IP's role in the boardroom

Brian Chau is a JD candidate at Osgoode Hall Law School.

“Intellectual Property is the oil of the 21st century. Look at the richest men a hundred years ago: they all made their money extracting natural resources or moving them around. All today’s richest men have made their money out of intellectual property” – Mark Getty

Dominating the business airwaves

Based on a preliminary view of leading periodicals and news sources, the IP finance blog recently posted a very interesting article. It was noted that businesses and individuals are becoming increasingly aware of the presence of IP, and questioned whether this was actually warranted in practice. Sources noted include the prevalence of IP in the August 29th edition of The Economist, where “all but one of the articles had some IP angle”.

This begs the question: While IP is undeniably taking a central role in the modern business psyche, what do the key decision makers understand about it?  Is there an unrealistic expectation of IP as panacea? Does having IP magically protect a firm’s rights while also generating revenue?

While I don’t believe I can do this question justice, I’d like to use this article to raise some interesting ideas garnered from a collection of other sources. These sources provide some perspectives that could help businesses understand how to take advantage of their IP in practice.

Living up to the hype

IP is often an obscure legal concept that is either over-valued as a panacea, or under-valued as a secondary consideration. It is clear from a McKinsey study that there is a strong appreciation for the strategic value of IP rights, however, my experiences as a consultant have led me to believe there isn’t quite enough of a tactical understanding to realize its potential. This generalization may not be applicable to those companies whose core business is fundamentally reliant on IP rights (E.g. Biotech and software development), but instead applies to companies who do not have access to sophisticated IP legal departments.

A key obstacle for these firms is a broader understanding of the applicability of their intellectual assets across other industries. It is easy to understand how IP rights are important to maintain a competitive position by infringement protection, however, a stretch to imagine how unrelated industries may derive benefits from them. McKinsey believes that with an improved strategy, companies could earn up to 10% of their operating income from the sale of patents and proprietary processes. They cover these ideas in a series of two articles (Partnering for Profit, Unlocking the Value of Intellectual Assets).

The articles call for broader knowledge networks to be created, and the engagement of third external parties in facilitating what is essentially the creation of more efficient IP markets. A drug company was able to utilize a licensed bundle of IP bundled together from various universities, with mutual benefits to be had by all parties. In this case, the deal was facilitated by a third party law firm who acted as a consolidator in creating the IP bundle that solved a specific business need. Specific third parties included partnering with firms specializing in consolidating patent portfolios across unrelated academic and corporate sources, joint creation of intellectual property with private equity firms, as well as the use of brokers whose sole duty is to identify and connect buyers and sellers.

I won’t delve into the details of these articles, but I am getting the sense that an efficient IP marketplace is slowly coming into form. As this ‘market’ will continue to grow in terms of sophistication and liquidity, I think it is safe to predict that the value of a firm’s intellectual assets will grow in a likewise fashion.

I believe that if managers are aware of the broader opportunities and are equipped with the necessary tools for realization, they have a strong chance of justifying the hype.