Using
Intellectual Property to Increase Shareholder Value
For
today’s companies, intellectual property represents
almost three fourths of the company’s assets.
General Counsels, in addition to performing
traditional legal duties, are now responsible for
finding ways to increase shareholder value. As a first
step to increasing shareholder value, many General
Counsels find it helpful to assess where their
companies fall on the Intellectual Property Value
Hierarchy. This
approach may also be useful for company directors and
owners.
The
Intellectual Property Value Hierarchy is a pyramid of
five levels and each level represents an increased
demand on the persons responsible for the company’s
intellectual property. Additionally, each of the
higher levels relies on the lower levels for support.
The five levels of the Intellectual Property Value
Hierarchy are as follows:
1.
The Defensive Level:
Level
one companies primarily seek to provide a patent
shield to protect the company from litigation and are
reactive in nature.
Level one companies aspire to patent as many
products as possible, pay maintenance fees on those
patents, and negotiate cross licenses with
competitors.
2.
Cost Control Level:
Level
two companies focus on cutting the costs of filing and
maintaining patent portfolios. On a case-by-case
basis, level two companies evaluate which patents
should be protected and maintained.
Level two companies also pick and choose the
countries in which patent protection should be sought.
Because level two companies focus on cost cutting,
licensing is not a high priority.
3.
Profit Center Level:
Although
level three companies continue efforts to cut costs,
these companies begin to focus on proactive strategies
to generate revenue through selling or licensing of
intellectual property. Level three companies also
generate revenue through litigation against patent
infringers. At level three, individual business units
have relinquished control over their intellectual
property assets to a consolidated function. Level
three companies, in addition to taking an inventory of
current patents, evaluate the current corporate
direction and decide whether the patent strategy needs
to be reexamined.
4.
Integration level:
In
level four companies, the intellectual property
function begins to reach outside of the department and
attempts to help other parts of the organization reach
their goals. Level four companies look beyond the
present intellectual property portfolio to determine
what gaps exist in patent protection or technology
development. These
companies also monitor the competitor’s technologies
as disclosed in their international patent filings.
Additionally, level four companies find ways to use
intellectual property as collateral, to create tax
benefits, and to assist in mergers, acquisitions, or
divestiture of company assets.
5.
Visionary Level:
Level
five companies begin to identify future consumer and
industrial trends. Additionally, level five companies
anticipate technological revolutions and actively seek
to protect the company’s margins and market share in
the future. Level five companies create trends by
identifying sources of customer dissatisfaction and
bridging that gap.
Additionally, level five companies take the
lead in developing methods to measure and report the
value of their intellectual property.
It
is not the end of the world to realize that your
company is not operating to maximize its shareholder
value through intellectual property.
However, this realization is a clear sign that
there is room for improvement. With the proper
discipline, organization, and leadership, every
company can successfully strive to increase its
shareholder value through intellectual property.
*
This summary is a condensation prepared with
permission from a presentation provided by Ms.
Julie L. Davis, Arthur Anderson L.L.P. at the
American Intellectual Property Law Association 2000
Annual Meeting.
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