The Hidden Marketing Asset
As a prelude to this article, it is important to understand what is meant by intellectual property (IP). Essentially we are talking about things like patents, trademarks, copyrights and trade secrets. Hardly any of these assets will ofen show up on a corporate balance sheet, but, in reality, that have tremendous value.
A number of years ago, I was contacted by an attorney who was representing an inventor. It seemed that inventor had create a universal cap for an automotive water heaters. This cap could work as a replacement for any water heater.
Like most inventors, this one happened to be mentally long on technical expertise and mentally short on the realities of the marketplace. Also, like many investors he was working on a shoe-string.
He took his invention to an automotive trade show and set up a little booth and immediately attracted the attention of a larger, asset-heavy company that marketed automotive products such as the one our inventor created. After warm conversations and meetings, our inventor revealed certain proprietary facts concerning his invention with the understanding the larger company wanted to partner with him in marketing the product.
Time passed and the inventor heard nothing from the larger company and only when he went into an automotive store and saw his invention being marketing by the larger company did our poor, little inventor realize that he had been had.
This is not an unusual story. In fact, there was a made-for-TV movie about the inventor who created the automotive windshield wiper that ran at different speed intervals. After a prolonged legal battle against Ford, the inventor won a multi-million-dollar verdict/settlement but in the process paid high price by alienating his wife and family.
What’s Happening Today
Fast forward to today.
A month ago, I wrote an article about Eastman Kodak (EK) and its severe problems trying to make money. In the article I pointed out that one of Kodak’s greatest assets is its 1,100 patents. Just this week, Nokia, another company that is struggling, sold approximately 2,000 patents to a Canadian company called Mosaid Technologies Incorporated (MSD).
Probing further into Mosaid, it seems they have acquired a portfolio of more than 5,000 such patents. According to the WALL STREET JOURNAL “Mosaid is part of a niche market of intellectual-property specialists what use patents they control to pursue revenues — either through royalty and licensing deals with companies that want to use the technology, or through settlements and courtroom battles with companied alleged to be infringing the patents…”. These smaller companies, like Mosaid, can more cheaply wring out revenue than larger, operating companies, like Nokia.
The WSJ article goes on to point out that Google (GOOG) cited Motorola Mobililty Holdings Inc. (MMI) patent trove as one reason for its recent $12.5 billion bid for the company. And, the WSJ added that in July, Apple, Inc.(AAPL), Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIMM) joined forces in a consortium that paid $4.5 billion for Nortel Network Corp.’s (NRTLQ) wireless patents.
Discovering Intellectual Property
The challenge today is for companies — even small companies — to try to value their IP. In 2003, Jody C. Bishop, then a senior associate with the Dallas law firm of Fulbright and Jaworksi, authored an article entitled “The Challenge of Valuing Intellectual Property Assets,” published in Northwestern University School of Law Northwestern Journal of Technology and Intellectual Property. In the article, Bishop points out that valuing IP assets requires a company to (1) identify its IP assets and (2) assign a justifiable value.
Beyond the obvious patents, trademarks and copyrights, Bishop identified a number of other forms of intellectual property such as:
- Information maintained in notebooks and/or stored on a computer by engineers or other employees.
- A pending patent application assigned to the company.
- An invention disclosure from an engineer to company decision-makers for consideration as to whether to pursue patent protection.
- Proprietary software source code developed in-house.
Bishop suggests that one of the ways a company might become aware of all of the company’s IP assets is to perform an IP audit, which is a comprehensive evaluation of a company’s assets to identify the IP assets it possesses. Such an audit may also include an evaluation of the procedures in place at the company for maintaining its IP assets.