|Not just hot air:|
intangibles are still
on the up-and-up
The world is currently in the midst of its fourth industrial revolution. Technology is changing the way we live, and reworking the fabric of our global economy.
Just 15 years ago, 5% of the world’s population was connected to the Internet; now that figure stands at 40%. The impact of the digital revolution is not just evident in the way we hail our taxis, book accommodation in new cities, or order takeaways; it is impacting the way companies are built and how they obtain their financial value.
It is estimated that some 70% of the value of a modern company is now derived from intangible assets, such as patents and trade marks. And in the UK, intangibles make up 53% of their total value of the FTSE 100, which is widely viewed as a benchmark for wider industry.
Five years ago, as the UK began to pull itself free from the longest recession in living memory, spend on IP even overtook the money spent on tangibles, such as equipment or real estate. Nesta, the innovation charity, found that the UK invested £137.5 billion in knowledge assets in 2011, compared to £89.8 billion in tangible assets.
Across the European Union, 42% of total economic activity -- equivalent to £5.1 trillion annually -- is now generated by IP-intensive industries. Innovative companies now employ 38% of the EU workforce. As recently noted by European Patent Office president Benoit Battistelli:
“Intangible assets are increasingly important for innovative companies today. We see that this has a positive impact on jobs, growth and prosperity.”The business case for intellectual property
Many different intangible assets contribute to a company’s value. While patents are an important part of the picture, other IP, such as trade marks, copyright, design, and even trade secrets, can all add substantial value to a business.
Aistemos recently surveyed a wide range of business leaders, from high-level executives at some of the world’s most innovative companies, including BAE Systems, Siemens and Bayer, to the founders of small, fast-growth start-ups, to gauge their view on the wider IP landscape. Some 58% of the 80 respondents now spend more than $1 million on IP each year; just 20% have budgets of less than £250,000.
The focus of these firms is moving slowly away from the old mainstays of competitive intelligence or risk management -- although these remain relevant in an increasingly globalised marketplace -- towards the active commercialisation of IP.
Aistemos’ exclusive research shows that, while competitive intelligence and risk management remain primary concerns for 60% of business leaders, changes are afoot as IP licensing and litigation are now a close second, both stated as being “very important” for 40% of respondents.
“As the UK moves to an increasingly knowledge-driven economy, the importance and role of IP in enterprise creation, growth and development also grows apace,” said Charlotte Chung, enterprise and innovation policy adviser for the Federation of Small Business, commenting on the new research, adding:
“One area that warrants special attention is the growth of intangible assets, such as reputation and design. Over the past few years, investment in intangibles has grown to outstrip more traditional tangible assets. For businesses looking to better capitalise on their innovation, this increased attention creates great potential, particularly for growth.”Dan McCurdy, senior vice president at RPX Corporation, a provider of patent risk management services, who took part in the survey, says
“Every CEO and Board Director needs to structure their companies so that IP is used to deliver ever-improving business results. Once this is done, executives will recognize the leverage available from these assets and the enormous value that they can deliver to shareholders through focused attention on IP, and will find themselves competing for the opportunity to lead this effort within the company.”IP strategies for changing times
Many companies have traditionally viewed IP strategy as best left to the lawyers or the departments in charge of building IP portfolios but this is slowly changing.
Back in 2004, Bill Gates, founder of Microsoft, made a visionary statement that helped turn the tide: “Over the last 10 years, it has become imperative for CEOs to have not just a general understanding of the intellectual property issues facing their business and their industry, but to have quite a refined expertise relating to those issues,” he said:
“It is no longer simply the legal department’s problem. CEOs must now be able to formulate strategies that capitalize on and maximize the value of their company’s intellectual property assets to drive growth, innovation and cooperative relationships with other companies.”Intangible assets -- their creation, protection and exploitation -- are now increasingly being incorporated into mainstream business strategy.
At technology giant Siemens, intellectual property is the most valuable asset in the company’s portfolio. It holds 56,200 granted patents across the whole group. The business employs more than 400 people to protect its IP, which span patents, trade marks, designs, and copyright, all operating under the watchful eye of Siemens chief IP counsel, Beat Weibel.
“Siemens invests a lot of money in research and development - around €4.5 billion in 2015,” Weibel said recently, explaining:
“We have to protect these innovations and ensure that competitors can’t simply copy the knowledge and results we’ve gained. To do that, we need to hold the intellectual property rights. They are the key to Siemens’ treasure chest of innovations, which nobody should be able to steal.”According to Weibel, IP is no longer viewed in isolation by innovative companies like Siemens. “IP should be a part of business strategy to protect and sustain the competitive advantage we secure through our technology,” he says. “Siemens was built on patents and this heritage makes the value of IP easier for the board to understand.”
New world order
The rise of big data has given companies the tools to understand not only their own intangible assets, but those of rivals and partners too. Companies such as Aistemos (with its analytics solution Cipher) have built platforms that bring transparency to an area that has been traditionally opaque. Nigel Swycher, CEO at Aistemos explains the opportunity this way:
“Information about intangible assets is no different or less important than financial data or other economic indicators. The bridge that needs to be built is between the world of IP and the decision makers. This is becoming much easier now that there is sufficient data to analyse and the computing horsepower to master it. I see our role as ensuring that the right information flows to the right places at the right time.”The big data revolution ties in with a new age of transparency across all areas of business. Whether it’s remuneration packages for the management team, or diversity goals, companies are becoming increasingly open with their data. And IP is sure to follow suit. Some companies are in the vanguard of this new movement towards IP transparency. This isn’t just because they see it as a trend worth following: it helps to maximise the value of that IP.
Take the recent launch of the Avanci platform. This new marketplace was created to give companies working on internet of things (IoT) technologies access to standard-essential patents owned by industry-leading technology innovators -- including Ericsson, Qualcomm, InterDigital, KPN and ZTE-- through a single licence. It is an open and more transparent approach to licensing patents in a bid to facilitate innovation in IoT.
Companies are increasingly having to collaborate with other businesses in this way -- even their rivals -- to solve huge technological challenges. But partnerships such as these remain rare: many IP-rich companies, while keen to see transparency from rivals, fear that giving too much away about their own IP could dull their competitive edge.
Industry experts also point to a marked difference in the way IP is viewed in the UK and Europe, compared to the US and China. “China is on the verge of becoming a major technology and IP generator, creating a tidal wave of patents likely to wash over the US and Europe’s shores in the next two decades, enabling China to dominate significant technology areas,” says Ian Harvey, former intellectual property adviser to the UK Government, adding:
“By contrast, particularly in Europe at some deep political levels, the value of intellectual property is often challenged, putting in jeopardy Europe’s competitive base in its global markets.”According to Harvey, China, Japan and Korea are innovation powerhouses that have woken up the power of IP to shape markets. Since 2004 there has been more patent litigation in China than in any other country, including the USA. While the recent decision by China’s regulator to slap a $975 million antitrust fine on mobile giant Qualcomm for licensing abuse is another evolutionary signal that cannot be ignored.
Moving into dangerous territory
Over the next decade, the value of IP is set to rise even further as a proportion of company value but many business leaders remain in the dark about its true impact. This is because intangible assets are often completely absent from annual reports. Patents, for example, when they are mentioned in financial disclosures, tend to be lumped together as a number of filings or grants, without attributed value.
According to the FSB’s Chung, this could pose problems down the line. “While most businesses have an awareness of IP, the value of it as an asset to the business and the importance of protecting their IP is, overall, quite poorly understood,” she said, adding:
“This is particularly true for small firms which typically run on limited capacities and resources - investing time and money to get to grips with their IP can be a burden for many of them.”She added that businesses who do not see themselves as being rich in IP may be ignoring valuable assets to their detriment:
“There are real challenges in being able to clearly identify and measure the IP that exists in their business; many businesses will not even be aware that they have created or own IP worth protecting.”She is not alone in warning that there is a real issue with the way that IP is understood and communicated by businesses in the context of this knowledge-driven world economy. When companies acquire IP, they will often include its value on the balance sheet but where it is generated in-house, it is not. According to Hywel Ball, a managing partner at professional services giant EY, this creates a worrying disconnect.
This piece is also posted on the Aistemos website here.“Given that more than half enterprise value is represented by intangible assets, for some companies up to 80%, I worry that this value is not being represented by financial statements. This means that when you look at the stock market, the real value of those companies isn’t visible. As each year goes forward and IP represents a greater proportion of company value, this will get worse".The majority of business leaders surveyed by Aistemos, however, felt strongly that stating the value of IP as a balance sheet item was riddled with its own problems and might create the opposite of transparency and clarity. Without a standardised way of communicating value, which was universally used, this could be a way to obfuscate a company’s true worth, or generate huge swings in its value.