Generally, the process for assigning (dollar) values to stolen, misappropriated, or otherwise compromised intangible assets…is embedded with (a.) subjective guesstimates, and (b.) embedded with various, usually anecdotal biases, or (c.) even larger (political, foreign policy) agendas, anyone of which can variously influence (d.) how a study is constructed, and (e.) which and how calculations are made.
Objective calculation of the costs – losses incurred by a company as an outcome of product counterfeiting – piracy…may initially appear a relatively straightforward task, akin to executing a conventional physical inventory, i.e., identifying the presence of specific goods – products provably received and present compared to goods – products not present, i.e., provably sold or their presence is unknown.
An obvious challenge to such conventional inventory practices is that all is focused on…
- the tangible – physical (state of specific assets),
- not the intangible – non-physical (elements of specific assets), ala goods, products, and/or assets which have been variously compromised, i.e., pirated, bootlegged, copied, counterfeited, etc.
Calculating and assigning a dollar values – consequences to assets which have been stolen – counterfeited…can be a bit more complex, especially for companies which are not operationally familiar with or elect to disregard the intangible features and components of their products, goods, and services, i.e.,
- recognizing, assessing, and monitoring their contributory role and value to legitimate buyers and users of the authentic vs. the counterfeit.
To be sure, there is much more to assessing and assigning dollar values to the intangible asset side of business…particularly, the large volumes of counterfeited- pirated goods and products.
Here, company leadership is obliged to not merely acquiesce to (a.) the assets’ vulnerability, probability, and criticality to materialized risk, i.e., subject to counterfeiting on a broad scale, (b.) the over-used and poorly conceived-calculated guesstimates regarding lost sales, discouraged legitimate buyers, and brand – competitive advantage undermining, etc., (c.) all variously attributable to unrelenting, large scale, and asymmetric counterfeiting and piracy of high value products and goods.
Company – business leadership, who, for various reasons – rationales… convey dismissiveness toward, or, express reluctance to acknowledge large scale counterfeiting – illicit replicazation of their products – goods will inevitably find it professionally uncomfortable and disconcerting to reconcile the materialization of those risks to losses insofar undermining brand – product legitimacy.
These circumstances become more acute as pirated – counterfeited products…become less distinguishable from the substantially higher priced legitimates’. In turn, these circumstances variously produce a reverse sense of the conventional ‘let the buyer be ware’ ala prospective buyers of high end products which are likely – known to be fakes and counterfeits, absent the high price.
Understandably, in these instances, company leadership may exercise reluctance to go public with their victimization…even though it is generally advisable, if not a fiduciary requisite.
Yes, doing so, represents, among other things, a companies’ admission to…
- being victimized, which is seldom (professionally, personally) a comfortable competitive position, because, in part
- it is typically followed by questions – guesstimates about the extent – value of the losses attributed to product piracy – counterfeiting, and perhaps, economic espionage, which,
- are often initially framed in passionate and angry descriptions how the acts and losses will impact the victims’ company, their brand, and loss of repeat-prospective buyers of legitimates’.
Victim embarrassment and anger aside, this intangible asset strategist – risk specialist recognizes it can be challenging to…determine, let alone isolate and accurately assess asset losses caused by product counterfeiting as it emanates in other countries.
In many instances, that’s because, the losses associated with undermining of a company’s…brand and existing-repeat-prospective customer good will, etc., should not be limited to guesstimates of permanency or impermanency.
Instead, the full extent of a targeted companies’ losses attributed to the availability of product counterfeits…is frequently subtle, elusive, and indirect because risk materialization and losses attributed to (a.) the mere availability of reasonable facsimile counterfeits, and (b.) willingness of people to purchase same or previous buyers of legitimates’ to convert to counterfeits…
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- immediately realized, measurable, or calculated until market space erosion is recognized and objectively attributed to the earlier materialization of risk and asset loss.
Let there be no surprises…assigning specific cost-price tags to companies’ asset losses incurred through economic (cyber – HUMINT) espionage can be, for some, a challenging undertaking.
The process for intangibles is not analogous to personal property insurance claims…wherein an insured describes, in laundry list fashion, personal possessions and home furnishings ala physical assets lost to the burglary, to your friendly insurance agent. Should there be no reason to suspect home owner collusion or fraud, the insurer will merely require, in advance of any payout, a police report to have been filed, probably some semblance of an investigation, how the burglar gained entry, and is there any physical evidence present to aid in identifying a perpetrator(s)?
On the other hand, when a business incurs a ‘loss’ of intangible – non-physical assets…the prudent business insurer will have different standards and requisites which company leadership will be obliged to provide documentation describing – distinguishing (unraveling) the contributory role, value, and competitive advantages, etc., of each specific intangible and the context in which it delivered – produced value, revenue, competitive advantage, etc., i.e., as intellectual, structural, or relationship capital, or some collaborative variation. which are being alleged to have been misappropriated, infringed, or intentionally undermined by an economic – competitive advantage adversary.
Conventional accounting methodologies seldom monitor – assign values to an insureds intangible assets, i.e., in tax reporting contexts as applied to physical – tangible assets. Thus, the insured, unless they have operational level familiarity with their intangible assets, i.e., distinguish and monitor intangible assets relative to their measurable contributory role, value, and competitive advantage produced, will likely find it challenging to describe, from an evidentiary perspective and with sufficient detail, the intangible assets in play relative to differentiating what portion – percentage of their intellectual, structural, and relationship capital was at risk and misappropriated.
Again, the following economic fact – business operation reality is worth noting again…
- today, and for the foreseeable future, 80+% of most company’s value, sources of revenue, competitiveness, and sustainability lie in – emerge directly from intangible assets, i.e., various forms of intellectual, structural, and relationship capital.
Of course, this indisputable – irreversible economic fact translates to there are substantially higher (and growing) percentages of businesses operating today which are ‘intangible asset intensive and dependent’!
Its important to draw readers attention to…another aspect to intangible asset intensive and dependent businesses, which is, they are not sector limited or specific.
In other words, businesses operating in any sector, can, and often already are…whether leadership has acknowledged it or not, moving toward, or already has variously become intangible asset intensive and dependent.
So it is, through my experiences…as an intangible asset strategist and risk specialist, insureds state of being – becoming more intangible asset intensive and dependent, will oblige insurers with potentially two options.
One of course, is to seek – acquire operational familiarity with business intangible assets, sufficient to SHOW LIST OF INTANGIBLES rapidly engage these variously new business operational realities associated with being – becoming intangible asset intensive and dependent. Either way, due to the persistent and asymmetric risk environment, often times, the initial and most significant adverse affects of materialized risk is to a businesses intangible assets with the partial exception of natural disaster risks, i.e., hurricanes, fire, tornado, flood, etc., which in many instances are already distinguished, where relevant, vis-à-vis risk specific codicils or (policy) supplements, should either be an option an insurer offers.
which most businesses it will insurer leadership to
Rabbit holes…
along with, of course, relevant tangible evidence of the with sufficient detail,
are often embedded with subjective assessments that do not reflect a comprehensive (portrait) accounting of the ‘contributory value’ of various assets which serve as foundations to an infringed patent. For example, it’s not especially prudent then to assume the findings of the various surveys and studies produced over the years are the result of using objective data and calculations free from the influence of larger political, social, and national security agendas.
Numerous reports…
Since the passage of the Economic Espionage Act (EEA) in October, 1996, there has been no shortage of surveys and studies produced whose focus has largely been to ‘dramatize’ the costs, losses, and adverse impacts attributed to cybercrime and economic espionage.
Having read and studied most, if not each of these studies/surveys over the past 25+ years, I interpret many of the methodologies and findings to be somewhat competitive in the sense that each appears to be conceptually broader in the ranges of dollar losses and adverse economic impacts and characterized in more dramatic fashion.
Calculating losses attributed to economic espionage require objectively framed equations…
For many years there has been a general inclination to accept, perhaps naively, after-the-fact prognosticative research regarding the valuation of losses attributed to cyber – economic espionage.
My counsel on that matter is that any formula or conventional intangible asset valuation methodology used to calculate the loss and/or compromise of intellectual properties should differentiate the assets which have been stolen and/or compromised by category, i.e., intellectual, structural, and relationship capital.
Professionally, I have had the good fortune, since the mid-to-late 1990’s, to have been engaged in various endeavors to aid companies to mitigate their vulnerability…to the affects of (global) economic and competitive advantage adversaries. Many of whom are quite sophisticated legacy free players whose objectives it remains, is to access and acquire targets’ key intellectual, structural, and relationship capital ala intangible assets.
Respectfully, but unfortunately, far too few businesses possess…beyond the anecdotal, sufficient operational familiarity with the predatorialy aggressive pursuits – objectives of global (state sponsored, private) business – competitor intelligence (economic espionage) operations.
The types-categories of intangible assets (intellectual property) targeted, often develops and emerges as a company’s primary sources of value…revenue, and competitive advantage. However, when risks to the contributory role and value of these assets materialize and fall prey to compromise, misappropriation, and/or infringement from adversaries, it can quickly undermine a target company’s value, market position, revenues, competitive advantages, and future innovation capability.
Part of my work interests today remain seriously devoted to the study – unraveling of various targeting strategies and techniques applied by…economic – competitive advantage adversaries and directed specifically to sources of targets’ value, revenue, and competitive advantage producing intangible assets. Obviously, the stakes are high in geo-political and economic contexts, i.e., state relationships, trade, and competitive advantage, etc. The probability that the actions-initiatives of economic-competitive advantage adversaries achieve their desired outcomes-objectives makes such endeavors all-the-more strategically and competitively lucrative to engage in, and presumably worthy of most the relevant risks.
Go fast, go hard, go global, get to black…in today’s go fast, go hard, go global, get to black market entry, business development, and transaction environment, it’s important for every business management team to recognize that arriving first in a sectors’ marketspace with the capabilities in place to exploit slight advances in technology, minor improvements in production, and/or small refinements in business processes can rapidly deliver competitive advantages and become extraordinarily lucrative. (Adapted by Michael D. Moberly from the fine work of Christopher R.J. Pace)
The motives and necessities for ever smaller, largely legacy free players…i.e., emerging countries and companies to individually mount and/or secure the services of sophisticated business intelligence collection, analysis, and brokering operations has variously become essential to competitiveness, revenues, and value. Another dimension to such initiatives, is that they are, to be sure, more overt today and firmly embedded in countries’ GDP (gross domestic product).
The blissfully naïve and/or over-confident business leader…through my lens, the blissfully naïve and/or over-confident business leader – management team who may admit such risks exist, but assumes they can be outpaced merely by sustaining a presumptively innovative go fast, go hard, go global business model surrounded by an intangible asset intensive-dependent platform, will eventually experience limitations, should effective intangible asset risk awareness and mitigation practices not be in place or be arbitrarily applied.
Due to the magnitude of potential loss and the persistence and probability risks executed by economic and competitive advantage adversaries globally will persist…I have consistently endeavor to bring as much clarity as possible to the matter by describing the various manifestations, i.e., human – artificial intelligence initiated and guided business intelligence and economic espionage…
1. Private, independently operating firms which offer services variously characterized as competitor, business, economic intelligence and analysis and/or information brokering…
2. Corporate business units with mandates and expertise for (legitimately) collecting, analyzing, and developing internally accessible data bases of competitor/business sector intelligence primarily from open source materials.
3. Individuals sponsored-employed by a government unit or agency who may recruit and train individuals to coordinate business and economic intelligence services in two primary forms and/or contexts:
a. Individual (participant) is – is not fully aware of their role, expectations, and/or objectives upon deployment to targeting company or country, e.g., to be in proximity to and/or seek association with a specific researcher, R&D project, institution, and/or corporation.
b. An individual exploits a legitimate association with a specific R&D project, corporation, or institution as a platform to engage in other economic – competitive advantage intelligence collection activities.
4. Individuals who are encouraged – expected (as a matter of usually a foreign entity’s operational culture to softly collect and report their perspectives, insights, and/or findings related to business – competitor – economic intelligence matters.
5. Legacy free players engaged in (desk top) data mining and/or information brokering operations.
A distinction without a difference…I don’t think so. Instead, Iurge readers to not characterize this phenomena as merely distinctions without a difference. That-is-to-say, a company’s more prominent intangible assets of intellectual, structural, and relationship capital (knowledge and knowhow) in most instances, convert to (company-business) value, sources of revenue, competitive advantage, and product-service attractivity actually-comprise the foundations for conventional intellectual properties. In other words, adversaries illicitly engaged in economic and competitive intelligence (data mining) and economic espionage recognize these assets as the real targets.
Intangible assets, i.e., intellectual, structural, relationship capital are precisely…what economic – competitive advantage adversaries globally are seeking and therefore will aggressively, predatorially, and stealthily pursue because successful in acquiring those intangible assets is readily acknowledged to be the quickest route to sector competitiveness, generating new sources of revenue and value.
Issued patents provide legal standing, but that may be all…yes, it is true that an issued patent provides holders with (legal) standing to bring criminal and/or civil action against alleged infringers. And yes, a requisite World Trade Organization (WTO) membership is a reasonably strong intellectual property enforcement regime.
I respect those who have been issued a patent from their government…insofar as what they have deservedly achieved. A patent issuance certificate certainly warrants framing and hung on a wall of prominence for all to see and dutifully admire. But please, avoid making-the-assumption that an issued patent today constitutes a standalone deterrent to the persistence of would be infringers and/or economic and competitive advantage adversaries. One’s possession of the knowhow that underlies an issued-registered patent no longer serves as a deterrent, nor does it serve as an adequate safeguard to the life-value-functionality cycle of the knowledge embedded with a patent. To do so is, at best, wishful thinking, bordering on the naïve, misguided, and certainly out-of-date thinking.
Theft of a competitor’s ‘intellectual capital’ (property), is euphemistically, the worlds’ second oldest profession…the first being prostitution. Here, in this context, its important for business leadership to recognize that an, as yet unknown percentage of malicious (illegal) cyber activity, is a gateway – prelude to ‘humint’ (human intelligence) economic espionage.
There remain a percentage of government – private sector (business) policymakers…who, for various reasons, still find it challenging or are dismissive of the necessity to articulate, with strategic clarity, precisely why cyber – intangible asset safeguards and product piracy – economic espionage mitigation is (a.) so essential, and (b.) should commence at the outset to any R&D ) and business initiative.
Unfortunately, it’s common to witness pundits and open source media to focus their attention on the high dollar values of loss…i.e., the adverse industry sector economic, competitive advantage, and/or national security impacts attributed to cyber – economic espionage to U.S. companies, figures which frequently range between $100 and $500+ billion annually.
For starters, as an intangible asset strategist and risk specialist, I demonstrate to client companies the multi-use benefits of designing their…calculations, i.e., projective assessments, not solely in conventional contexts of asset loss, instead, include the competitive advantage undermining a company will likely experience that is
Of course, this commences by recognizing this indisputable and irreversible economic fact…
today, and for the foreseeable future, 80+% of most company’s value, sources of revenue, competitiveness, and sustainability lie in – emerge directly from intangible assets, i.e., various forms of intellectual, structural, and relationship capital.
Of course, this commences by recognizing this indisputable and irreversible economic fact…
today, and for the foreseeable future, 80+% of most company’s value, sources of revenue, competitiveness, and sustainability lie in – emerge directly from intangible assets, i.e., various forms of intellectual, structural, and relationship capital.
Michael D. Moberly October 6, 2014 St. Louis [email protected] ‘The Business Intangible Asset Blog’ where one’s attention, intangible assets, and solutions converge!
Readers are invited to explore other blog posts, papers, and books I have published at https://kpstrat.com/blog
As always, reader comments are most welcome!
