, and foundations for future wealth     creation, irrespective of (company) size or industry sector, lie in – are directly linked to intangible assets in which the bulk, most experts agree, is reputation!