Protecting Your Intellectual Property
When business owners calculate how much their business might be worth, they tend to think primarily about tangible assets such as equipment and real estate. But have you given much thought to how much your company’s intangible assets might be worth?
Here are five good things to know if your company has developed proprietary software, a unique manufacturing process, a large database of contacts, or uniquely designed products.
1. The definition and value of intangible assets has expanded during the digital transformation of the economy.
According to Everedge (“The Intangible Asset Commercialization Specialists™”) intangible assets include data, brands, content, code, trade secrets, internet assets, design rights, industrial know-how, regulatory approvals, and standards compliance.
Each one of these assets can either improve your company’s performance or provide a competitive edge.
According to Ocean Tomo’s Intangible Asset Market Value Study, intangible assets comprised 90% of the value of S&P 500 companies in 2020. This was up from 35% in 1985.
2. Intellectual property rights protect intangible assets that are the result of human intellect.
By regulating how intellectual property can be used, patents, trademarks, and copyrights enable companies or individuals to be financially compensated for their creations.
A patent is an exclusive right granted for an invention. If the owners of the patent don’t plan to manufacture and market the invention themselves, they can either sell the patent outright or license the rights to use the invention.
A trademark can be applied to words, phrases, symbols and designs that identify your business and make your company different from competitors. You don’t need to register a trademark if you will only use it locally. But registering a trademark provides better legal protection, especially if your business competes nationally.
A copyright refers to the rights that creators have over their literary or artistic works. Some of the works that can be copyrighted include: publications, articles, images, white papers, computer programs, databases, maps, and technical drawings.
3. Technology, entertainment, publishing, medical, and media companies aren’t the only ones who should protect their intellectual property.
Specialized valuation companies can help companies of all sizes determine the valuation of intellectual property and other intangible assets.
Aon, which offers intellectual property insurance, believes businesses should recognize, preserve, and protect the value that intellectual property brings to their balance sheets.
Company leaders not only must protect their intangible assets from being stolen, but should also protect themselves from litigation for unlawful use of intellectual property owned by others.
4. Intangible assets are easy to overlook because accounting practices haven’t kept up with the rapid growth of intangible assets.
In smaller companies, intangible assets are lumped in under “good will.” When they do appear on a balance sheet, an Everedge report notes that the intangible assets are often described in terms of costs instead of their actual value: “There is no correlation between the cost and the actual value of an intangible asset.”
5. Understanding the value of your intangible assets matters.
Getting a valuation for intangible assets can be useful when selling or buying a business, setting earnouts, raising capital, or forming partnerships and joint ventures.
If your company thrives on innovation, a thorough understanding of intellectual property rights can help you make informed decisions about how your business operates and grows
While writing my memoir, They Named You Right, I realized that the companies that I owned could have done a better job protecting the innovations created by my father and other employees. For example, we shouldn’t have opened our manufacturing facility to our biggest customer who ultimately became a competitor.
Below are a few resources that can bring you up to speed on intellectual property. If you think your company has some potentially valuable intangible assets, it might be wise to consult an expert.
RESOURCES
World Intellectual Property Organization (WIPO): What is Intellectual Property? and Intellectual Property for Business.
AON: Intellectual Property: The Unprotected Corporate Asset
Everedge Blog Post: Maximizing Value in Private Equity Transactions
United States Patent and Trademark Office: What is a Trademark?