By Renuka Sena
Intellectual Property Consultant and Director
Mindvault Sdn Bhd
This is the final in a four-part series published on 21 July 2003 in the [email protected] pullout of The Edge, Malaysia’s leading Business & Investment Weekly.
Knowledge is the currency of the future. In today’s exceedingly competitive markets, the use and protection of intellectual property (IP) is often the difference between continued success or impending failure of a business. This is true of high-tech, low-tech and even no-tech industries. Making strategic use of IP as a competitive differentiator is now a financial necessity.
We have finally arrived at the last leg of our journey. Having audited, analysed and protected your strategic IP assets, you can now finally get down to the business of making money. It is at this point that we can explore how to achieve spectacular financial results with IP.
The Strategy
There are several distinct strategies to leverage on IP but we will only focus on three:
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Utilising IP at the core of business strategy;
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Value partnering; and
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Licensing out of non-core IP.
In devising an IP strategy, a company may use any one or any combination of all of the above strategies. In deciding which strategy to execute, it is imperative to integrate or align the above strategies with your business plans.
IP as the Core Business Driver
Traditionally, the role of IP has been to assist in innovation or to enhance product or service offerings. IP therefore forms the core of research and development (R&D) efforts to create new or cutting-edge technologies in order to effectively compete against other players in the market. This could take the form of enhanced formulas which will achieve better results as exemplified in the detergent or oil and gas industries; creation of more efficient processes or software that can deliver on better service levels as seen in the manufacturing and information technology sectors, or even the discovery and patenting of novel drug targets as demonstrated in the pharmaceutical industries.
Use of IP in this way is usually coupled with strategic protection mechanisms for brands or patents and hence forms a strategy that is built around a company’s core competency. However, as industries evolve and consumers become more savvy, this strategy necessarily involves allocating vast sums of money to R&D and branding budgets in order to remain competitive.
It is not always the superior technology or product that captures the highest market share. Sometimes, it is the less than superior product with an ingenious marketing strategy that wins. Many companies are beginning to realise that using IP purely in this manner does not always translate into sustainable business models.
Enter, Value Partnering
As industries merge and products and services become more competitive, the race for the consumer dollar is an increasingly difficult one to run. Whilst it would be ideal if we were able to conquer global markets purely from business expansion, this is not always the best or quickest method of growth.
Strategic partnerships and alliances have long been used as a means to capture and leverage on individual strengths. However, this trend is evolving into more dynamic structures where IP is used as a tool to deliver new products or services or to reach new markets with existing technology whilst simultaneously optimising revenue from IP.
Licensing is a proven model for achieving market penetration and yet this strategy is surprisingly not widely exploited by local IP owners. Perhaps what is not widely understood is that IP rights are territorial in nature and the IP owner can therefore maximise return on investment by structuring licensing or other equally beneficial arrangements with various parties for the same IP. This is exemplified in technology transfer, cross-licensing, franchising and even industry consolidation via mergers and acquisitions. Decisions on methods and the extent of licensing transactions very much depend on business strategy, and vary from company to company.
Obtaining Revenue from Non-core Assets
An alternative but less-utilised model can be seen in the licensing of non-core IP. As market requirements and competitive dynamics in industries change, companies often evolve their business strategy in order to remain competitive. These decisions sometimes lead to abandonment of IP — resulting in a body of non-core IP.
Another source of non-core IP comes from R&D efforts. The process of R&D often leads to innovations with valuable applications in industries that are not directly related to the company’s core business. These innovations are sometimes protected but more likely written-off.
Whether the decision is to abandon IP that is no longer utilised or to write off innovations that do not contribute directly to core business, the fact of the matter is that resources have already been spent on IP. Would it not make better financial sense to leverage on these pools of non-core IP to generate passive income?
Perhaps this concept is best explained with an example. Procter & Gamble owned a molecule called “Olestra” which was hailed as a low-fat ingredient for snack foods. But unpleasant side effects (since corrected) caused sales to fall flat. Instead of being stuck with a multimillion-dollar plant equipped to produce the molecule, Procter & Gamble sought another application for it – environmental remediation: poured on contaminated soil or sludge, the Olestra molecule binds itself to pollutants, which can then be removed easily. Thanks to these alternative applications, Procter & Gamble has salvaged its investment in research and infrastructure.i
The Value of IP
We hope that this 4 part series has given you an insight as to the value of IP and an understanding that effective safeguarding of your IP and innovations through the various means of protection and actively managing the resulting portfolio can lead to significant new revenue streams, strategic market advantages and increased shareholder value. Overlook these assets and you run the risk of being shut out of developing markets, losing previous market share and undermining your R&D efforts – whilst your competitors strategically build barriers around key technologies. Who the winners and losers of the impending global marketplace are will depend on who has the best IP strategies.
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Endnotes
i Sourced from “The McKinsey Quarterly, 2002 Number 4 Technology” by Jeffrey J. Elton, Baiju R. Shah, and John N. Voyzey.
Lastest News! On 1 August 2003, it was announced that the Food & Drug Administration (FDA) will no longer require companies that sell snacks and other foods containingOlestra to warn that it can cause gastrointestinal distress (http://reuters.com/financeNewsArticle.jhtml?type=governmentFilingsNews&storyID=3206423).