While many companies have chosen to cut costs and ride the recession wave, some savvy companies are taking this time to discover new value in their company; value in the intangibles. Although some executives equate “cost-effeciency” with cutting employees and holiday parties, others are finding undiscovered or underutilized intellectual property and turning it into a new profit center.
While IP value generally isn’t included on a balance sheet, its distinctive worth to a company shines at a time when standard revenue streams demonstrate their volatility. Nevertheless, IP that is core to a company’s operations is frequently not protected, deployed, or enforced to exploit the competitive opportunity it creates. In addition, non-core IP often consumes costly R&D resources that should be focused on core IP. Still more often, unutilized high quality IP sits on a company’s shelf when it could be licensed out for profit. The path to IP optimization begins with discovery, and discovery is effectuated through an IP audit.
The IP Audit
An IP audit is a systematic review of the IP assets owned, used, or acquired by a business. It uncovers underutilized IP, as well as any potentially infringing business practices, allowing management to strategically advance the company’s market position.
An IP audit should be conducted by an audit team, made up of persons familiar with the company’s technologies, operations, and future product directions. These persons should work closely with experienced IP legal counsel to devise a plan of attack, beginning with a disclosure process that mimics litigation. The company’s audit team should disclose to the IP professionals all known IP assets, registered or not, and all business methods (customer lists, company policies, marketing materials, etc.). The IP professionals can take that information, along with expenditure and R&D figures, and discover underutilized value in the company’s intangible assets.
The IP Maximizing Quadrant Diagram
An efficient IP audit should categorize discovered IP assets under one of the following four categories: (1) high utility-high quality; (2) high utility-low quality; (3) low utility-high quality; and (4) low utility-low quality. Categorically placing IP assets in a quadrant diagram can help one understand how resources are cost-effectively exercised.
High Utility High Utility
Low Quality High Quality
Low Utility Low Utility
High Quality Low Quality
“High Utility - High Quality” IP
In the 1980’s, Polaroid inventors successfully patented processes integral to creating instant photography. Subsequent enforcement strategies and law suits against competitors, such as Kodak, carved out a monopoly position for Polaroid in the instant photography market. This IP is called “High Utility-High Quality”, because it is core to the operations of the company and it effectively generates an advantageous market position. Resources should be expended to protect, deploy, and enforce “High Utility-High Quality” IP. Enforcement policies should be implemented to identify possible infringing activities by competitors, and to file suit to enjoin the activity or negotiate a license agreement.
“High Utility - Low Quality” IP
Even though a technology or business method is instrumental to a company’s operations, in some cases it may be easily superseded by a competitor’s R&D efforts. The market for television screens is a good example, in which technologies are superseded before they can even go to market. (Blu-ray and HD technologies are rumored to be obsolete within three years at the hands of Organic Light-Emitting Diode (OLED) screens.) This is deemed “High Utility-Low Quality” IP, and it is imperative that a company focus its own R&D resources on this IP before other IP. Such focused R&D efforts should attempt to push the IP assets in this quadrant into the “High Utility-High Quality” quadrant, where IP can secure a market share.
“Low Utility - High Quality” IP
Many companies, large and small, keep unutilized IP on its shelf just because it isn’t critical to the company’s operations. In some cases, this IP could be utilized by another company, even in another market. An effective IP audit can recognize such “Low Utility-High Quality” IP as a subject for outbound licensing. For little or no overhead, the company can license IP to other companies, creating a profit center that didn’t exist before. A company may also cross-license the IP, trading it for another company’s IP that might further the operations of the subject company. One of the most successful outbound licensing campaigns is that of Texas Instruments, who has earned almost a Billion dollars annually, and over 50% of its entire corporate net income in recent years, from licensing practices.
“Low Utility - Low Quality” IP
The final category of IP is “Low Utility-Low Quality”, or that which is not core to the operations and easily superseded. An IP audit should identify this IP, cut all expenditures which maintain this IP, and label it for sale. A cross-market buyer may find a new use for the IP not previously envisioned. Most importantly, resources should not be spent to maintain or develop this IP.
The result of an effective IP audit and the ensuing productive measures should leave only two quadrants occupied: “High Utility-High Quality” and “Low Utility-High Quality”.
Resources should strategically maintain the IP in these quadrants in a cost-effective manner. The result is newly discovered value and profit centers for the company, and cost-savings on unutilized and continuously maintained IP.