By David Oh
Intellectual Property Consultant and Director
Mindvault Sdn Bhd

This is the first in a four-part series published on 30 June 2003 in the [email protected] pullout of The Edge, Malaysia’s leading Business & Investment Weekly.

Would you like to earn US$35 million in a single day? Could your company do with a multi-million dollar cash injection?

This is what happened to MercExchange LLC on May 27 when a US Federal Jury ordered online auction giant eBay to pay US$35 million in damages for the infringement of two patents held by MercExchangei.

Who is MercExchange? Is it a manufacturing company? Does it own plant and machinery? Does it have a large workforce

MercExchangeii is a company owned by Thomas Woolston, an inventor and patent attorney, whose main source of income is derived from the licensing of patents owned by Woolston.

MercExchange does not sell any tangible products, it does not own any distribution channels nor does it have many employees and yet, it is now US$35 million richer. Welcome to the knowledge economy.

The New Economy

The advent of globalisation and the k-economy has changed the playing field, bringing with it a new set of rules and perspectives.

In the old economy, assets were traditionally defined as something tangible like inventory, plant and machinery or property. Eventually, companies included human resources in its classification of assets.

However, the New Economy has changed the definition of assets. Assets no longer have to be tangible; in fact, intangible intellectual assets are what made some of the world’s richest and most powerful companies what they are.

For example, last year, General Electric had a market cap of nearly US$400 billion and tangible assets of less than US$40 billion, Microsoft had a market cap approaching US$300 billion and tangible assets of less than US$5 billion, and Pfizer had a market cap of approximately US$260 billion and tangible assets of less than US$10 billion.iii

The Malaysian Landscape

Ideas, innovation and knowledge have become the new currency of the k-economy. As such, Malaysian companies can no longer protect their market share and maintain their competitive edge with old economy strategies.

Unfortunately, in Malaysia, intellectual property (IP) is often viewed as nothing more than a legal instrument. When we think of intellectual property, we think of falling afoul of the law. Images of enforcement officers raiding illegal VCD outlets spring to mind. We start to worry about the pirated software that sits in our office computer. Hence, we miss out on the strategic and commercial value of IP.

Strategic Paradigm

Michael Porter, a leading strategy thought leader who was recently in KL, says companies must compete in order to achieve sustainability and that in order to compete, they must have a strategy.

What many fail to realise is that intellectual property is a strategic asset that will distinguish companies in today’s globalised k-economy if it is managed with the right paradigm.

We need to move from asking, “Must I register my trademark?” to “Now that I’ve registered my trademark, how do I build it into a world-class brand?”

The question “Should I patent my technology?” is not as important as “How can I fully exploit and commercialise my innovation in order to generate maximum returns for the company?”

These are strategic concerns that must be addressed by top-level management and not delegated to the legal department, the research and development (R&D) team or the sales and marketing division.

As last week’s cover story in [email protected] on Spektra Planet highlighted, legal advice alone may be insufficient in guiding a company in its quest to become a successful business. Dr Naim Yunus, an entrepreneur and venture capitalist was quoted as saying, “Spektra should engage a strategist to plot the commercialisation and product road-mapping of SP4D [Spektra’s virtual reality software] and also get someone to advise them on IP management and protection”.

This strategic approach is known as Intellectual Asset Management (IAM), and involves the integration of business, legal and technological expertise to leverage an organisation’s IP to increase profitability and maintain a competitive advantage. When utilised strategically, IP can contribute to the competitive edge of a company such as erecting high barriers to entry and providing a unique value proposition as well as market differentiation.

Changing Mind-sets

There is a great need for Malaysian manufacturers to break the original equipment manufacturer-mindset. With emerging economies like China providing cheap labour and low-cost manufacturing, how can Malaysian companies remain competitive and hold on to their market share without developing their own proprietary innovations and brand names?

If price becomes the sole distinguishing factor in differentiating these companies, eventually their margins will be squeezed by price-shoppers, which will lead to their eventual demise.

Take IBM as an example of how to strategically manage IP. IBM recognises that its most important asset is its IP portfolio. It registered more than 3,000 patents last year, many of which it does not even utilise but rather, licenses out. In the last 10 years, IBM has generated approximately US$10 billion through licensing alone!iv

This income is free of manufacturing or significant operating costs, meaning that it is virtually free cash flow that goes straight to IBM’s bottom line as profit.

IP Management Road Map

So where do we go from here? There are three stages that companies should consider in managing their IP.

The first stage is the identification/analysis stage. At this stage, the company conducts an IP audit in order to identify and classify its IP portfolio.

The second stage is the protection stage. Once the IP has been identified and classified, the company ought to develop a protection strategy (be it offensive or defensive).

The third stage is the commercialisation stage. As discussed above, the purpose of having IP is for it to make money for the company. The important thing is for the company to treat IP as an asset where a return of investment is expected.

The road to changing mind-sets in Corporate Malaysia seems like a long and winding one but it is a journey that we must take if Malaysia is to succeed in today’s globalised k-economy.