Faculty Inventors: Transferring Valuable Intangible Assets and IP To Countries With Weak Intellectual Rights

Michael D. Moberly   December 6, 2011

In the current intangible asset – IP dominated (knowledge-based) global economy and business transaction environment, there is, unfortunately, little insight about how or whether those assets can be adequately safeguarded when filing patents and the subsequent invention exposure (public disclosure) in countries with weak and/or non-existent enforcement of intellectual property rights (laws).

This subject is rapidly becoming routine action items on c-suites and boardroom agendas globally as a fiduciary responsibility, not just for mega-multinationals, but very much relevant to small, medium-sized enterprises, start-ups, and university-based spin-offs as well.  

The subject is often presented as if most asset exposures/vulnerabilities are already known and the probability that a company (asset owner/holder) will incur a significant and irreversible loss, i.e., in the form of value, market share, competitive advantages, etc., due to infringement, theft, and/or counterfeiting is merely a risk of doing business.  I don’t subscribe to this view!

One key question every technology transfer manager, entrepreneur, start-up company, and university spin-off management team should ask is at what point (timing) will the risks and potential for disputes and challenges (i.e. vulnerabilities) to a company’s intellectual properties and intangibles, if left unchecked in the globally predatorial and winner-take-all R&D and business transaction environment, become inevitabilities? 

Other key questions to consider (factor) include:

• what is each parties tolerance for risk and/or loss to their IP and intangible assets?
• if IP – intangible asset losses and/or compromises occur, how quickly will the adverse effects be felt, i.e., asset value, market share, competitive advantages, and revenue streams, etc.

In other words, if a country’s IP rights protections and enforcement is so weak or non-existent to the point inventions – technologies cannot be satisfactorily safeguarded throughout their life-value cycle; how should those issues be factored into the invest – don’t invest equation? 

This argument of course presumes that the value, sustainability, defensibility, and projected returns of IP and intangibles developed and/or brought into a country with weak IPR’s, will experience lower projected returns.

There are a growing number of instances, in which companies have actually elected to withdraw operations and their intellectual property from country’s found to be especially weak in intellectual property rights enforcement.  It’s difficult to ascertain whether those firms action to  exit a country to protect its IP were exercising and overly risk averse strategy or whether the decision was influenced by a single (significant) loss or compromise of their IP?

That said, a 2004, University of Minnesota study/survey of U.S. headquartered companies titled ‘Doing R&D In Country’s With Weak IPR Protection: Can Corporate Management Substitute For Legal Institutions?’ reasoned that:

• technologies developed in weak IPR countries will be used more for internal purposes
• companies conducting R&D in weak IPR countries will likely have tighter IP-asset protection measures in place to compensate

Transferring faculty generated research (technologies, intellectual property, intangible assets) to countries with weak intellectual property rights protections is an important consideration, not to be taken lightly by faculty researchers-inventors and university technology transfer managers. Substantive questions to consider are:

• if the decision is made to conduct IP bearing R&D and/or bring IP into a country in which a significant percentage of that country’s GDP is linked to – dependent on the production, distribution, and sale of infringed or pirated (IP) products, it’s likely the newly introduced IP will experience the same or similar fate?
• the presumption that any faculty researcher can invent and produce intellectual property faster than economic and competitive advantage adversaries can steal or infringe it or be dismissive or nonchalant when it does occur because of its presumed the technology/IP will incur rapid obsolescence and therefore hold little, if any, market value, why devote resources to its protection and preservation, beyond the minimum?.