How Does Intellectual Property Add Value to Your Business?

Recently at a networking event, I was asked the simple question: “What do you do?” After responding that I am an “intellectual property attorney,” I received a brief look of confusion, and then the question: “Yes, but what does that mean?” This exchange (which is a frequent occurrence, I might add) illustrates a common issue — many business owners are missing out on the value of their intellectual property, often until it is too late to capture and exploit that value.

Studies referenced by the World Intellectual Property Organization say that 80-90% of a business’s potential value lies in its intellectual property.[1] Imagine being a business owner, earning $100 dollars from a sale of goods, and then leaving $80.00 on the table as you leave. If your business is not identifying, protecting, and maintaining its intellectual property rights, then you are one of those owners.

With this is mind, allow me to illustrate some ways to recapture that value. There are numerous types of intellectual property to protect and exploit, and in the following paragraphs we will deal with three of the most prominent types: 1) Trademarks, 2) Copyrights, and 3) Trade Secrets.

Trademarks

Trademarks are the most obvious aspect of intellectual property, and the most widely known. You see and interact with trademarks every day, whether it be through names (Google, Yahoo), logos (Nike’s “Swoosh”), slogans (McDonald’s “I’m lovin’ it”), or even sounds (Windows’ startup tune). Trademarks serve as an indication of source and quality for the consumer. Trademarks allow consumers to act on strong preferences on where they shop and what they buy. For example, some people prefer to buy groceries at Kroger, others Food Lion, and still others prefer Wal-Mart. Notice — when you read each of those names, you first recognized the name and then immediately had varying impressions of each pop into your mind, ultimately providing a conclusion of whether or not you would choose to shop there. This all happens in a split second. Each trademark leaves an imprint as to the quality and cost of groceries and the experience of shopping.

Not only do trademarks serve as a source and quality indicator, but they serve as a marker for the brand. This marker is extremely important if you want to sell your business for a profit. For example, the executives at Facebook (another well-known trademark) probably never said “We want to purchase Evan Spiegel’s smartphone app for $3 billion dollars.” More likely, they sat down and said “We want to buy Snapchat for $3 billion dollars.” The reason Facebook values Snapchat at $3 billion dollars is because Snapchat has developed its brand under a now widely-known trademark, and that trademark contains the goodwill of millions of consumers. Anyone can make an app that sends temporary pictures (see Mark Cuban’s CyberDust and Facebook’s Poke), but the value lies in the quality, experience, and goodwill already associated with the Snapchat trademark. Although Snapchat is an international brand, it began as a small app and as a small business. Building a brand begins somewhere — and protecting your trademark from the beginning can be key to building up your $3 billion dollar idea.

Copyright

Copyright is another facet of intellectual property that can easily add value to your business. Many people hear the word “copyright” and think of artistic creations such as books, visual art, or music. But consider how copyright translates into your marketing materials. Many businesses have valuable copyrightable interests in photography, product packaging, websites, commercials, or informational videos, to name a few. Establishing control of these assets through copyright protection allows you to harness the value of your business’s creative marketing approaches.

Additionally, some of the most valuable copyrightable materials include software code and data compilations. Copyrights on software code protect your proprietary information from direct copying and allow your company to stake out a claim in the market. Once your company harnesses control of that share of the market, then you are able to control the dissemination of your software through the marketplace. Because copyrights typically have a long duration, having a copyright for a useful piece of software may be extremely valuable when negotiating with potential customers or business partners.

Trade Secrets

One of the least understood areas of intellectual property lies in trade secrets. Most commonly, trade secrets are secret techniques or devices used by a company in manufacturing its products. You establish a trade secret by guarding a proprietary concept that has economic value simply because it’s not generally known and by taking measures to protect it (for example, through contracts). Many businesses have trade secrets but do not realize that the information they have constitutes a trade secret. If you have developed a unique and efficient way of producing results, you may have a trade secret. Alternatively, if the methods of producing a particular product are known only to your company, you may have a trade secret.

Coca-Cola provides one of the greatest trade secret examples. Coca-Cola tightly protects the formula that gives the distinctive and crisp taste associated with their leading beverage. If they did not protect their formula as a trade secret, then the Coca-Cola brand would not have the notoriety it has now. Other soda producers would be able to precisely replicate and recreate the Coca-Cola taste, thereby eliminating Coca-Cola’s uniqueness. By protecting their trade secret, Coca-Cola retains their exclusive market share which is extremely valuable. Although Coca-Cola is a famous example, every company has something that sets them apart in what they do. What you do to set yourself apart may be a valuable trade secret that you can protect.

Protecting your business’ intellectual property requires more than filing for trademarks, copyrights, and protecting trade secrets. Intellectual property protection requires marking your territory in the marketplace, making sure you have the biggest share you can have, and creating a clear impression of what your company offers to the consuming public. In the modern world, the primary value of a business no longer lies solely in the tangible assets it holds. The true value lies in growing and monetizing the intangible assets, which your company can protect as intellectual property. This turns intangibles into value, which then increases the overall value of your business. — Noah Downs



[1] Building and Enforcing Intellectual Property Value, An International Guide for the Boardroom, 2003 PriceWaterhouseCoopers.

 

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