"Renoirs in our Attics”- Implications for Intellectual Property in the Corporate World

I have chosen this title for this article about Intellectual Property (IP) for two reasons. One is to give some feeling or meaning to the piece that will be presented and the second to demonstrate how easy it is to knowingly or unintentionally infringe upon the intellectual property rights of others.  The majority of companies allocate insufficient time and effort to assess their Intellectual Property assets, their value and to what use they serve, hence the title "Renoirs in our Attics". However, I should also point out that without purposeful modification the title of this article itself could have breached copyright laws. Twenty years ago, a quite popular book called 'Rembrandts in the Attic' was released at a time when companies started to become more aware of the power and influence of Intellectual Property (IP) in the corporate world. I have modified the title slightly to avoid any confusion.

Importance of the Shifting Intellectual Property Landscape

Well 25 years on, there have been some tweaks or adjustments to the IP world. Although not much has changed, one good improvement was the 2013 passage through the U.S. legal system of the SHIELD Act (Saving High-tech Innovators from Egregious Legal Disputes) which makes it harder for Patent Assertion entities or Patent trolls to go about their business.[1] If anything, Intellectual Property has become even more important given the eye boggling amounts of money involved in copyright purchase or licensing. For example, certain funds have bought music copyrights like the $1.27 Billion offered to Queen  making it the most expensive music sale ever.[2]

Market leaders such as Alphabet, Apple, Microsoft, IBM, and Broadcom have used patents to capture and defend markets, outflank rivals, boost bottom-line revenues and shareholder return, and enhance the commercial success of their enterprises. Disney and Warner brothers own IP estimated to be worth in excess of $300 Billion, safeguarded by copyrights and trademarks for their wide range of assets in film, television, music, publishing, theme parks and resorts (Forbes). The global value of Intellectual Property including patents, copyrights, trademarks and trade secrets for entertainment, technology, pharmaceuticals, automotive, telecommunications and healthcare is valued at over $5 Trillion.[3]

So why is it that Intellectual Property always seems to be a subject to be addressed at the end of the board agenda or overlooked altogether. In my decades of experience, it often is because people think that IP is more the domain of the major technology companies like Alphabet and Microsoft. Perhaps it is because the subject seems boring and not worthy of attention, plus it involves lawyers, which might become expensive. From my experience these assumptions would be wrong on all accounts. Many companies have IP they either are unaware of or undervalue. What if I said that IP affects just about all SME's whether they like or know it or not.   In fact, IP should be an important part of a strategy no matter what their business?  Once understood IP can be woven into a company's short- and long-term strategies bringing tremendous market power and wealth along the way. And you don’t need to be a lawyer to understand and direct IP strategy, especially with the  emergence of highly developed AI based software tools.

The overall trend, particularly in the U.S., is for companies to build up their IP portfolios by developing the most extensive patent coverage or 'patent web' they can afford. New companies need to make their mark early, or they risk getting left behind, whereas established companies need to maintain and build upon their IP portfolios to remain competitive.  The trend in patent applications predicts that the escalation in patenting will continue, applications at the USPTO in 2022 were over 374,000, a 50% increase over 2010 (see figure 1). There were 1.76 million patents granted worldwide in 2021; China issued about 40% of these patents, the U.S. 20% and Europe 12%. Factoring in China, Japan and S. Korea, then Asia filed about 64% of all patents in 2021. Reasons for the ever increasing number of patents is probably mixed and most likely does not come down to one issue but several including the continued recognition by the financial/ Investment community to the value and importance of I.P particularly in Tech and Biotech/Pharma and increased competition from companies and organizations in countries like China, S Korea and Japan - an unseen Intellectual war going on between the East and West for who dominates the next generation of technology  

Figure 1

Source: World Intellectual Property Organization 

Board’s Role in IP Strategy

It is the role of the board to question how IP is or becomes part of the strategy.  Who will be responsible to manage it and who and how will oversight be exercised? How is innovation within the company captured, measured, and incentivized? Intellectual property does not just come in the form of patents, but often can be Copyright, Trademarks (or brands for marketing folk) or even Trade Secrets (like Coca Cola's syrup) the knowledge and know how that is core to the business. There are various reasons why a company might want to keep something as a trade secret rather than patent it that include costs (trade secrets are very low cost), competition, (not let competitors or anybody else know what you are doing rather than being in the public domain when a patent is filed) and unpatentability (not everything is patentable).   The important thing is that a good IP strategy contributes to building a competitive advantage. The strategy clearly delimits tangible assets with a long-term value whether in the form of patents, trademark or something else for investors or a potential buyer further down the line.  From my perspective it is the only form of 'legalized monopoly' for a business and hence can be really powerful. 

A second benefit from an IP strategy is litigation. There is often the possibility that the company might find itself in the position to be sued for patent or copyright infringement.  This is a very common occurrence in the technology or content business space. An aggressive lawsuit at the wrong time can cause immense damage to a company's reputation, performance and in some cases even existence. Infringement lawsuits might not only affect your company but also that of your customers or distributors who might become contributary infringers. The United States is the most aggressive IP market for lawsuits, although they do happen in Europe, Asia and any other country in the world.  

The challenge for many corporations is devising an intellectual property strategy that gives IP protection to its assets and then marshaling the resources required to effectively manage day- to- day execution of the plan.  The process traditionally has been managed by outside counsel, or, in larger organizations, by internal council or part time by a member of the management or technical team. However, as IP has increasingly become a key element of the product and service strategy, both in terms of costs and/or competitive advantage, it must demand more attention from the executive management and the board. The board's role should be to ask strategically important questions about how the IP of the company is managed, how the company creates value from it and how it fits into the company's overall corporate strategy.  Some suggested samples questions are given at the end.

Developing and Managing an IP Strategy

Some firms do nothing with their innovations today and basically leave their Renoirs hidden away gathering dust.  Other companies push licensing negotiations off to an R&D department or sourcing department to handle. However, there are big risks associated with this approach. Doing nothing may allow a competitor to file for patents and gain a strategic hold in your core business putting your business at high risk. Alternatively, the company might miss out on millions of dollars in potential licensing revenues.  

To be clear, developing an IP strategy is not easy and will be different for every firm. It can be cost prohibitive to patent every idea which generally range from $10,000 for a relatively simple patent to $25,000 for a moderately complex one.  These costs don’t include the downstream costs such as maintenance fees.  However, trademark filing costs are much less and hence are a fast and relatively low-cost way of getting IP protection. Copyright costs are even less, in fact protection is given automatically upon the creation of the work and generally last for the author's life plus an additional 70 years. There is an interesting history in America related to copyright laws and the role that Disney played in lobbying twice for their extension just before copyright was running out on its key IP assets; once in 1976 and second time in 1998 which is why they are sometimes derisively referred to as the 'Mickey Mouse Protection Act.[4]

IP touches almost all business in some ways but the areas which are significantly affected in order of importance are technology, pharmacy/biotechnology, entertainment/media, automotive, fashion and healthcare. Sectors like agriculture/fishing and finance tend to be affected less. It is important that the right person with the necessary authority within the company be assigned to the task of developing and managing the IP strategy.  In some firms like a technology development company this could be an executive role while for others lower in the management structure. No matter the structure adopted, the board should request regular updates. Moreover, the board should ensure that the IP strategy be fully integrated into the company's overall strategy. There should be clear communication and motivation for employees to innovate and report back into a central system throughout the company.  If after review, an innovation is seen to be in line with the company's strategic direction and add long term value to the business then the financial investment in filing can begin.  

How to Access and Use Others IP: Licensing

There is also another issue to consider and that is avoiding overpaying for licensing arrangements. Many companies waste funds, time and energy on unnecessary in- bound licensing costs due to disorganization, lack of experience and/or insufficient knowledge of the licensing environment. It is not necessary to pay or hire a lawyer to do this work, it can be done by management skilled in negotiations and knowledgeable about the company's IP.  

The need for an organized and integrated IP department has been made even more acute over the last 15-20 years, particularly in North America, with the rise of the Non -Practicing Entity (NPE) often referred to as patent trolls. A  Patent troll suits cost legitimate  American business's close to $30 billion in direct costs (licensing fees /court settlements) and an estimated $80  Billion in indirect fees (legal fees to defend against a troll, lost business/contracts) in 2021.[5] Technology companies receive the brunt of Patent Troll activities but other sectors like biotech and automobile are also vulnerable. Despite very thin evidence to back their lawsuits, companies are often forced to settle NPEs patent disputes out of court because costs can easily reach millions of dollars in legal fees and take up to 18 months to resolve, even for relatively simple disputes where the company prevails.  For this reason, 90% of NPE lawsuits are settled out of court. This not only affects American companies but any company wishing to sell its products or services in the U.S. market.

If a company can't develop and file its own IP it should not stop a company addressing its IP needs. Patents and copyright protected material can be acquired and assimilated into the company's business. Acquisition may come in the form of buying individuals patent portfolios or published pieces of writing or music. It may come through a corporate acquisition.  Amazon transformed from a distributor to a studio in all but name by buying the MGM back catalogue.  Patent portfolios are bought all the time on patent exchanges or by other means. When a competitor goes out of business in a particular sector, valuable IP assets, which might mean more to some than others, often become available very cheaply. Does your strategy consider these options?

Cost Efficiencies

A surprising number of actions can be done internally without involving external lawyers and hence keeping costs down. Patent filing work and litigation will still need the skills of lawyers but general management, research, strategizing and monetization often do not. This leads into the subject of Artificial Intelligence a wide-ranging topic in itself.   Legal activities and in particular Intellectual Property are perfect market sectors where AI can offer huge efficiencies. A number of companies have been working in this area for over 10 years and therefore there are a number of options.  Strategic tasks surrounding a portfolio such as possible infringers, competitors filing patents in a similar area and valuations can be done quickly, efficiently and accurately. Also, the personnel operating the searches do not have to have legal experience. Here are a few of the established companies offering AI services, most often under standard enterprise contracts but also sometimes SaaS.

IP Check List for Board Members

So, getting back to "Renoirs in our Attics". To avoid unfortunate missed opportunities and unexpected infringement costs, it is important for the board to regularly ask questions and assess a company's Intellectual Property strategy. Here is a sample list of questions to ask: 

• Who is managing the Intellectual Property and who do they report to?
• Does the company have a short and long-term IP strategy and how often are these strategies reviewed?
• What areas of IP is the company actively involved in? Patents, Trademarks, Trade Secrets, Knowledge and Knowhow retention and protection?
• How much investment is the company making in IP and where?
• If the company does have an active IP program, is a financial summary available with details of where the revenues come from, currently and historically?  
• How does the strategy fit into the overall company's corporate strategy?
• How does the company foster and encourage innovation and if so in what areas of the business and how?
• Is there an employee motivation plan to encourage active participation (stock, cash or other rewards) in the company's innovation and IP strategy?

[1] https://www.eff.org/deeplinks/2013/03/shield-act-internet-shows-it’s-ready-smash-patent-trolls
[2] https://www.stereogum.com/2268749/queens-catalog-acquired-for-1-27-billion-most-expensive-music-sale-ever/news/
[3] https://www.wipo.int/portal/en/index.html
[4] https://hls.harvard.edu/today/harvard-law-i-p-expert-explains-how-disney-has-influenced-u-s-copyright-law-to-protect-mickey-mouse-and-winnie-the-pooh/
[5] https://nrf.com/fair-patent-laws
[6] https://clarivate.com
[7] https://www.patsnap.com
[8] https://iamip.com
[9] https://clarivate.com/products/ip-intelligence/trademark-research-and-protection/trademark-vision/

ABOUT THE AUTHOR

ABOUT ANDREW DUNCAN

Andrew Duncan is an experienced board member, international business development and Intellectual Property strategist. He has lived and worked in the UK, Germany, France and for the last 30 years on and off in California. He had the central role in creating two world standards in the media technology industry and is co-author of 5 patents in the telehealth sector. He is the managing partner of Global TechLink, a technology consultancy firm which he founded in 2001, specializing in licensing and business development as well as MAGLA Entertainment, a successful Digital Content Distribution company, established in 2015. 

He is currently serving on one public and one private board and advisor to several technology and AI centric companies. He has a Hons degree in Chemistry from Nottingham University with post graduate qualifications from London University in Marketing and UCLA Anderson School in business.