Why should your company protect its Intellectual Property?
Research shows that small- and medium-sized enterprises (SMEs) do not adequately assess the value of their firm's Intellectual Property even though many understand that IP is very important to the success of their business.
A 2015 survey published by the UK Intellectual Property Office showed that more than 92 percent of SMEs believed that understanding how to protect IP was either "quite important" or "essential." However, the survey showed that more than one-third of SMEs choose not to protect IP that they own and that 96 percent of all respondents, including large companies, have not valued their IP.
Such findings are unfortunate given the positive impact that IP has on businesses trying to scale up their operations and add value to the company. A 2017 working paper released by the National Bureau for Economic Research indicates that startups obtaining a patent since 2001 experienced 55 percent employment growth and 80 percent sales growth within five years. Of course, IP rights ownership is not a ticket to business success, but the proper management of IP rights is often part of a healthy business plan.
Attracting investment is a significant reason why a business, especially smaller companies looking to increase the reach of their operations, should consider protecting their IP. Unlike many other types of property, such as facilities or capital equipment, the value of IP does not depreciate and can increase dramatically over time. Consider the golden arches of McDonald's. Originally a part of the architecture of the company's restaurants opened in the early 1950s, they were incorporated into the logo during the 1960s. Five decades later, those arches are so iconic that a consumer instantly knows that any building emblazoned with them will have a drive-thru where you can order fries and a Big Mac. The rights to use that trademarked logo is a big reason why McDonald's can charge a $45,000 fee to business owners who want to open a new franchise location.
Revenue streams created through IP licensing are another reason to obtain IP rights, and the Walt Disney Company is one of the undisputed masters of this practice. In 2016, Disney was listed as the world's leading licensor by License Global magazine, having raked $56.6 billion in sales of licensed merchandise. Disney is well-known for owning some of the world's most recognizable characters, including old stalwarts like Mickey Mouse and Winnie the Pooh as well as newer acquisitions from Marvel and Star Wars. Toys, home furnishings and even ESPN-branded fantasy football services add value to Disney's bottom line through licensing revenues.
Licensing patented technologies can also be a very lucrative activity for companies looking to maintain a competitive edge by developing industry-leading methods or systems. Information technology giant IBM has been the top earner of U.S. patents for 26 straight years, and the company's 2018 annual report shows that it earned more than $1 billion in income from IP-related activities, most of it coming from licensing. Semiconductor developer Qualcomm is another prime example of the power of patent licensing. While Qualcomm's chip business may render greater revenues, the company's tech licensing division provides higher operating income and operating margins.
A strong IP portfolio can help a company transition its business focus successfully in the face of market pressures. BlackBerry was once a dominant force in the smartphone industry before the Android and iOS platforms ate up most of its market share. In response, BlackBerry began licensing its technologies to others in the smartphone space in 2016, and the company's first-quarter earnings for the fiscal year 2020 shows that the company took in $72 million in tech licensing revenues. Strong IP portfolios can also give firms a chance to develop a workable exit strategy that recoups funds for investors if the main business fails.
For firms that do not seek out or obtain IP rights, preventing others from infringing on those properties can be difficult if not outright impossible. In a copyright context, this was recently underscored by the U.S. Supreme Court's decision in Fourth Estate v. Wall-Street.com, a case regarding the display of online journalistic articles. The Supreme Court's ruling mandates that a copyright owner must receive notice of registration before they can pursue a copyright claim in court, making the delay of that registration a very costly decision.
To be fair, not all IP is successful. You can copyright a novel that does not get read, and you can patent an invention that sees no commercial success within an industry. However, if you have a winning business solution or a creative idea, IP rights provide an array of benefits when managed well.
The below checklist is meant to give a first impression of the basic steps a business should consider when starting to protect the most valuable asset they have: their IP.