A CEO’S GUIDE TO IPHOW TO USE INTELLECTUAL PROPERTY

TO DRIVE BUSINESS STRATEGY

Author: Jeffrey MaddoxJeffrey Maddox brings more than 25 years of management experience in financial services andconsulting to his role as Managing Director of CPA Ventures, the corporate development arm ofComputer Patent Annuities (CPA), a global intellectual property software and services company.

Contributors: Jeremy Phillips

© 2007 Computer Patent Annuities Limited, www.cpaglobal.com. All rights reserved

Disclaimer: All information, materials and opinions are provided for general information purposes onlyand on the understanding that none of the content constitutes legal or other professional advice. Anyviews provided by third party contributors do not necessarily reflect those of CPA.

2

INTRODUCTIONIntroduction p3

What is IP? p4

How valuable is my IP? p6

IP for business strategy p8

Conclusion p9

10 questions every CEO should ask p10

You don’t have to be an IP professional to understand theimportance of intellectual assets in today’s information age. The old industrial ‘bricks and mortar’ era has been replaced by apowerful knowledge-based economy, with ideas and innovationas the new currency. In this environment, IP is no longer just ameans of protecting innovation – it’s also a potent business assetand a means of capturing value. IP Rights have become themost important form of competitive power that any company canown; they are the foundation for a product’s market dominanceand continuing profitability, the basis for an almost unrivalledmethod of revenue-generation, through licensing ormerchandising, and are often the key objective in mergers andacquisitions (M&A).

Where the core of a company is its IP, it’s important forexecutive management to understand the extent of these rightsand what IP can do for them. However, the management of acompany’s IP Rights is a challenging, fast-moving and, often,unpredictable task. So long as intangible assets continue to playa pivotal role in bolstering a company’s bottom line, the methodsin which IP Rights are created and enforced will also continue tofluctuate and expand. Already, the growth in importance of IPRights has created new, previously unthought of methods ofexploiting and using it. This in turn has generated an unheraldedsurge in filings and registrations, created new challenges in termsof accounting, taxation and valuation (many of which are still tobe resolved) and placed added pressure on the systems in placeto record and monitor IP Rights, causing them to be assessedand often overhauled. At the same time, it has produced amuch-needed and successful IP management industry, wherecompanies outsource to off-shore services and tax havens tobetter exploit and protect their IP.

Of course, it hasn’t traditionally been part of a CEO’s role totrack the management of the company’s IP; this has previouslybeen considered a legal issue, the domain of corporate lawyers.IP is just one of many concerns to be factored into overallcorporate policy, along with more obvious short-term topics, suchas cash flow, customer retention, supplier sourcing, tax reportingand recruitment.

Yet, as IP has become a business driver, it’s becomingimperative for CEOs to build a basic knowledge of the rights thecompany owns in order to properly direct its future and accountfor its worth. Just as IP experts are not CEOs, CEOs are notnecessarily IP gurus; however, each needs to know andunderstand the position of the other if they are to meet eachother’s needs. After all, IP, well-nurtured, can provide the bedrockof a company’s security, as well as enhance its identity andbrand value.

CONTENTS

3

Intellectual property, or IP, is a loose term for the propertythat exists in the things people create (such as inventions,medicines, music and movies), as well as the informationthat becomes valuable because not everyone has access toit or can use it (trade secrets, customer or supplierdatabases and business and product names). Some IP isprotected by statute law (most countries have specialenactments governing patents, trademarks, designs,copyright and domain names). Copyright is protected bydefault, but all other rights need to be registered,monitored and renewed. Other IP is protected almost bychance, through the courts applying their own judge-madecase law; for example, to protect confidential informationor the ‘passing-off’ of another person’s rights.

Why does IP matter?The sentient CEO gets two answers. First, IP Rightsunderpin a company’s investment in its new products,processes, marketing ploys and in its relationship with itscustomers. The current economic climate providesimmense rewards: a music group that is popular in onecountry is increasingly likely to be successful in many.Similarly, products as diverse as fast food, technology andautomotives do not depend on a specific geographicallocation, but can be sold and marketed everywhere.

Secondly, the formal IP Rights system that protects acompany’s intellectual output renders the IP a valuablecommodity. Patents, trademarks, copyright and domainnames are powerful competitive advantages becauseindividuals and corporations own them and can enforcethem in the courts.

IP Rights protect the results of creativity once they hit the marketplace. For example, the cost of mass-producinga finished medicine is derisory in comparison to thebillions it takes to create and test a typical pharmaceuticalproduct. If it weren’t for patent protection, manyorganisations would think twice about embarking on theexpensive R&D needed to produce new product researchin the first place. IP allows them to justify the initialexpenditure because it provides them with a guaranteethat they will at least have the opportunity to regain theirinvestment once the product has hit the marketplace.

In many areas (eg fashion, software and pre-recordedmusic) copying is rife, even where IP Rights are in place.Even so, imitators who enjoy a life which is both

profitable and untroubled prefer to copy products that areill-protected by IP Rights or whose rights owners pay lessattention to enforcement.

With a properly maintained IP portfolio in place, acompany can develop, acquire and use its IP Rights ascompetitive weapons to capture and defend markets,outflank rivals, and increase market value and revenue.Companies that ignore the growing value and power of IPdo so at their peril.

Do you know what IP you own?Companies cannot realise the value of their IP unless theyfirst understand what it is that they own. To grasp this,the first step should be to conduct an audit to measurethe patents, trademarks, domain names and associated IP Rights in their portfolio.

An IP audit shows CEOs what intellectual assets are at their disposal and how useful they are likely to remain.This is vital. For example, a company may rely on apatent to keep competitors from copying its product, butthe maximum life of a patent is quite short. If thatcompany does not have a strategy for maintaining theproduct once its patent has expired, how does it expect toretain its market share once other non-brand productsenter the marketplace?

As well as tracking the patents close to expiry, an IPaudit shows the CEO how much he depends on IP that isowned by others. The company’s software, its mailing lists– even the music played in its public spaces – may all belicensed in from other IP owners. Few businesses areentirely independent of ‘third party IP’, so the CEOshould know which bits of his operation are subject to thecontinued co-operation of outsiders. Similarly, companieswill often work together to co-produce IP. A study ofpatenting trends in hybrid technology produced by CPA in2006 revealed a considerable amount of co-assignmentactivity among the world’s leading automobilemanufacturers: ‘We found several examples of cross-company collaborations, in order to get hybrid products tomarket,’ said Christian Bunke, Product Manager, CPA.Both share the IP and should profit from the associatedrights equally, but this can only be ensured if a succinctIP strategy is put in place to monitor its use.

In addition, an audit of patent rights will reveal thepatent rights that can be licensed to generate revenue to

4

WHAT IS IP?

the business itself; it will also uncover deadwood –patent rights that the business is paying to maintain,but which are not used. Rather than being abandoned,these too, could be licensed to generate a potentiallylucrative revenue stream, but only if they are of use tosomeone else.

An audit focusing on trademarks, on the other hand, willhelp a CEO to chart the future of the company’s productsin its marketplace, and plot a path for future expansion.Senior management needs to be informed of the extent of acompany’s trademark rights before it decides to move intonew markets or territories. Trademark rights need to beput in place first, in order to ensure that the company hasthe freedom to trade in the new areas.

As with patent rights, a study of trademark rights willalso reveal those unused rights that can be licensed or soldon to save the cost of maintenance. If you’ve invested timeand effort to build a brand, why let it lapse? Thetrademarks that support an existing brand can easily besold or out-licensed. They can also be used to encourageother businesses to co-operate with you in developing yourown. For example, if you work in retail and you think yourshop format may succeed in other locations, you can takethe capital-intensive route of buying or renting properties inother locations, equipping those premises, recruiting andtraining local staff. Or you can register a trademark,assemble a confidential and copyright-protected operationalmanual on how to run the shop, then get people to pay youto use this IP package. That’s how IP-based business formatconcepts, such as Starbucks, McDonalds, KFC and, morerecently, hairdressing salons, such as Toni & Guy, havespread. The idea’s yours, but the investment risk belongs toyour licensees – and the better they do, the more valuable your IP becomes.

Equally, the results of the audit of trademark rightsshould always be compared with the company’s domainname strategy. Are domain name registrations in place tosupport the marketing of the brand in all relevantterritories? Are defensive registrations in place to ensurethat others aren’t using your brand for their own gain?

Knowing what you own is key to building a successfulIP strategy; one that will allow you to exploit maximumvalue from your company’s creativity, while ensuring youcan chart your future in the marketplace without fear ofinfringing or being infringed.

WHICH IP RIGHTS APPLY?

Intellectual property laws are designed to protectdifferent forms of subject matter, although in somecases there is a degree of overlap. Legislation oftenvaries by jurisdiction, but it always shares in commonthe intention of providing the ‘owner’ of the exclusiverights with a monopoly on the copying or distribution ofa protected form of the ‘property’. Some rights existautomatically, but most need to be registered and,where appropriate, renewed.

Patents: a patent may be granted for a new, useful,and non-obvious invention, and gives the patentholder an exclusive right to commercially exploit theinvention for a certain period of time (typically 20years from the filing date of a patent application,dependent on the jurisdiction).

Trademarks: a trademark is a distinctive sign used todistinguish the products or services of differentbusinesses. Trademarks can be registered to protect aproduct’s brand identity (its name, logo, slogan and,increasingly, shape, colour and sound, wheredistinctive). Protection generally lasts for 10 years, butcan be renewed for additional periods of 10 years.

Domain names: such registrations identify a companyor its products and services on the Internet. Names canbe registered as generic top-level domains (gTLDs e.g..com) or by country (ccTLDs, e.g. .co.uk in the UK).

Industrial designs: this right protects the form ofappearance, style or design of an industrial object (for example, spare parts, furniture, or textiles).

Copyrights: copyright automatically subsists in creativeand artistic works, giving the copyright holder theexclusive right to control reproduction or adaptation ofsuch works for a certain period of time.

Trade secrets: These are secret, non-publicinformation concerning the commercial practices orproprietary knowledge of a business. They are, orshould be, protected by confidentiality agreements.

5

Just like any other property, the value of IP is flexible: itall depends on whether the company is buying or sellingit; what it is being securitised for; whether the valuationis subject to accounting standards or financial reportingconventions; whether the right’s validity has been testedfollowing a contested court action or is only presumptivelyvalid; and whether it is free from encumbrances or subjectto licenses, charges or other equities.

‘The context of the valuation is critical,’ explains DannyRyan from LECG Corporation. ‘For example, patents canbe worthless if they don’t come with the necessary know-how or trade secrets to apply them. At present, there is nostandard method, but as CEOs and financial institutionsbegin to understand more about IP valuation, it will resultin an increased belief in balance sheet values of IP as aresult.’(Source: presentation at IP Review Live inFebruary 2006.)

Until that point, those IP valuation experts who practisetheir profession agree on one thing: given the differentreasons why IP Rights get valued and the different methodsof valuing them, companies should consider carefully whatpurpose a valuation exercise is intended to achieve beforeembarking on it. Bearing this in mind, CEOs should adopta mindset of sensible constructive scepticism when dealingwith any value-related issue and should not allowthemselves to be seduced into accepting a single sum asrepresenting the ‘true’ value of any item of IP.

This is not to say that a directional understanding ofIP’s value contribution to a product cannot already beestimated. The valuation of IP has become a necessarybusiness skill, particularly in mergers and acquisitionswhere management may be required to determine howmuch of the purchase price should be attributable tointangible assets. Management should start by first askingwhether the overall product is value producing, followedby an assessment of IP’s contribution to that value.General areas of examination include:• Determining the product’s competitive position. That is,is the product advantaged and economically profitable(value creating)?• If the product is advantaged, identifying the source ofthe advantage from either a differentiation and/or relativecost perspective.

• Identifying the specific product features and servicescontributing to the product’s source of advantage.• Linking IP, if any, to those product features and services.• Assessing the degree to which IP has contributed to thespecific product features and services providing thedifferentiation and cost advantage.

As IP becomes an integral part of business strategy, its value should be understood before it is granted, not just when it is bought or sold. Companies need tounderstand the link between IP and market share if theyare to retain their competitive advantage, as one USscience and technology giant discovered when it decidedto cut back on its R&D spending as part of a largercompany-wide series of cuts in 2003. Unsurprisingly, thereduction in R&D investment also led to a decline in thenumber of patent disclosures, applications and grants.Concerned that the short term cost savings in R&D andIP were coming at the expense of long term value, aproject team was established to try and measure thevalue of its R&D. What they actually did was measurethe value of its IP.

The balance sheet showed that the company wasinvesting approximately 4% of its sales in R&D, in excessof $500 million annually. The project team assumed thatthe value of R&D could be partly measured by the valueof the IP that it produced. In its case, IP generatedincome in two main areas: licensing (a revenue thatwould be lost without IP protection) and the profit fromhigher margins charged for IP-protected products. Theyfound that licensing revenue accounted for about £100million (or 20%) of annual R&D spending. They alsofound that a significant share of the R&D investmentwas earned back through the higher margins earned onthe IP-protected products. This was calculated by linkingthe company’s current patent rights with the company’sfinancial database, allowing for the measurement ofmargins for IP-protected versus non-IP protectedproducts. In fact, on average, IP-protected margins were8% higher than their non-protected counterparts.

This helped to reinforce the importance of IP (and R&Dspending) in the company. However, it didn’t serve as a pushto increase R&D spending; rather it prompted them toanalyse how to get more from the R&D investment that was

6

HOW VALUABLE IS MY IP?

already being made through IP registrations. As a result,extra investment was dedicated to building the company’steam of patent attorneys and the company’s business unitmanagers were asked to incorporate the potentialadvantages of IP into their strategic planning. After all, if IPconveys a competitive advantage, companies should beasking whether they are getting the most from thatadvantage in terms of price and/or revenue growth.

Using IP to attract investmentThe cost of developing new brands, innovative designs and schemes for marketing or distributing them isgreater than most small and medium-sized businessescan bear by themselves, so they have to borrow venturecapital or development cash from a bank; however,that bank wants to know whether it will ever see thatmoney again. Carefully managed IP can help a companyto justify that investment. For example, CambridgeDisplay Technology (CDT) was able to generate fundsthrough financial underwriting from Lloyds TSB Bank in2004. ‘Validation of technology was key to assessingpatent worth, quantifying value in the process,’ saidMichael Black, Vice President of CDT. (Source:presentation at IP Review Live in February 2006.)

Similarly, well-managed IP can help a company togenerate investment from venture capitalist (VC) andprivate equity (PE) companies. IP is now a valuablecommodity and many VC and PE companies arebeginning to recognise the potential returns oninvestment that this new asset can generate. As with theinitial investment in product developments, IP Rightsprovide no guarantee that their owners will make money,but they do provide some comfort to the lender that hemay one day see his money again.

IP-savvy companies can also use their IP portfolio tonegotiate themselves into a stronger position in cases ofM&A opportunities; a tidy IP portfolio ensures morereturn in cases of sale, whereas the acquiring party

needs to be on the ball if it is to ensure that the IP it isbuying is in order.

Can IP protection reduce commercial risk?Every statutory IP Right can blow up in your face, if itturns out to have been invalidly registered. Thisfrequently occurs for patents, but also for trademarks anddesigns. That’s why it’s so important to properly protect acompany’s creativity in the first place.

But for as long as you have those IP Rights, you stillhave some comfort based on its deterrent effect and thecost faced by your competitors in attacking it. Even aninvalid patent can ward off competitors for as long as ittakes to invalidate it. For example, Viagra is one of themost successful products of our generation. Pfizer’spatent was eventually held invalid in the UK, but notbefore the company had built up a massive marketpresence based on its powerful trademark.

But IP can only be protected commercially if it isproperly monitored. In the field of brands, for example,counterfeiting provides a real and growing threat totrademark registrations. According to some, counterfeitgoods account for 7-9% of world trade and rising (Toe SuAung, General Counsel at Batmark Ltd and chair of theInternational Trademark Association’s Anti-counterfeiting & Enforcement Committee. Source: IPReview, issue 15, summer 2006). No branded goods aresafe, nor any country immune, but at present it is up tothe individual company to monitor protection of its ownbrands. Counterfeiting erodes brand values and productintegrity and damages a company’s market share forgenuine brands. They can also cause injury and defraudboth governments and the general public. ‘Companiesneed to be vigilant in defending the integrity of theirtrademarks and urge regulators to enforce IP protectionlaws vigorously,’ advises Toe Su Aung.A market-aware CEO will not determine his businessstrategy first, later considering what IP Rights are at his

7

disposal. Nor will he contemplate his IP Rights beforedeciding how he can blend them into a business strategy.Successful companies are aligning IP and business strategyto use their IP Rights to maximise their market presence.

For example, when Nokia decided to enter the US telecoms market, an immediate problem was thatthe players already there, Motorola and the Japanese tele-giants, were well entrenched. Those players hadcross-licensed the use of one another’s patents and Nokiawas afraid to infringe. Those patents were so many innumber, and so complex, that even the act of readingthem to see what they covered would have been a slow,uncertain and extremely expensive activity. By the timeNokia discovered whether it infringed them, most of themwould have lapsed or become obsolete, to be replaced bynew ones. So Nokia developed its own portfolio of patents.It was then able to say: ‘Here are our patents. You may ormay not be infringing them, but if you let us into the clubwe’ll cross-license to you, too.’ In doing this, Nokia gainedadmittance to their target market.

IBM’s long-term business strategy reflects a differentapproach to patent protection. When Big Blue made boxes,it wanted computer users to be able to get hold of as muchsoftware as possible. That’s why, when the debate oversoftware patents arose in the 1960s and 1970s, IBMfought long, hard and unsuccessfully to ensure thatcomputer software was as unprotected as possible. Later,IBM’s own huge segment of the hardware made it sopowerful a monopolist that it couldn’t enforce its IPRights against cheap PC clone-makers without riskingantitrust suits. Recognising the potential power ofsoftware patents against the weakness of machinepatents, the company switched to software developmentand is currently the most profitable software developer inthe world. It has since altered its approach again;announcing at the end of 2006, a new patent policy topromote innovation. ‘We are now the biggest supporters ofthe open source development project,’ explains DavidKappos, IBM’s Vice President and assistant generalcounsel for IP law. ‘Admittedly, this policy is not easilyreconcilable with our traditional IP strategy, but we areconvinced that it is the way to go for the future.’

Microsoft, in turn, is pushing for amendments tointernational systems to better reflect the rising demands

for patents. Part of this is to help technology-richcompanies, such as its own, better use patentregistrations as a means of capturing value, but it alsowants to open up the procedure to companies who have,to date, been unable to utilise the patent system due toits prohibitive cost.

Using IP knowledge to beat the competitionIP is not only a legal and protective mechanism – bylooking at other people’s IP you can determine where youneed to invest money in R&D. IP profiling can give a CEOnot only the low-down on their own patents, but also onthose of their competitors, distributors, suppliers andtakeover targets. Patent analysis uses the informationprovided by the registrars of statutory patent rights, aswell as information that appears on the face of patentapplications, to measure activity in the marketplace.However, unless you’re an experienced patent examiner or analyst, it can be difficult to decipher the results.Fortunately, services already exist to assess the availableinformation on your behalf.

The information available from these services isn’t dullnor difficult to utilise. It includes such valuableinformation as: the names of inventors on yourcompetitors’ patent applications; the fields in which yourcompetitors are spending money trying to developproducts and services; the split of research activitybetween different product sectors; and even dataconcerning professional representatives.

Similarly, if you track which trademarks othercompanies are registering, you’ll be able to assess if they’re moving into new markets, potentiallythreatening your business model. In the domain namesarena, conducting a WHOis and reverse WHOisinvestigation will also enable to you to check which URLsare available and what others have done before you tolaunch a campaign in your key territories.

Once a CEO understands the basics of IP, theycan start to ask the following questions to make

8

IP FOR BUSINESS STRATEGY

WHAT IS PATENT ANALYTICS?

Consultative patent analysis services provide fast andeasy access to competitive information throughstatistical analysis of registered patents (by jurisdiction,geographical area and/or market segment). Often, thefindings will help a company to better align its corporateIP strategy and plan its future in the marketplace;however, patent analytics isn’t just about quantifying theIP that a company owns or the activity of itscompetitors, the results can also provide a boost to acompany’s bottom line by highlighting opportunities forIP licensing, partnering and litigation that mightotherwise have remained unearthed. The potentialreturn on investment is huge; IBM Corporation, forexample, brought in nearly $1 billion in businessthrough licensing and IP collaborations in 2005.

But, as well as assessing whole industries from apatent analytics perspective, patent analysis can alsoassess activity by country, particularly in emergingmarkets. By assessing the most popular classes for bothforeign and national filings, patent analytics reports areable to highlight future trends in the country andindustry sector. Likewise, studying patent habits from ageographical perspective enables companies to assessterritories on the basis of innovation, highlighting thetechnology hotbeds for various industries – valuableinformation for businesses planning expansion.

9

CONCLUSION

As all CEOs should now be aware, ours is no longer aculture of bricks and mortar assets; we are operating in aknowledge-based economy in which the ownership andmanagement of intangible assets, such as IP, is directlylinked to corporate success and failure. In such anenvironment, protecting, developing and exploiting IPassets should be at the very forefront of business strategy;however, for many companies, this is not yet the case.

Ultimately, the growth in value of IP necessitates a stepchange in the manner in which companies and, byextension CEOs, view and utilise the IP assets that theyown. Properly managed, IP can be a source of innovation,creativity and corporate growth. But to succeed, it needs tobe understood at boardroom level. Trademarks, patents,domain names, design rights and other forms of IPinterlink with every aspect of a business – from the way inwhich it markets its products and services to the way itsassets are reported financially. Companies need torecognise this importance if they are to maximise thebenefits to all sides of the business, and to ensure that anymove into a new market or business area is supported bythe requisite IP. But this needn’t be as complicated as itfirst sounds. Once a CEO recognises the value of itscorporate IP, there are some important questions theyneed to ask their IP department. These are summarised onthe next two pages.

IP work for them:

(1) Can we profit from our IP?‘Twenty-five years ago, IP was simply registered as adefensive tool,’ said Bruce Berman of Brody Associates.‘Today we know it as an asset that can be exploited forfinancial return.’ This is certainly true when it comes toselling or licensing unwanted IP, which may be very goodin itself, but not related to any goods or services thebusiness is trading in. IP Rights can also be mortgagedor securitised, but individual industrial rights are likely to be highly valued if they are not secured as part of the business as a going concern. An exception here iscopyright, where ‘Bowie bonds’ give the IP owner thechance to borrow a large sum, repayable throughrelatively stable and predictable royalty income over along period of time.Further reading: ‘Closing the innovation value gap’, Jeff Maddox, IAM (January 2006)

(2) How much is it worth?The answer depends on the reason for asking thequestion. A wise CEO will hold his company’s IP in highesteem privately, but remain cautious about putting ahigh figure to its value in public. That way he won’tencourage inflated expectations among shareholders,speculators or employees. ‘Value your IP as any otherasset,’ advises CPA’s Jeff Maddox. But remember, it’sdifficult to value IP, so seek expert advice in order totailor the valuation to the IP Rights in question; forexample, as they can be renewed, trademark and domainnames are valued in a completely different way to acompany’s fixed-term patent rights.Further reading: ‘A capital market approach to IPvaluation’, Jeff Maddox, IAM (June 2005); ‘What yourdomain name is really worth’, Dominic Speller, MIP(June 2006); ‘How to value your IP’, Robert Wulff, IP Review/www.ipreview.com/ip-strategy

(3) Can we make money out of IP licensing?You can if you create products that lots of people want topay for. Where there is no demand, there’s no big money.That’s why companies spend so much time marketingtheir brands. Look how Intel, by advertising direct to the

public, were able then to charge manufacturers for usingtheir ‘Intel inside’ brand. ‘Non-core licensing is likeplaying the lottery,’ explains Peter Spours, formerly VicePresident at Thinkfire and now head of IP at TomTom.‘Winners are the rare exception. For the best chance ofsuccess, companies need to align their corporate and IPstrategies, focusing on the lucrative rights they own.’You need to understand your assets, quantify them asstrategic business aims and understand your market togenerate revenue through licensing. Beware of the‘illusion of exclusion’; licensing valuable technologiesbrings greater profit than keeping them to yourself.’Further reading: ‘How to exploit patents for profit’,Peter Spours, IP Review/www.ipreview.com/patents

(4) What is the tax position of our IP?In a word, complex. Transfer pricing rules andwithholding tax can affect transactions betweencompanies in the same group when, for example, a tax-efficient IP holding company in the NetherlandsAntilles licenses the use of ‘its’ IP to companieselsewhere in the world. On the plus side, IP developmentcosts can reduce the tax bill. ‘Careful tax considerationthroughout the life cycle is key,’ says Isabel Verlindenfrom PriceWaterhouseCoopers. ‘R&D, corporatepartnering and licensing all have an impact on the taxstatus of IP, yet many companies only consider their taxposition as an afterthought, which can often be a costlymistake. Rules and responsibilities must be defined inagreements with third parties.’ Keep your accountantsinformed and watch for major shifts in direction. Only byproperly recording and auditing the value of your IP willyou be able to assess your tax position. Further reading: ‘A Haven for Tax?’, Isabel Verlinden, IP Review/www.ipreview.com/ip-strategy

(5) What is the most efficient way of managing our IP?Obtaining, enforcing and exploiting IP is not a party trick– it’s a skill that is acquired through patient study,professional qualification and on-the-job training. Somebusinesses outsource all their IP work and it looks a lotcheaper. For many businesses this may be the best course,particularly those that are not IP-intensive (the retailclothing sector, for example). However, businesses canusually find something useful for their IP department todo if the IP work doesn’t fully occupy them, while somecompanies that outsource their IP work find that they fail

10

10 QUESTIONS EVERY CEOSHOULD ASK

11

to budget for unexpected contingencies, such as having todefend an expensively acquired patent. Ultimately, the IPdepartment needs to raise its profile in the company, byshowing its value in terms of revenue and by explaining theimportance of IP to the business as a whole. Further reading: ‘A recipe for success’, Paula Nelson, IP Review/www.ipreview.com/interviews

(6) Are we doing enough to combat IP crime?IP crime should nnot be ignored since it generates illicitincome that cannot be easily laundered and is thus best‘invested’ in further IP crimes. Information sharing withcompetitors and co-operation with the enforcementauthorities are both strongly recommended, though theywill always be disruptive and often initially futile. Bringprivate prosecutions if the authorities are unwilling orunder-resourced: even a token sentence following aconviction will pave the way for the recovery of theproceedings of crime.Further reading: ‘Does crime pay?’, Toe Su Aung, IP Review/www.ipreview.com/ip-strategy

(7) Is IP litigation the only option?No. Arbitration is often favoured as a means of getting abinding decision where two sides fall out, while mediationhas become increasingly popular as a means of enablingthe warring factions to talk their problems through andreach their own decision. In short, arbitration is good atdealing with problems attached to the past (‘did we actoutside the scope of our IP license?’), while mediation isgood for disputes that reach into the future (‘this licenseisn’t working and makes no business sense, so how can wepatch it up?’). Further reading: ‘A strategy for enforcement’, SamanthaFrida, IP Review/www.ipreview.com/domains

(8) Should we have IP insurance?If you are in a sector in which your competitors neither suenor are sued, or if you are so large and wealthy that youcan absorb any amount of IP litigation expense withoutnoticing it, IP insurance is not for you. If your business isvery small, you probably can’t afford its fairly steeppremiums (which are tailored to the risks borne by theunderwriters). If you’re somewhere between the two, youmay well want to consider it seriously. Case-studies haveilluminated both the virtues of IP insurance and itsshortcomings – for both companies and attorney firms. Thebest advice is not to let your mind be made up once and for

all – revisit the issue regularly, on the basis of what yourbusiness needs at any given point in its trading cycle.Further reading: ‘Made in Canada’, Rob Macdonald, IP Review/www.ipreview.com/software; ‘Going Global’,Margaret Briffa, IP Review/www.ipreview.com/ip-strategy

(9) How can we monitor our competitors’ IP?Statutory IP Rights create a trail of both electronic andpaper information that you can use. Warning note: much‘current’ information is out of date. A patent filed by acompetitor today will often tell you what it was spendingits R&D cash on three or four years ago, but notyesterday. However, in many industries it can take yearsto get a product to market. Assessing patent filings insuch instances provides an indicator of activity. It can alsohelp you to assess your business model in comparison toindustry trends.Further reading: ‘Reveal your competitive advantage’,Jason Resnick, IAM (January 2006); ‘The secret of oursuccess’, ‘Unlock your IP’, Jason Resnick, IAM (CHECK);Marc Kaufman, IP Review/www.ipreview.com/patents

(10) I understand IP, but what is IA and IC?The honest answer is that they’re all the same thing,viewed from different angles. IP addresses the fact thatintellectual property behaves like property: you can buy it,rent it, exclude other people from it. IA (intellectual asset)focuses on the fact that it’s an asset rather than merely aliability: it can create value through strategic deployment,through growing a thicket of IP Rights that competitorscannot penetrate or (in the case of so-called ‘patent trolls’)by laying down IP Rights that earn rent from passers-bywho chance upon them. IC (intellectual capital) describesthe ability of IP to influence the capital value of its ownerand to act as a mechanism that triggers the release ofcapital when it is securitised. ‘There is value to be derivedfrom non-IP intangibles, or “I-Stuff”’, says SuzanneHarrison. ‘Only a small percentage of “I-Stuff” can beprotected, but quantifying it can help companies betterunderstand the value of their assets and extract financialreturn from them as a result.’ Further reading: Edison in the Boardroom, SuzanneHarrison (2004); ‘Backing the ideas generation’, DrCaroline Sincock, IP Review/www.ipreview.com/interviews

Established in 1969, by attorneys and with over 38 years of legal experience and 40,000 clients, CPA is a leading legal servicesprovider. Our services are designed to enable clients to increase capacity, manage risk, and reduce costs – without compromisingquality. CPA is a multi-shore company with offices in 7 countries and a network of associates in every Intellectual Property jurisdiction.For further information about CPA visit www.cpaglobal.com

CPA HEAD OFFICE:

CPA House, 11-15 Seaton Place,

St Helier, Jersey JE1 1BL,

Channel Islands

Tel +44 (0) 1534 888711

Fax +44 (0) 1534 888747

www.cpaglobal.com

REGIONAL OFFICES:

UK: Tel +44 (0) 1784 224 559

Germany: Tel +49 (0) 89 4567850

USA: Tel +1 (703) 739 2234

Australia: Tel +61 (0) 2 9993 3010

TMDS: Tel +44 (0) 20 7549 0660

CPA SOFTWARE SOLUTIONS:

UK: Tel +44 (0) 20 7549 0666

France: Tel +33 (0) 1 30 15 66 66

Germany: Tel +49 (0) 89 4567850

USA: Tel +1 (703) 739 2234

Canada: Tel +1 (613) 233 0519

Australia: Tel +61 (0) 2 9993 3000

ABOUT CPA

12