Michael D. Moberly June 26, 2014 ‘A long form blog where attention span really matters’.
So, why are these intangible assets being targeted by economic – competitive advantage adversaries…?
Respectfully, let me re-draw readers’ attention to the various examples of intangible assets previously described (identified) and the fact that intellectual property are merely one type/category of intangible asset, albeit a prominent one.
So, why are intangible assets being targeted by global economic – competitive advantage adversaries?There are, in my judgment, multiple reasons why, which I’m confident experienced reader practitioners will find agreement, i.e.,
- to appropriate the words of the 1970’s bank robber Willie Sutton, it’s because intangible assets are where 80+% of most company’s value, competitive advantages, and profitability originate and are ‘deposited’.
- most intangible assets, once stolen, compromised, or infringed, can be used – applied in competing products and/or services as well as having the potential for being converted for use in unrelated products or services, in other words, they are often readily monetizable or comercializable, in the right hands.
- there is a consistent and often global demand for one or multiple intangible assets like those described above, a demand which is relatively barrier free insofar as having numerous market entry points globally where intangible assets can be sold, bartered, exchanged, or melded into competing or other products or services, etc.
Role of corporate security…
A professional acquaintance, Mr. Greg Acton, served as Director of Global Security for a major telecom – consumer electronics’ company in California. The company had invested heavily in R&D over a period of 12 to 18 months on new and perhaps ‘game changing’ technologies to be incorporated into its long time staple, globally branded, and primary consumer product.
Upon embarking on this initiative, the company’s stock price was experiencing a consistent downward spiral, which, in many respects was due largely to numerous new and well financed competitors entering the market space coupled with the sense that this company’s product had not kept pace with newer, multi-functional technologies which consumers were readily embracing in other brands.
Without over dramatizing the circumstance, there was indeed a demoralizing sense of product – technology stagnation regarding the company’s staple product and the overall brand.
As is prudent with many electronics – telecom firms, this company had timed its R&D and product launch to coincide with the annual consumer electronics show in Las Vegas. This company, as many before it, believed a key to the success of a product’s launch, financially as well as regaining consumer confidence in its product, and by extension its brand, lie in part, in retaining a consumer teasing level of secrecy shrouded around its new product, which as readers recognize is quite common in this sector and perhaps perfected by Steve Jobs and Apple.
The tactical and strategic intent of this shroud of secrecy would be to secure domination, albeit perhaps fleeting, of the electronics show’s dynamics, coupled with the immediate commencement of a strong marketing blitz designed to breathe new and sustainable life into the company, its brand, and its products.
In this, as in many other similar circumstances, this company’s, Mr. Acton played a very significant role insofar as assuming substantial responsibilities for ensuring the company’s new product, it’s planning, technology supply chain, and prototypes literally remained devoid of any leakage throughout the almost two years of R&D and testing phases up to the precisely scheduled time and date of its well hyped public offering at the consumer electronics show.
In this instance, Mr. Acton, clearly a seasoned and well respected ‘silicon valley’ veteran understood the significance of his responsibilities to this product launch along with the extraordinary value of the numerous and contributing intangible assets, all of which would be in play, particularly, the company’s reputation, image, and consumer goodwill.
As I’m confident readers understand, the intangibles which Mr. Acton recognized and effectively oversaw and safeguarded throughout this 20+ month product development and testing period were conservatively worth multiple millions of dollars in potential sales to the company in addition to rejuvenating its reputation, market share, as well as favorably affecting the value of the company as a whole.
Had there been inadvertent or purposeful public leakage by an economic and/or competitive advantage adversary (internally, externally) about this product and its launch in advance of the consumer electronics show, it would have, among other things, allowed ample time for the ever present array of global technology critics and competing firms to mount consumer directed offensives against the product intended to minimize and/or undermine its improvements and consumer ‘likeability’, etc.
Much to the credit of Mr. Acton, there were absolutely no known advance (adverse) leakages. What’s more, the stock price of this publicly traded company shot up 312% by the close of business on the day of its highly public launch at the consumer electronics show. Another metric worth noting is that in addition to the aforementioned stock price gain, the company’s vice president of marketing informed Mr. Acton that the company had spent $1M on marketing the lead up and public announcement. In return for sustaining the product proprietary status, the company received an estimated fifty times that amount in product advertising, at no cost to the company, through the various and globally connected media portals in place at the consumer electronics show.
So what was the contributory value of this CSO’s commitment to ‘no leakage’…?
Perhaps first, and foremost, it laid the essential foundations for the company to fully capitalize and otherwise exploit its presence at the consumer electronics show which very rapidly converted to stock analysts and stock market share price favorables.
So, is this sufficient rationale for not only inviting, but ensuring CSO’s and other relevant security personnel are comfortably seated, with a voice, at the proverbial R&D table from the outset of an initiative, I believe it is!
CSO’s, in a new role as intangible asset strategist and risk specialist, working collaboratively and in unison with a company’s internal and/or external R&D unit and relevant and various supply chains, are uniquely positioned to recognize and differentiate the more valuable and competitive advantage driving elements of promising research. One way is by virtue of their proximity to and operational familiarity with the global expansion of economic and competitive advantage adversaries which are consistently motivated by nation state mandates or monetary remuneration to acquire other entities’ valuable intangible assets.
But what makes a CSO’s voice heard and duly considered…?
Again, first and probably foremost, are CSO’s receptivity to recognizing the relevance and importance of elevating their existing skill sets to acquiring an operational familiarity with their company’s intangible assets. In other words, acquire a level of operational proficiency with intangibles that provides CSO’s with the professional comfort associated with becoming an intangible asset strategist and risk specialist!
Straightforwardly, that would entail recognizing the strategic importance and necessity to develop and respectfully execute ‘under the radar’ practices and processes, all of which are designed to sustain control, use, ownership and monitor the value, materiality, and risk to select intangible assets, distinguished as having the most promising contributory value to a specific or multiple (on-going) proprietary (R&D) initiatives and/or projects along with the array of business transactions a company may regularly engage in which intangible are routinely in play.
This would include conducting (intangible asset) due diligence for such transactions as a merger, acquisition, strategic alliance, or other business activities in which intangible assets are routinely in play and integral to the favorable outcome of a deal.
Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or firstname.lastname@example.org
Michael D. Moberly June 25, 2014 ‘A long form blog where attention span really matters’.
Mis-portraying what’s really being targeted…
Having been actively engaged in the intangibles’ arena since the early 1990’s, collectively as an academic investigative researcher and practitioner, I am hard pressed to understand why the administration, cabinet secretaries, and even corporate c-suites, etc., consistently portray the target(s) of global economic and/or cyber espionage as being some form of intellectual property?
My suspicions are that these mis-portrayals, while purposeful and two pronged, that is (a.) they are intended to create single phrase simplicity to elevate public awareness about the adverse affects of the losses to particular business sectors and labor force, and (b.) officials sense the public is unable to grasp the intricacies and distinctions of stolen/misappropriate information as constituting valuable and competitive advantage delivering assets in intangible form. So the officials elect to portray economic and cyber espionage and data/information mining with presumably the more understandable and common term of intellectual property.
Distinctions without a difference…?
I urge readers not to dismiss this perspective as being akin to a distinction without a difference. It is indeed much more. That is to say, once again, the intellectual, structural, and relationship capital (intangible assets) which comprise the dominant sources of contributory value, attractivity, and potential sources of revenue to conventional (commercialized) intellectual properties are the real targets of economic – cyber espionage and data/information mining. The reason is because it those know how-based assets are precisely what the economic – competitive advantage adversaries’ globally need and want, and therefore will aggressively seek because being successful in acquiring those assets is the quickest route to global competitiveness and profitability.
Issued patents provide legal standing…
Yes, it is quite true an issued patent provides holders with (legal) standing to bring criminal and/or civil action against alleged infringers and/or misappropriators. And yes, one requisite for a countries’ WTO membership is enacting a comprehensive (legal, enforcement) intellectual property regime.
And, while I hold great respect for those who receive an issued patent particularly for what they have very deservedly achieved which warrants framing and hung on an office wall of prominence or above a home mantel for all to see and dutifully admire. But please, avoid assuming that an issued patent today constitutes an absolute and stand alone deterrent to would be infringers and thus the underlying – contributory know how is magically safeguarded for the patents’ duration or its life-value-functionality cycle, whichever comes first. The latter of course, is sometimes a business decision pure and simple, particularly in today’s globally aggressive, predatorial, and winner-take-all market place.
So respectfully, any assumption that the issuance of a patent serves, in any way, as a special – specific deterrent to economic – competitive advantage adversaries or even insiders inclined to misappropriate the contributory value or the underlying know how delivered by intangible assets, represent not just wishful thinking but also, quite naïve, misguided, and certainly out-of-date thinking.
Please consider this…
Why would an economic – competitive advantage adversary or data/information miner, and/or information broker engage in the risk of acquiring (stealing) the contents of a patent, i.e., its structural capital, when issued patents (essentially the same information) will be published and available online and posted in the public domain? The answer to that question lies in my view, in pure economic competitiveness which translates as getting and striving to stay ahead of any and all competitors.
Why am I purposefully belaboring this point and making these distinctions? It’s because after many years of investigatory business research along the entire spectrum of economic espionage, this issue goes directly to the heart of the all important question, that is, how and which knowledge-based assets originating with a company most warrant safeguarding? The answer in my view is quite clear, it is those intellectual, structural, and relationship capital assets that deliver the greatest contributory value underlying conventional intellectual properties and measurably delivering value, revenue, and competitive advantages.
But, perhaps most critical and troublesome to the holder – originator of those presumably valuable and competitive advantage driving ‘intangible’ assets, is the reality that that the knowhow, once gone, will likely be gone forever, because perhaps even more problematic is another business reality, which is, knowledge-based (intangible) assets are often…quickly convertible for adaptation and exploitation however and whenever the ultimate recipient or beneficiary (adversary) wishes!
So, let us assume, for discussion sake, the targets of preference for global economic and competitive advantage adversaries, data mining operations and information brokers really are some form, type, or category of intangible asset which can provide – fill some immediate or strategic need and/or serve as a key piece to a previously unsolvable puzzle, which in many instances they certainly are.
Respectfully then, I encourage readers to not dismiss this perspective as being irrelevant to any company’s circumstance. Instead, try ‘drilling down’ a bit, and examine each broad (intangible) asset category through a business competitive, value, and revenue lens, be it a company, university, or independent R&D environment. One outcome of this exercise is to recognize what type of safeguards are necessary to fully preserve each assets’ value and potential monetization – commercialization properties for the duration of the assets’ respective life, contributory value, and functionality cycle, because that’s precisely what matters most today and that’s what global adversaries are seeking to disrupt to their benefit.
Examples of intangible assets…
The following are examples of intangible assets which I have adapted from two well respected and current sources, (a.) ‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’. Weston Anson. 2007. American Bar Association, and (b.) ‘Untangling Intangibles’ Tamara Plakalo February, 2006. Managing Information Strategies. Australia.
1. Technology – software
- Internally developed (proprietary) software and software copyrights, automated databases, source code, enterprise solutions and custom applications…
- Lyrics, jingles (music), promotional characters and devices, photographs and video, newsletters, advertising/marketing concepts, results of focus groups…
- Industrial (new plant, equipment) designs, engineering drawings (blueprints) and technical knowhow…
4. Customers – clients
- Communication-mailing lists, relationships, customer data bases and retrieval systems, special distribution channels, 1-800 numbers, relationships
5. Competitor research
- Actionable business intelligence, i.e., plans, intentions, capabilities…
6. Real estate
- Zoning – construction permits, air, water, and mineral drilling-exploitation rights, right-of-way, easements, and building (expansion) plans/rights…location visual scenery – proximity to
7. Personnel training
- Proprietary manuals, operations processes and/or procedure. Internet
- Domain names, website design, B2B and e-commerce capabilities, web links, customer/client accessibility and use
8. Corporate identity, reputation, image, goodwill
- Names, trademarks, logos
9. Products and services
- Trade dress, i.e., product shapes, color schemes, and packaging design/graphics…
- Open purchase orders, order and/or product back log,
10. Contracts – agreements
- Any contract that has a definable life and some form of exclusivity, e.g., supply, media, performance and pricing agreements, license and/or royalty agreements, advertising, construction, management, and/or service contracts, leases, operating and broadcast rights and licenses, route utilization, franchise agreements, subscription rights, futures contracts, co-branding agreements, endorsements, spokesperson contracts, venue naming rights…
11. Intellectual property
- Patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, application, logo design
- Prior art search, flanker patents; patent applications, foreign patents
- Reprints, use/performance rights
- Product research studies, formulas, process and assembly data
- Regulatory agency approval process-status
- Cable rights and/or transmission rights, FCC licenses and/or certification, bandwidth
- Wage rates, union contracts, non-compete and non-disclosure agreements (if transferable)…
15. Structural capital
- The structures and processes employees develop and deploy to increase productivity and performance (business process/method patents)
16. Human capital
- Sum total of employees’ specialties, skills, attitudes, abilities, competencies
- Technical ‘know how’ documentation, i.e., lab notebooks, manuals, formulas, processes, and recipes (food, chemical formulas)
Reader comments and inquires are always welcome at 314-440-3593 (St. Louis) or email@example.com
Michael D. Moberly June 24, 2014 ‘A long form blog where attention span really matters’.
The knowledge – intangible asset era… Growing numbers of companies and organizations are seeing steadily rising percentages of their value, sources of revenue, and ‘building blocks’ for profitability and sustainability evolve directly from intangible assets. To date, that percentage consistently hovers around 80+%. As most realize, there are numerous consequences to this global economic paradigm shift. One is today, companies/organizations are largely driven by the development, application, and exploitation of their knowledge or know how, often in the form of intellectual, structural, and relationship capital which have surpassed tangible – physical assets, i.e., buildings, equipment, inventory, etc., as companies’ primary sources of value and revenue commencing in the early 1980’s. I was fortunate enough to become one of numerous early thought leaders actively engaged in the intangible asset arena, initially as an investigative academic researcher and author, and now as a practitioner and author.
Still numerous naysayers and reluctants’ among company management teams… Unfortunately, there remain numerous naysayers to the whole ‘intangible asset thing’. The naysayer positions are routinely driven by standards adopted long ago by a professional discipline oversight entity which manifests more as ‘turf protection’ ideologies which makes it uniquely challenging to rationally refute. However odd it may seem, analogously speaking, there are commonalities between today’s interest in intangible assets to that of ‘global warming’. In the latter, despite overwhelming scientific and visual evidence of its existence and consequences, there remain sufficient numbers of doubters and deniers to spread dispiriting messages to business decision makers globally. Realistically, based on my own experiences, those business leaders and the supporting service disciplines, i.e., accounting and law specifically who are most consistent in expressing adverse views about the management, utilization, and exploitation of intangible assets, I don’t believe are really denying the existence of intangible assets, aside from conventional intellectual properties, are in most instances, grappling with the challenges associated with their valuation and how or whether they are to be reported on company financial statements and balance sheets. And, to be sure, their perspectives on intangible asset valuation are as varied as the professional disciplines from which they originate. True, numerous company management teams and boards, as a whole, remain attitudinally hesitant (resistant) to making the necessary transition to fully engage their intangible (non-physical) assets.
No global precedent… Admittedly, there is no precedent for what’s occurring today, i.e., international business and country economies are overwhelmingly dominated, economically and competitively, by intangible assets which require consistent stewardship, oversight, management, and monitoring of asset value and competitive advantage fluctuations and risks.
Risk… There are various types of acts, behaviors, and/or events, many of which are asymmetric in their application, create fertile ground for risks and threats to materialize and cause a company’s (intangible) assets to decline in value or as sources of revenue or become competitively undermined which involves company reputation and goodwill. True, in many instances such adversities are attributable to the surreptitious but purposeful activities of global economic and competitive advantage adversaries. In large part, because increasingly higher percentages of company value and revenue evolve from intangible assets, economic – cyber espionage has emerged in ways that is more calculating and stealthy, and can potentially cause far more immediate and irreversible damage-harm (economically, competitively) to a company than their tangible – physical asset driven predecessors.
It should be to no one’s surprise then, that our economic and competitive advantage adversaries are really targeting intangible assets… Willie Sutton, a notorious bank robber during the 1970’s is alleged to have responded to the question ‘why do you rob banks’?, saying, ‘because that’s where the money is’! Similarly, I urge companies, particularly those with intensive portfolio’s of valuable proprietary information, trade secrets, and other forms of intangible assets to recognize, as they engage in business transactions, strategic alliances, and technology transfers, etc., it is all but certain those intangibles assets will be in play. Experience rather clearly suggests that when certain, particularly proprietary and lucrative intangible assets are in play, they will targeted by adversaries. Realistic examples of this are university-based research departments and corporate R&D units, which in most instances are repositories of intangible assets, i.e., specific types of ‘know how’ usually in the form of intellectual and structural capital which global adversaries, whomever they may be on a given day or future time span, want and need and are quite willing to assume risk to achieve their acquisition using various methodologies and/or tradecraft. So, it should be to no one’s surprise that the most frequently targeted asset for acquisition by adversaries are intangible assets which predominately originates from the growing global array of economic – cyber espionage players, be they nation state sponsored or individual (information asset) brokers.
Admittedly, evidence to support my contention are largely anecdotal, but it stands to reason, not unlike Willie Sutton’s remark ‘I rob banks because that’s where the money is’ that similarly, the economic fact that 80+% of most companies value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability globally lie in – evolve directly from intangible assets, they indeed are adversaries’ targets because embedded within a company’s intangibles is precisely where the near (tactical) and long term (strategic) economic and competitive advantages actually lie. Thus, it is the content of select intangibles, i.e., the intellectual and structural capital and know how are precisely what’s being sought (targeted). I can think of few better ways to portray this more succinctly than to refer to a conversation I had several years ago with a senior government official representing a county’s interior ministry, that was in genuine need of agricultural – crop yield know how to render heretofore very low crop yield land into higher yield crop producing land. This gentleman, in a very matter of fact manner said to me, broadly referring to U.S. superiority in agricultural science, ‘you have something I need and want to properly feed my people now, and I shall endeavor to obtain it through whatever means are at my disposal’.
My interpretation of this official’s statement left no doubt that (a.) he understood the quickest and least expensive path to achieve this utilitarian objective was not by her government taking time to gear up and fund the necessary R&D internally, or (b.) engage in a covenant filled and potentially risky and intrusive strategic alliance with a private corporation based outside her country, both of which would be a long term, i.e., 2-3 years out, undertakings before progress, of a sufficient scale, may be realized. Instead, this individual, and many others sharing similar views were intent on acquiring the necessary know how by utilizing other means.
I respectfully ask readers to not interpret this specific example, as real as it is, as being broadly representative of the global economic – cyber espionage arena other than recognizing this critical reality of the knowledge – intangible asset based global economies, i.e., ‘you have something I want and need and I shall attempt to appropriate it or copy it without incurring the time and expense of independent origination’. Again, it is my contention that seldom are economic – competitive advantage adversaries actually seeking/stealing conventional intellectual properties, i.e., patents particularly. Instead, it’s the intellectual, structural, and relationship capital (intangible assets) embedded in and otherwise underlying the valuable proprietary information and trade secrets which are the real targets. In other words, it is simply a misnomer to state intellectual properties are being targeted, stolen, or otherwise misappropriated.
Michael D. Moberly June 17, 2014 ‘A long form blog where attention span really matters’.
Conventional strategic planning irrelevant if intangible assets are not at the center…
The increasingly competitive business terrain in which know how and other intangible assets have become the overwhelmingly dominant drivers and producers of value and revenue is clearly prompting many companies to re-examine the relevance of their often times, conventional and even static business plans and mission statements.
I am not suggesting there is anything inherently wrong with continuing to write business plans and mission statements, because they frequently do serve as a descriptive (Gannt Chart type) of roadmap of what leaders want their business to eventually look like and how to get there!
But, for analogous purposes, some (management teams, boards) are inclined to view business plans and mission statements in a ’constitutional’ like fashion, i.e., either as a ’living’ document that’s malleable and subject to flexible interpretations to reflect an evolving global business environment, or a more static document that can only be interpreted on the basis of its ’original intent’.
A law firms’ strategic plan, particularly one that incorporates client’s intangible assets, is a dynamic and on-going exercise. The reasons are that client’s intangible assets are often nuanced, business/company centric, seldom remain static, and frequently fluctuate relative to the materialization of risks, threats, and the nature and type of transactions engaged in which clients’ intangible assets will inevitably be in play.
Leaders, late adopters, or followers…
Law firms can choose to be leaders, late adopters, or followers. Today however, in an increasingly intangible asset intensive and global business – economic – transaction environments, a law firms’ initiative to devote attention and practice area resources to clients’ intangibles will reap benefits in terms of being more reflective and accommodating to client needs by, among other things, respectfully bringing clarity to the necessity for tactical and strategic stewardship, oversight, management, and assessment if intangibles other than IP, sometimes even before business clients become fully aware of their (the assets’) potentially favorable advantages.
Intangible asset relevancy to each practice area within full service firms is one in which each practice area can contribute through their respective and specialized lens.
Unfortunately, the economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets, has yet to become so self-intuitive to management teams, c-suites, and boards that they instinctively recognize the necessity to identify, develop, safeguard, and exploit the intangibles their company produces internally and/or acquires externally.
Effective strategic planning produces client benefits…
Law firms have varying levels of experience and depth in IP matters. This makes it, in my view, all the more legitimate and necessary for firms to include, as part of their strategic planning, the acquisition of the necessary expertise to aid clients to recognize the various ways their company can elevate its value, add sources of revenue, and solidify its sustainability through better utilization, governance, and exploitation of its intangible assets.
Benefits to firm clients can occur not just by recognizing intangibles assets and their relevance to business profitability and market space, but also by taking affirmative steps to guide clients in identifying, unraveling, assessing, auditing, positioning, bundling, and exploiting intangibles and defending intangible asset intensive client companies in the intricacies intangible asset rooted disputes and challenges..
Thus, the more clarity a firm’s client decision makers achieve regarding the intangible assets their company produces or has acquired and the inevitably which they become embedded in the products and/or services a business client produces will lead to better – more informed decisions about the necessity to engage leading edge law firms that provide such services, as competitive leaders, not followers or late adopters.
When prospective clients – buyers of legal (IP) services, or merely consumer products for that matter, initially approach a law firm, if they find it challenging to distinguish/assess a firm’s comparative quality, particularly when such information is neither readily available or distinguishable, a percentage of those prospective clients will be inclined to promptly ask about pricing and fees.
More specifically, such circumstances often translate as an inability to quantify the value of what may appear, to prospective clients, as competing services and/or offerings because, unfortunately, pricing (fees) tends to be the primary form of measurement business decision makers understand insofar as distinguishing competing offerings – services. That’s because pricing (fees) tend to be a more readily recognized and presumably understood form of measurement..
So, a law firms’ ability to attract and secure new as well as retain existing clients, IP, or otherwise, particularly among increasingly frugal, discriminating, and cautious prospective buyers of legal services, can be rotted in a firms’ ability to articulate greater value in understandable and actionable contexts to benefit the client and exceed their respective needs and expectations. (Adapted by Michael D. Moberly from the work of Dale Furtwengler)
My primary rationale for advocating the inclusion of client company’s intangible assets in a law firms strategic planning is that by doing so, it will legitimately produce broader opportunities to re-engage existing clients as well as engage new – prospective clients on yes, a broader range of business legal issues, i.e., their intangible assets.
Too, by virtue of the connections between intangible assets and IP, law firms, particularly those with an IP practice, are pre-positioned and branded, so to speak, for guiding client businesses and companies to legitimately inquire and explore ways to more profitably utilize their intangibles.
Also, law firms, whether they recognize it or not, routinely become a repository of familiarity about ‘all things intangible’ regarding their business clients. It would seem prudent then for firms to develop strategic plans that call for a collaborative convergence, i.e., draw upon their existing practice area expertise, and various other complimentary domains to exploit that expertise and redirect a portion to business clients intangible assets.
However, the speed which intangible assets are coming to the forefront of business profitability and sustainability has produced some challenges for law firm business client services management that lead to maximizing intangibles value and creating opportunities for asset monetization and/or commercialization.
- One challenge is meeting the rising fiduciary responsibilities associated with the overall management of intangibles and the ability/competencies to simultaneously sustain control, use, and monitor asset contributory value and materiality, and risk to ensure that value, revenue producing and competitive advantage potential is neither undermined or lost.
- A second challenge, for law firm business clients and their management teams is recognizing that intangible assets are literally embedded in most every company’s processes, procedures, and practices (as intellectual, structural, and relationship capital) regardless of (company/client) size, maturation, or industry sector. The fact that most intangibles are embedded as noted above, can manifest as competitive advantages, brand, and reputation. What would matter most to clients is engaging a law firm that has already acquired the skill sets and experience to guide clients to identify – differentiate those assets and exploit their contributive – collaborative value as effectively and efficiently as possible.
- A third challenge is ensuring the necessary competencies are in place within a law firm to identify, unravel, assess, position, and bundle, if necessary, the assets and profitably apply-utilize (leverage) them in a broad range of business circumstances and transactions in which intangibles are routinely in play and/or part of a deal.
- A fourth challenge many, if not most client management teams experience is surviving, that is, remaining competitive, profitable, and sustainable while engaged in a global business (transaction) environment that is not just increasingly competitive, but aggressively predatorial, and often functions in winner-take-all business contexts.
These challenges of course, lead us to an even more compelling rationale for law firms to develop a strategic plan, of which one component, includes a viable path for converging a firms collective expertise to effectively address each of the following phenomena on behalf of clients because…
- There is no other time in business governance – management history when steadily rising percentages of company value, sources of revenue, and growth potential are so deeply rooted in intangibles.
- There is a necessity to re-frame the management, stewardship, and oversight of a company’s intangibles as fiduciary responsibilities that warrant enterprise wide collaboration and consensus.
- All too frequently, the contributions intangible assets make to company revenue, value, competitiveness, and market position are overlooked, dismissed, neglected, undervalued, left un-safeguarded, and ultimately lost, diluted, or leach out to competitors and the public domain.
- Intangible assets have become much more than mere tools to manage and/or enhance other (tangible, physical) assets. Instead, intangibles are now valuable and often times stand alone commodities that can be developed, positioned, integrated, and utilized to produce revenue, enhance competitive advantages, and otherwise add real value to a company.
- The financial reality that intangibles and intellectual property can advance a company (economically, competitively, etc.) only so long as control, use, ownership, value and materialty can be sustained.
- The time frame when company’s can realize the most value from their intangible assets generally remains variously compressed relative to an assets respective life, contributory value, and functionality cycles. In part, this compressed state is due to (a.) lower barriers to market entry by competitors, and (b.) rapid profits being achieved from, what I call, predatorially sophisticated and global product/service piracy and counterfeiting operations that consistently pollute and de-value legitimate supply chains.
Michael D. Moberly June 16, 2014 ‘A long form blog where attention span really matters’.
So why shouldn’t every law firm’s strategic plan encourage achieving operational familiarity with business clients’ intangible assets…?
Frankly, in 2014, and for the foreseeable future, I would be very hard pressed to devise a rationale why every law firm should not achieve a fully operational familiarity with their business clients’ intangible assets, and incorporate same in their strategic planning as tools to…
- expand and enhance firm brand and become a leader in intangible asset stewardship, oversight, and management, which in turn will produce more engagements, and
- enhance firm competitiveness by providing legitimate grounds to re-engage existing clients, and engage new/prospective clients.
Law firm’s that continue to be dismissive of strategic planning that includes a full array of intangible assets but do not adjust their client services accordingly should expect to experience stagnation on various levels internally and externally, e.g., sustainability of client relationships, client satisfaction, and service deliverables. So, it’s not a case of when, rather how law firms can build the necessary receptivity and ultimately consensus, initiated by managing partners, to actually achieve a level of profession expertise to comfortably and professionally engage clients’ about their intangible assets.
More specifically, while most firms’ tactical speed, i.e., the efficiencies of delivering its services, etc., remain important, continuing to be dismissive of strategic speed for developing new and proactively relevant client services that directly reflect globally universal changes in economics and competitive advantage drivers. So, law firm strategic planning should be designed and executed, as the adage goes, to ‘avoid continuing to skate where the puck is now, rather skate to where the puck will be’. Law firms strategically guided by assuring their practice areas are effectively aligned to address clients’ intangible assets are far better positioned to elevate their long term sustainability and bring greater consistency in revenue.
Too, a firms’ strategic plan can be further developed to incorporate internal and external client sensors which then can unambiguously constitute a ‘heads up’ to the normative. Of course, strategic planning initiatives must not be shy about challenging convention. One way is for the plan to be sufficiently malleable to absorb and effectively act on the full array of clients’ intangible assets and the various and nuanced forms they take.
Intangible assets are characterized in two primary forms…
- Legal intangibles, i.e., those which once issued by a government agency confer certain legal property rights which provide standing to defend in a court of law, e.g., issued patents, copyrights, and trademarks, etc., and
- Competitive(advantage) intangibles which are often characterized as being non-ownable, but they directly impact – contribute to a company’s financial well being, create efficiencies, increase productivity, and market value, etc. Often competitive advantage intangibles evolve collectively from various combinations of intellectual, structural, and relationship capital. (Adapted by Michael D. Moberly the work of Mary Adams_
A perspective on whether intangible assets are non-ownable…
Intangible assets are assumed to be non-ownable, but for the creator – developer of intangibles particularly those which measurably produce contributory value and competitive advantages, it is certainly in their interest to sustain control and use of the intellectual, structural, and relationship capital embedded in – underlie those assets and consistently monitor their value, materiality, and risk. If not, risks are all but sure to materialized, the effects of which rapidly erode, diminish asset value, sources of revenue, and competitive advantages. So, in companies and/or circumstances where such actions are taken to safeguard and preserve the content and value of intangibles would wisely convey a sense of ownership, as well it should!
Examples of intangible assets…
The following are examples of intangible assets. They have been adapted by Mr. Moberly from two respected comprehensive and current sources, i.e., (a.) ‘The Intangible Asset Handbook: Maximizing Value From Intangible Assets’. Weston Anson. 2007. American Bar Association, and (b.) ‘Untangling Intangibles’ Tamara Plakalo February, 2006. Managing Information Strategies. Australia.
- Technology – software: Internally developed (proprietary) software and software copyrights, automated databases, source code, enterprise solutions and custom applications…
- Marketing: Lyrics, jingles (music), promotional characters and devices, photographs andvideo, newsletters, advertising/marketing concepts, results of focus groups…
- Engineering: Industrial (new plant, equipment) designs, engineering drawings (blueprints) and technical knowhow…
- Customers – clients: Communication-mailing lists, relationships, customer data bases and retrievalsystems, special distribution channels, 1-800 numbers, relationships
- Competitor research: Actionable business intelligence, i.e., plans, intentions, capabilities…
- Real estate: Zoning – construction permits, air, water, and mineral drilling-exploitation rights, right-of-way, easements, and building (expansion) plans/rights, location visual scenery – proximity to
- Personnel training: Proprietary manuals, operations processes and/or procedure
- Domain names, website design, B2B and e-commerce capabilities, web links, customer/client accessibility and use
- Corporate identity: Names, trademarks, logos
- Products and services:Warranties, trade dress, i.e., product shapes, color schemes, and packaging design/graphics, open purchase orders, order and/or product back log,
- Contracts – agreements: Any contract that has a definable life and some form of exclusivity, e.g., supply, media, performance and pricing agreements, license and/or royalty agreements, advertising, construction, management, and/or service contracts, leases, operating and broadcast rights and licenses, route utilization, franchise agreements, subscription rights, futures contracts, co-branding agreements, endorsements, spokesperson contracts, venue naming rights…
- Intellectual property: Patents, copyrights, trademarks, trade secrets, trade dress, trade name, service marks, mastheads, application, logo design, prior art search, flanker patents; patent applications, foreign patents, reprints, use/performance rights
- R&D: Product research studies, formulas, process and assembly data, regulatory agency approval process-status
- Communication: Cable rights and/or transmission rights, FCC licenses and/or certification, bandwidth
- HR: Wage rates, union contracts, non-compete and non-disclosure agreements (if transferable)…
- Structural capital: The structures and processes employees develop and deploy to increase productivity and performance (business process/method patents)
- Human capital: Sum total of employees’ specialties, skills, attitudes, abilities, competencies, and technical ‘know how’ documentation, i.e., lab notebooks, manuals, formulas, processes, and recipes (food, chemical formulas)
Incorporating client intangibles assets in law firms’ strategic planning…
It’s fair to suggest that many law firm managing partners have various, but seldom specified responsibilities, aside from sustaining or expand the firms’ profile and brand, extinguishing the inevitable fires and ‘mending fences’. For some firms, managing partners’ responsibilities can also include garnering and fostering firm wide consensus to develop and execute a strategic plan, as advocated here, inclusive of intangible assets which is best commenced by advocating attorney operational familiarity with intangible assets, i.e., their stewardship, oversight, and management and the assets’ relevance to a firm’s specific practice areas. A law firms’ strategic plan, particularly one that incorporates client’s intangible assets, is a dynamic and on-going exercise. The reasons are that client’s intangible assets are often nuanced, business/company centric, seldom remain static, and frequently fluctuate relative to the materialization of risks, threats, and the nature and type of transactions engaged in which clients’ intangible assets will inevitably be in play. Int
Michael D. Moberly June 12, 2014 ‘A long form blog where attention span really matters’.
Thinking strategically leads to transformational changes in law firm planning… Frequently I hear thinking and planning strategically characterized as managerial luxuries which can only occur in isolation when law firm managing partners are not consumed with a daily barrage and demands of putting out fires and mending various fences. Further complicating a law firm’s best efforts to engage in genuine strategic thinking and planning is a reality that a significant percentage of firms manage – operate their practice through quite conventional, hierarchical, and vertically siloed rule sets with substantial, if not total practice area autonomy. . Should the above be a reasonably accurate reflection of law firm management, which I’m quite comfortable in saying it is, it’s understandable why most law firms remain removed from, or worse, oblivious to the irreversibly intertwined and intangible asset dominated (global) business transaction environments in which clients’ intangible assets are routinely in play, at risk, and absent effective management. I do not believe it is a tremendous leap from the key implications found in the Stone v Ritter (911 A.2d 362 (Del. 2006), that law firm managing partners would have an obligation if not a fiduciary responsibility, not unlike their business clients, to ensure their firm achieves operational familiarity with intangible assets and incorporates same as a collaborative practice area geared toward the assets’ management, stewardship, and oversight on behalf of clients’.
Irreversible and global economic facts and business realities… So, what’s being advocated here is quite straight forward, that is, law firms that want to remain profitable and sustainable are obliged to engage in strategic planning that will pave the way for offering and delivering relevant services related to the management, stewardship, and oversight of clients’ intangible asset related services. This commences by firms’ managing partners and practice area attorneys recognizing…
- it is a global economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability lie in – evolve directly from intangible assets which includes variations of intellectual, structural, and relationship capital, reputation, brand, and competitive advantages, etc.
- a company’s intangible assets are almost always in play and at risk in new initiatives, product/service launches, and other types of business transactions, etc.
- business client’s intangible assets are not a lesser or subordinate form of intellectual property, instead, IP is actually a subset or one category of intangible assets.
New strategic thinking and planning for law firms… Collectively, these irreversible global economic business realities warrant immediate strategic thinking and planning that allow law firms to reflect on and accommodate the range of expanded range of legal services that emanate from the permanency and dominance which intangible assets have become in today’s increasingly complex, yet intertwined business (transaction) environment. Importantly, intangible asset relevance is not limited to the legal profession, but also to the professional disciplines of accounting, valuation, security, risk management, and financial services, among others.
Misreading the global economic tea leaves… An unfortunate misreading of these economic and business tea leaves would be for any entity, law firm, or other, to assume this paradigm shift (from tangible – physical asset dominance to intangible – non-physical asset dominance) has yet to arrive. The fact is, it’s already here and for those who care to look, there has been an abundance of advance notice. For example, The Brookings Institution and Dr. Baruch Lev’s work on intangibles commencing in the mid to late 1980’s, along with comparable initiatives by the Athena Alliance headed by Dr. Kenan Jarboe, the Intangible Asset Finance Society headed by Dr. Nir Kossovsky and a host of other thought leaders like Jonathan Low and Mary Adams recognized early on the impact of intangible assets on businesses and global economies in general. Importantly, intangibles have come to be the ‘building blocks’ for most all companies’ value, sources of revenue, growth, profitability, and sustainability! For me, it is the epitome of misreading the global economic, business transaction, and competitive advantage tea leaves for any multi-service (practice area) law firm to argue that intangible assets should not play an integral role in their strategic thinking and planning!. Respectfully, I recognize that many law firms remain steeped in generations of convention and past practice that inhibits an organization on many levels, from genuinely considering such an initiative because, among other reasons, at first blush, it may appear so operationally disruptive that it could be characterized as being akin to blasphemy to conventional and time honored practices of client service offerings, delivery, and management. . One thing is assured however, emanating from these economic facts is the reality that business clients, regardless of sector, will, with increasing frequency, seek legal services variously related to the stewardship, oversight, management, and commercialization and/or monetization of the array of nuanced intangible assets they produce internally or acquire externally. But, let there be no ambiguity, law firms’ whose strategic thinking and planning do not fully explore and preferably incorporate a new array of intangible asset related services to accommodate client needs and expectations, will likely experience falling revenues and client pushback. Admittedly, not all business clients have achieved sufficient operational familiarity regarding their management, stewardship, and monitoring of their intangible assets to articulate with clarity and specificity what legal services they need today and in the future. Thus, prudent law firms will endeavor to get our front of their go fast, go hard, go global clients and prepare relevant services so the firm can create its own competitive advantages by being ‘first on the block’ to have intangible asset services readily available to accommodate the inevitable client need.
A good first start is for law firms to assess some conventions… A good first start for firms to achieve the level of (intangible asset) understanding, strategic thinking, and planning advocated here, is by dismissing any notion that intangible assets are either singularly synonymous, interchangeable with, or short term subsidiaries to intellectual property (IP) or business goodwill. Law firms that elect not to strategically delve into the obvious relevance of intangible assets to each practice area can expect to experience not only revenue stagnation, but may likely, in a growing number of instances, find themselves having to significantly downsize or possibly face firm dissolution. True, firm dissolution may not occur today or tomorrow, but as additional global universality of intangible asset regulation and oversight comes to fruition, those law firms that continue to be dismissive of intangibles will be essentially conducting business strictly in the confines of convention, and not in the context of externalities. So my counsel to law firms and their managing partners is to engage in strategic planning that includes a strong and collaborative vision that encompasses a firms’ (a.) organizational structure in terms of how its various practice areas and expertise can be aligned to better address clients’ intangible asset (service) needs, and (b.) become more accommodating to the inevitable global universalities related to intangibles. In other words, attorney’s and their respective practice areas must be fully integrated to a lucrative solution by (a.) helping structure the firms’ future to meet its future, and (b.) start annunciating and exploiting a firm’s new competitive advantages created by offering intangible asset legal services.
Paths to elevating client relationships, satisfaction, and service delivery favorables… Frankly, in 2014, and for the foreseeable future, I would be hard pressed to devise a rationale why every law firm should not achieve an intimate operational familiarity with each of their clients’ intangible assets, and incorporate same in their strategic plan as tools to…
- brand a law firm as being a leader in intangible asset stewardship, oversight, and management, which in turn will
- enhance competitiveness by providing legitimate grounds to (a.) re-engage existing clients, and (b.) engage new/prospective clients
Again, law firms that choose to be dismissive of strategic planning and do not adjust and create intangible asset relevant services should expect to experience stagnation in client relationship satisfaction and service favorables. So, it’s not a matter of when, rather it’s a matter of where and how law firms respectfully intervene on behalf of clients’ intangible assets. More specifically, while a firms’ tactical speed, i.e., the efficiencies of it service delivery, etc., remain important, being dismissive of strategic speed for developing services specific to intangibles, can confound a firms attorney’s, its practice areas, and certainly its clients. So, a law firms’ strategic plan should be designed and executed, as the adage goes, to ‘avoid continuing to skate where the puck is now, rather skate to where the puck will be’. Law firms strategically guided by aligning each service – practice area to clients’ intangible assets will most assuredly elevate their long term sustainability and revenue streams. So, it is prudent to recognize how we think, and what we think!
June 2nd, 2014. Published under Fiduciary Responsibility, Intangible asset protection, Intellectual Property Rights, Organizational resilience and business continuity/conti. No Comments.
Michael D. Moberly June 2, 2014 ‘A long form blog where attention span really matters’.
Pat Choate, in his 2005 book titled ‘Hot Property: The Stealing of Ideas in an Age of Globalization’ (p. 218)points out that an ‘idea, by definition, exists solely in one’s mind, where it remains happily and comfortably secure, but not terribly useful’. So, in order for an idea to potentially produce commercial and/or contributory value to its holder at some point, it must be expressed. Even though Choate (2005) says ‘protecting one’s ideas represents a basic social contract between society, its government, and the individual(s) who created the idea’, the act of openly expressing ideas, with increasing frequency, serves as a starting point for asset vulnerabilities and potential challenges and disputes to emerge for the originators (holders – owners) of the ideas.
Fundamentally, products of the mind are a type of intangible asset and manifest as intellectual, structural, and relationship capital including intellectual property (IP) and some other forms of proprietary information. Risks, to these intangibles materialize with some regularity and certainty, often in the form of purposeful or inadvertent events, acts, or behaviors that can adversely affect or jeopardize (asset) ownership, control, use, and value. A significant percentage of materialized intangible asset risks are of a nature to adversely affect a company’s reputation and its competitive advantages with equal rapidity, for example…
- stifle competitive – economic momentum of a company project, new venture, or product launch.
- undermine a business transaction or strategic business plan.
- erode an assets’ value as a source of potential value and projected profitability.
Business continuity – contingency planning pre-Internet era…
In the pre-Internet era, when intangible asset were barely a twinkle in economists’ eyes, misappropriation, infringement, and/or counterfeiting was characterized as being relevant almost exclusively to IP, i.e., patents, trademarks, copyrights, and trade secrets. Too, at the time, a relatively common risk mitigation strategy (to a company’s assets) was business continuity – contingency planning, not organizational resilience, and was generally designed – intended to be a mechanism to contain the risk(s) and mitigate their impact, i.e., the damages or extent of the losses as well as additional adverse impacts to company reputation, image, and goodwill, etc.
Today however, in the current knowledge based (intangible asset) era of going fast, going hard, and going global, even the most well-intentioned and wishful thinking efforts to contain the multitude of risks that can materialize is more fitting, in my view, to tangible (physical) assets than intangible (non-physical) assets.
For example, in the world of physical (tangible) assets, so-called firewalls erected between apartment buildings are designed – intended to contain or reduce, for a certain period of time, the probability that a fire in one building will spread to adjacent buildings and/or structures.
Such conventional firewalls however are less relevant or practical insofar as safeguarding or mitigating risks to knowledge-based intangible (non-physical) assets which again include intellectual, structural, and relationship capital, IP and proprietary information. In most instances, in today’s increasingly sophisticated risk laden R&D and business transaction environments, anyone of these types of intangible assets, absent effective asset monitoring and safeguards, will be at risk. Unfortunately, the sophisticated methodologies applied by the expanding number of global economic and/or competitive advantage adversaries, allow value laden intangible assets to be quickly discerned and instantaneously disseminated to a growing and often organized and sophisticated labyrinth of information brokers, business intelligence operations.
Don’t Overlook Intangible Asset Safeguards
Significantly, once an intangible asset has been compromised or succumbed to the growing array of sophisticated and asymmetric risks and threats, a company mitigation practice based primarily on the principles of containment, in my view, is neither a realistic or viable (standalone) strategy, certainly not something which a company’s management team, c-suite, board should feel comfortable insofar as their fiduciary responsibilities are concerned, i.e., see Stone v. Ritter.
Thus, while conventional intellectual property enforcement mechanisms (i.e., patents, trademarks, copyrights, trade secrets) remain a global (WTO) requisites for conveying ownership and standing to address the inevitable disputes, challenges, risks, and threats, the deterrence features associated with each have been minimized and are routinely disregarded and circumvented by adversaries. Thus conventional IP enforcements assume a more reactive vs. proactive posture, one that requires formidable and consistent self-policing and monitoring
In today’s increasingly aggressive, predatorial, and ‘winner take all’ global R&D and business transaction environment, this leaves, in my view, conventional forms of intellectual property (enforcement) certainly less relevant, perhaps even approaching some manner of obsolescence insofar as effectively combating the ultra-sophisticated risks and threats which are now routine.
Conventional IP enforcements carry little, if any, deterrent features today…
While I am not suggesting conventional IP enforcements should not be used, the harsh reality is, the once respected rights and protections afforded to innovators and entrepreneurs for their products on the mind, through patents, trademarks, and copyrights, etc., are now being routinely outpaced, circumvented, and utterly disregarded by adversaries globally. Any entrepreneur or company who assumes the mere issuance of a patent, standing alone, will be sufficient to sustain full control, use, and ownership rights for the duration of their patent, for example, is simply no longer credible.
The notion that conventional IP enforcements will ensure indeterminate control, use, and receipt of economic/competitive advantage benefits from an individual’s or company’s hard earned and often very expensive know how, i.e., the intellectual, structural, and relationship capital is unfortunately a business risk that should not be assumed is the exclusive bastion of legal (IP) counsel.
It would not be too challenging to argue conventional intellectual property enforcements carry less benefit to a single holder or a company, aside from providing legal standing in the increasing likelihood of having to engage in litigation over disputes and challenges. It’s most prudent then for business decision makers to ensure best practice intangible asset safeguards are in place from the outset of idea materialization. This includes consistent asset monitoring and defense, not merely directed to the conventional intellectual property rights, but also to sustaining control, use, ownership, and monitoring value and risks to those assets!
Sustaining a successful launch – commercialization of a new idea…
There are many different views about what is actually required to sustain a successful launch – commercialization of a new idea or project.
Obviously, having a very commercializable product and a sufficiently capitalized business plan and marketing strategy represent three time honored ingredients necessary for most successful launches. But, an often overlooked, underestimated, and misunderstood ingredient to a successful business – idea launch is recognizing that…
80+% of the value, sources of revenue, and future wealth creation of the launch will likely evolve from intertwined combinations of (a.) intangible assets and IP,i.e., intellectual capital, and (b.) specialized proprietary know how, i.e., structural capital, and (c.) attractive and distinctive competitive advantages, and brand integrity, i.e., relationship capital. (Moberly, 2011)
So, unlike conventional forms of IP enforcements, i.e., patents, trademarks, and copyrights, no government will issue a comparable certificate that says, these are your contributory value intangible assets, proprietary know how, trade secrets, competitive advantages, and brand integrity which an individual or company should safeguard and monitor their value and risk for the duration of their respective value and functionality cycle.
The responsibility for (a.) recognizing how the intangible assets evolved, (b.) the context which they now exist and are being applied, and (c.) unraveling them (individually – collectively) to assess their contributory value and potential conversion to sources of revenue and competitive advantage lie solely with the launching companies’ decision makers, i.e., originators, holders, and/or owners of those assets.
Admittedly, today’s hyper-competitive global business (transaction) environment, is influencing more companies to recognize the necessity for more than cursory intangible asset identification, assessment, safeguards, and monitoring of value and risk is much more than a time or resource permitting responsibility. These responsibilities are now instrumental in the initial success of product launches. Business decision makers who carelessly or unwittingly hedge their intangible assets’ essential maintenance, e.g., protection and preservation, will with greater frequency, if not certainty, cause risk-threat probabilities to become inevitabilities in which complete or partial (asset) value erosion and/or dilution are likely to occur which can also inadvertently create parameters and/or boundaries to a company’s economic – competitive position capabilities and potential.
What can companies do if – when their intangible asset ‘genies get out of their bottle prematurely…
The genie for profitable and sustainable launches of a new company, product, or idea is embedded in the business decision makers’ recognition that…
Getting out of the bottle is a metaphor of course, for situations in which business decision makers overlook or underestimate the role, contribution, and/or value intangible assets make to the overall sustainability of successful business launches and equally important, the risks-threats to those assets.
The initial requisite to commencing asset recovery action is recognizing delays in (a.) discovering the materialization of asset risk, and (b.) securing experienced guidance about what action to take and when, will most certainly complicate and weaken a company’s (legal) position insofar as the possibility of achieving a favorable (possibly full) economic – competitive advantage outcome.
A responsive and thorough ‘intangible asset – competitive advantage assessment’ is a prudent first step. A specialized (asset) assessment of this nature will aid a company and its decision makers to be better positioned to deliberate on two important points:
- prioritize options relative to trying to (re-) establish ownership control and use of the no doubt already hemorrhaging intangibles.
- strategies to try to stop and/or mitigate additional economic – competitive advantage hemorrhaging (of the assets), i.e., devaluation, undermining, infringement, misappropriation, reputation risk, etc.
Bottom line; risks-threats to a company’s intangible assets, intellectual property, proprietary know how and competitive advantages and brand integrity should not be dismissed and/or characterized as merely just another risk of doing business!
Unfortunately, far too many companies lose, inadvertently relinquish, and/or become entangled in extraordinarily costly and time consuming legal disputes and challenges over the ownership, control, use, and value of their intangible assets, competitive advantages, proprietary know how, reputation, and brand integrity. One of the most frequent reasons is dismissing the real, persistent and stealthy risks-threats to those assets and their contributory value to strategic sustainability.
Michael D. Moberly May 28, 2014 ‘A long form blog where attention span really matters’.
The experts’ perspective…
I routinely hear presumed experts on various media describe how intellectual property (IP) is being targeted and stolen through economic espionage and/or cyber-attacks at alarming rates.
While these experts often make passionate and intriguing cases by, among other things, either eluding to or outright naming the (nation state) perpetrator and assigning a mind boggling dollar value to such losses that routinely range from $40 billion to $500+ billion annually by U.S. companies, not counting losses experienced by other countries, particularly those who are members of the World Trade Organization and signatories to the 1994 Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) which established minimum standards for many forms of intellectual property regulation
There is no question economic espionage, particularly since the passage of the Economic Espionage Act (EEA) in 1996, that the losses attributed to it have risen considerably. One reason is self-evident, that is, by virtue of the passage of the EEA, there is an abundance of players, i.e., various federal agencies, sectors of the U.S. intelligence community, and a variety of ‘think tanks’ along with researchers and practitioners such as myself who monitor/track economic espionage and endeavor to assess both its magnitude, targets, and economic impact.
There is virtually no question that losses of intellectual, structural, and relationship capital, anyone of which can be (company) proprietary information, a trade secret, or collectively assembled to become a patent, i.e., intellectual property. Many of these experts self identify as current or former employees of agencies within the U.S. intelligence community, federal law enforcement and/or prominent researchers at various ‘think tanks’. To put it plainly, it’s just prudent today for listeners to assess a speakers’ potential motive(s) and the context in which economic espionage is being discussed, and how such calculations (values) were made, before arriving at a conclusion.
How much is actually lost…
But just how much is actually lost, that’s subject to some debate. I am confident it is significant and it’s very likely it continue to escalate for multiple reasons, three of which are…
- the overall global trade and business transaction environment have become increasingly aggressive, predatorial, competitive, and ‘winner-take-all’ in nature.
- economic espionage and its related acts are relatively easy to accomplish and there are multiple (quite stealthy) ways to be successful at it. And, it can be initiated by individuals or state sponsored entities from anywhere in the world. In other words, economic espionage need not exclusively be cyber-oriented or conducted or subsidized by any one particular nation state.
- And, perhaps most importantly is the economic fact/reality that steadily rising percentages of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, and sustainability reside in intangible assets, i.e., intellectual, structural, and relationship capital, one of which is intellectual property. So the routinely espoused notion that U.S. or other county’s companies are solely being targeted for their intellectual properties, is not only a misnomer, but a misunderstanding of where a company’s value really lies.
How are losses calculated…
In terms of how the calculations are made and/or what factors are taken into consideration to assign a particular dollar value to IP losses figures and the context and/or motives in which these estimates are announced, and which source is used as evidence ultimately are preludes for such a wide range of loss estimates.
So, what’s missing in my judgment, from some experts’ equation (related to losses attributed to economic espionage) is the adversary’s ability to understand and/or replicate the intangible assets, i.e., the intellectual and structural capital and know how especially that are embedded in any misappropriated, infringed, or stolen intangible assets.
Know how (intellectual capital) can, to be sure, be classified as trade secrets (providing the holder consistently meets the six requisites of trade secrecy) or proprietary. Either way, I can confidently report that companies would be well served if they identified and safeguarded the contributory value of the intangible assets that underlie all of their intellectual property, because that’s what the world’s economic and competitive advantage adversaries need and want most.
Please don’t misinterpret my position…
It would be most unfortunate if any reader of this post should choose to misinterpret my remarks thus far. I have been a strong and consistent researcher and investigator of economic espionage and its many related issues since the mid 1990’s. In fact, I served on a professional association conference panel, along with relevant, high echelon federal agency personnel for one of the initial public ‘roll outs’ of the EEA in 1996.
I want to make my position clear. Which is, while I don’t dispute these expert’s positions about the significance of the problem, I do find reason to dispute their consistent characterization of it solely as an ‘IP problem’. Intellectual property is comprised of patents, trademarks, copyrights, and trade secrets. In today’s increasingly competitive, predatorial, and winner-take-all global business transaction environment it’s rapidly becoming a given that company’s intellectual properties are not merely vulnerable, rather the probability that theft, misappropriation, or infringement will occur at some point during the assets’ life-value-functionality cycle is highly likely. Just how likely, remains somewhat subjective and carries many variables, i.e., asset demand, attractivity, effectiveness of safeguards, etc.
I do hold however, a somewhat different view about what most of the economic and competitive advantage adversaries are targeting and it’s not solely a company’s IP. Be assured, those engaged in using/applying stolen intangible assets have, in most instances, an equally strong desire to compete globally and in the same market space as the rightful holder-owner of those assets did. I have worked, studied, and conducted much research on intangible assets and economic espionage over the past 25+ years and find it essential to understand the real or presumed adversaries in social, political, economic, competitive advantage, and intellectual property (legal) history contexts. Collectively, this suggests many of the adversaries are now commencing the early stages of a second generation of businesses and individuals who possess the capability to buy – own private property, intellectual property notwithstanding, and create large scale manufacturing facilities to produce the various products and/or services that sometimes emanate from infringed – stolen – misappropriated intangible assets.
Naming the culprit countries…
A significant difference I, and I presume many other advocates of safeguarding intellectual property rights have noticed, is that these experts are more comfortable today, than in years past, in naming the presumed culprits and/or countries where the cyber attacks – thefts of IP originate. In a growing number of instances, these experts freely cite either state sponsored or independent operators as the origin of the problems, often citing China, Russia, eastern European countries, and numerous other ‘legacy free’ player countries as being the primary culprits, that is the recipients and/or beneficiaries of the stolen intangible assets
Naming the culprit countries in open sources carries some potential benefits, i.e., the adverse publicity may, in some instances…
- bring political – diplomatic pressure to bear on the named country’s legislative and enforcement bodies to be more aggressive and consistent in their pursuit of infringers and/or product counterfeiting, etc.
- prompt holders of valuable intangible (IP) assets to strengthen their international business transaction due diligence to reduce asset vulnerability by putting in place practices and procedures designed specifically to sustain control, use, ownership, and monitor the value, materiality, and risk to the key intangible assets in play in both pre and post transaction contexts.
A lot of information regarding potential infringement, theft, counterfeiting, etc., is in open source…
It’s important to note however, that much of the country specific challenges, insofar as economic espionage, infringement, misappropriation, and counterfeiting, etc., are readily available through the Office of the U.S. Trade Representative, Section 301 list, as well as the Department of States’ Overseas Security Advisory Council and numerous other reputable online sources.
The bottom line…
If any company, be it a startup, small to midsize firm, or part of the Fortune 1000, which is fortunate to have issued intellectual property, usually in the form of a patent, is devoting all or most of it asset protection resources to safeguarding and/or mitigating risks to a patent from possible infringement, I am simply saying such a strategy may be misplaced, because the real targets, particularly emanating from developing countries and the businesses within, is acquiring the actual knowhow which does not translate as a patent per se, rather as the knowledge that is embedded in a patent, i.e., the underlying intellectual, structural, and relationship capital that actually makes ‘things’ work quickly and profitably the first time!
For example, here in St. Louis is the world headquarters of Monsanto, perhaps most known in recent years for its progress in genetically modified organisms and the enforcement of patents it holds on varieties of its soybeans and corn. I can reasonably assure folks that the global economic – competitive advantage adversaries who engage in economic espionage and/or aggressive business intelligence operations against the likes of Monsanto, are not after the GMO related patents. Instead, they are seeking the operational knowhow embedded within and/or underlying Monsanto’s patents, and that translates as intangible assets, pure and simple, i.e., the intellectual, structural, and relationship capital accumulated and held by Monsanto researchers and executives.
Michael D. Moberly May 27, 2014 ‘A long form blog where attention span matters’.
Due to the inherently distinctive development and utilization of most intangible assets, particularly intellectual, structural, and relationship capital, they are not well suited for one-size-fits-all management, snap-shot-in-time assessment, or valuation. This makes it all the more prudent and beneficial for company management teams to achieve the necessary operational familiarity with the nuanced nature/aspects of their firm’s intangibles’ in terms of (a.) how and from whom they originate, and (b.) their development, maturation, and eventual utilization. Doing so starts by (c.) identifying, unraveling, and differentiating those elements of a firm’s intangibles’ relative to their (d.) contributory value, e.g., structural capital (process effectiveness and/or efficiency) and driving competitive advantages.
As the above are achieved overtime, management teams of intangible asset intensive companies will acquire a much clearer and comprehensive picture of the most effective and profitable paths to put their firm’s intangible assets to work and assure they remain so. Whether one chooses to conceive this in a roadmap context viewed through a conventional business lens or more as a ‘big picture’ mosaic, the message remains the same…business decision makers, regardless of their specialization, professional experience, or job title, are, as it were, obligated to acquire, if they haven’t already, strong operational and managerial clarity and operational familiarity with their firms intangible assets!
The reason is, intangible asset management has shifted from merely being an optional task, i.e., ‘nice to have’ skill set should one have the inclination to acquire, to becoming very much akin to a genuine fiduciary responsibility. This level of managerial dexterity and awareness are now essential to effectively and profitably operating intangible asset intensive companies, particularly in today’s globally competitive, aggressive, and predatorial business management and transaction arena in which intangibles’ are inevitably in play.
It’s really quite straight forward, that is, underlying the economic fact that 80+% of most company’s value and sources of revenue today lie in or evolve directly from intangible assets, management teams, regardless of their company’s size, maturity, annual sales, sector, and/or receptivity to innovation develop a…a path for consistently putting their intangible assets to work, while preserving their contributory value and competitive advantages and monitoring their materiality and risk will lead to more profitable and sustainable outcomes!
Executing these criteria will absolutely aid management teams to ’put their company’s intangible assets to work’ there remain two significant intellectual and/or business philosophy hurdles to overcome, i.e., the perception that…
- intangible assets are merely another term for or form of intellectual properties, patents particularly.
- the stewardship, oversight, and management of a company’s intangible assets are exclusively legal, accounting, or IT processes, instead decisions and actions affecting a company’s intangibles are genuine business decisions to be made in concert with security, risk management, legal counsel, and accounting.
- intangible assets and their (stewardship, oversight, and) management are the sole province of large, multi-national, Fortune 1000’s and thus irrelevant to startups or small firms.
- the intensity embedded in today’s go fast, go hard, go global business development and transaction environment is integral to the knowledge (intangible asset) based global economy.
However, unlike conventional forms of intellectual property, i.e., patents, trademarks, and copyrights, there are no certificates issued by the government that tell business owners and decision makers ‘these are your intangible assets’. Instead, responsibility for identifying, unraveling, assessing, safeguarding, managing, mitigating risk, and exploiting a company’s intangible assets lie solely with company management teams. So, at minimum, understanding what intangibles’ are, how they develop as structural capital and the ability to assess their contributory value, commercialization and monetization potential are paramount.
Yes, I am a strong advocate of utilizing intangible assets as fully and as completely as possible. But, I caution readers to not characterize intangiblesas constituting the proverbial silver bullet or assume they can be effectively captured in a one-size-fits-all template to achieve success.
Unless and until management teams, boards, investors, stakeholders, and other business decision makers begin demanding that (their) company’s intangible assets ‘be taken out for a ride’, it’s likely a company’s intangibles will likely remain idle, taken for granted, and otherwise left unused, under-valued, and vulnerable to a global array of competitors to acquire and use at their will.
Reasons why operational familiarity with intangible assets is necessary for every management team…
The primary reason of course is that it is increasingly unwise to dismiss the globally universal economic fact that 80+% of most companies, be they startups’, mid-size, or large firms’, value, sources of revenue, and ‘building blocks’ for profitability, growth, and sustainability evolve from intangible assets!
Too, for most companies, their internally developed (unique, differentiating) knowhow coupled with when, where, and how to use that knowhow, i.e., intangibles, particularly intellectual, structural, and relationship capital best become the commodities that produce the necessary standalone value, competitive advantages, and sources of revenue today’s companies need to remain sustainable.
And again, in today’s highly compressed business transaction and R&D environments, advanced by the millennial maxim, go hard, go fast, go global, ideas and innovation can mature or become obsolete or irrelevant very rapidly. Too, if intangibles are not recognized, effectively harnessed and safeguarded in a timely manner to mitigate the inevitable risks, most intangibles’ can easily meld into the public domain or succumb to compromise, misappropriation, or infringement. Any one of these dilemmas can wholly or substantially diminish assets’ contributory value, induce reputation risk, or negate competitive advantages and opportunities for (asset) commercialization and monetization.
Readers are respectfully obliged to keep the latter in mind, that is, intangible assets can advance a company economically, competitively, and commercially, only so long as theassets’control, use, ownership, value, materiality, and risks are monitored, mitigated, or prevented.
Michael D. Moberly May 23, 2014 ‘A long form blog where attention span really matters’.
Emergence and integration of intangible assets…
Intangible (non-physical) assets have quite literally transformed conventional business practices which had, certainly since the industrial revolution evolved around the production and utilization of tangible or physical assets. This economic transformation, i.e., from the tangible to the intangible became increasingly evident in the late-1980’s to the mid-1990’s as company decision makers, management teams, boards, and the innovation – R&D process globally found it in their interest to rethink and restructure their conventional business strategies to include exploiting internally produced or externally acquired intangible assets.
It was becoming clear that intangible assets, somewhat single handedly, were the real origins and foundations to most company’s value, their sources of revenue, and competitive advantages. More specifically, intangible assets had become the ‘building blocks’ for most company’s profitability, growth, and sustainability.
Thus, what ultimately is now referred to as the knowledge (intangible asset) based/driven global economy was an important facet to conducting business in the 21st century and intangible assets were playing increasingly integral and influential roles.
Professor Baruch Lev of New York University’s Stearn School of Business noted that (business) economic activity increasingly consisted of the exchange of ideas, information, expertise, and know how, all of which are intangible assets. Obviously then, a company’s collective competencies and capabilities to effectively develop and strategically exploit intangible assets, particularly intellectual, structural, and relationship capital was rapidly superseding the mere control over or use of physical – tangible assets and resources.
As more management teams have come to recognize the value of many physical (tangible) goods are increasingly based on the degree and/or how well intangible assets have been integrated in the products and/or services being produced, particularly high quality intellectual and structural capital that collectively morph into brand, creative presentation, and content, etc. So with the origins of company value and revenue showing convincing signs of moving from the tangible to the intangible globally, changers are obviously necessary.
This irreversible economic fact produces new risks…
One outcome of this irreversible change from the tangible to the intangible was that it became clear that while intangibles were being more fully integrated in company’s operational thinking, strategic outlook and planning, they were also having a strong bearing on the responsibilities of Corporate Security Officers. For example, CSO’s would become increasingly responsible for safeguarding and mitigating risk to intangibles which, when materialized tends to longer lasting, if not permanent adverse economic and competitive advantage affects. More specifically, the intangible asset side of a company’s business, i.e., its reputation, brand, image, goodwill, competitive advantages, sources of revenue, relationship capital, will likely experience the greatest impact.
Inevitability of intangible assets playing more significant roles…
So, it was inevitable that intangible assets would be playing increasingly significant roles in company operation, strategic planning, and the types of transactions and other business initiatives they routinely engaged. In other words, achieving consistent business success was now inextricably linked to the effective stewardship, oversight, management, and safeguarding of a company’s intangibles which includes the ability to:
- identify, unravel, and assess intangible assets collectively as well as their individual contributory value.
- sustain control, use, and ownership of the assets throughout their respective life, value, and functionality cycles.
- understand how to exploit intangibles’ contributory and collaborative elements and the competitive advantages they produce.
- monitor intangibles’ value, materiality, and risk in both pre and post (business transaction) contexts, and in designing and executing exit strategies.
Acquiring the necessary capabilities…
Acquiring these capabilities and skill sets were rapidly becoming managerial imperatives, regardless of a company’s size, location, maturation, or industry sector and each needs a multi-pronged strategic roadmap which includes demonstrating how to…
- put intangible assets to work for one’s company effectively and profitably.
- safeguard the contributory value of intangibles throughout their respective functionality (life) cycle.
- provide effective stewardship, oversight, and management, and of a company’s intangible assets, not optional tasks, rather as fiduciary responsibilities that can no longer be dismissed, neglected, or relegated to the uninitiated, e.g., it will get done as time permits, when the resources become available, or, when competitors are observed doing it.
Home grown intangible assets…
To be sure, I recognize that most every company produces – possesses intangible assets which for the most part are ‘home grown’, i.e., internally produced, distinctively relevant, and company specific, irrespective of its location, size, industry sector, or maturity.
In many, instances, however, ‘home grown’ intangibles may not be particularly well suited to one-size-fits-all managerial or company culture circumstances in other words, it’s increasingly unlikely, in my view, that such intangibles would be readily transferrable. Certainly, there is ample evidence – examples strewn about businesses in many different sectors in which intangible asset transferability simply did not work or perform as desired. Instead, they may require nuanced modifications and handling aligned – commensurate with…
- achieving the most effective and efficient use.
- maximizing their contributory-collaborative value, and
- building and strengthening a company’s structural capital and competitive advantages throughout its supply-value chain.
- specific types of (business) transactions a company most frequently engages.
However, what fits best tends to work best…
To ameliorate the challenges associated with (intangible) asset transferability, Iadvocate very individualized approaches to assessing, utilizing, bundling, managing, and safeguarding. intangibles’. This, I refer to as my ’what fits best tends to work best’ strategy. More specifically, my own experiences (anecdotally) suggest that ’what fits best’ for a company and its operating culture will usually ‘work best’ and produce the best outcomes insofar as helping achieve its business goals, objectives, and maximize the use of its intangible assets.
What fits best doesn’t require company management teams to step outside their areas of expertise…
An important message to convey is that my ‘what works best usually fits best’ approach does notrequire management teams to step outside their primary areas of managerial – operational expertiseto understand and apply the various principles and strategies presented. Instead, this approach is designed to build upon management teams existing expertise, but it adds challenging, relevant, and forward looking dimensions to those areas of specialization and expertise.
Too, my experience clearly suggests the ‘what fits best’ approach respects achievements of management team members while helping companies proceed more effectively and quickly insofar as their value, competitiveness, and profitability. Too, it renders companies less vulnerable to the ever growing array of risks and threats which can rapidly materialize to literally sap the value from intangibles and undermine – erode the value, margins, and competitive advantages of potentially lucrative (intangible) assets.
The countless companies and management teams I have encountered over the past 25+ years, with no exceptions that I can immediately recall, each produces (internally valuable, revenue generating competitive advantages and numerous other ‘building blocks’ that can lead to growth, profitability, and sustainability. Let’s try it together!
Mr. Moberly welcomes and encourages reader comments.