For the half-year to 30 June 2014, the IPKat's regular team is supplemented by contributions from guest bloggers Alberto Bellan, Darren Meale and Nadia Zegze.

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Tuesday, 30 April 2013

An easier kind of IP valuation: what we feel about our assets

Often this Kat has to fight to stop himself glazing over when words like "IP valuation" are mentioned -- not because he doesn't find them interesting (after all, he is part of the original blog team of IP Finance, which often posts pieces on the subject) but rather because, increasingly, the gap between the propositions of principle (which he generally understands) and the algebra which they generate (which he generally doesn't) seems to get shorter ever year.  However, from time to time he encounters a piece on the subject that is relatively Kat-friendly and, rather than consign it to IP Finance, he's happy to let IPKat weblog readers enjoy it too. Here follows a guest piece from Miri Frankel (Aegis Media Americas), fresh from a recent trip to Europe and back in writing mode. It deals with the very most accessible level of IP valuation: whether we value IP rights in general terms (i.e. "yes, no, maybe"), rather than how much the rights are worth in commercial or taxation terms (eg "x =37y/z + (q)").  Writes Miri:

Are IPRs the Cat’s Meow or Undervalued Assets?

In spite of the stereotype that lawyers are afraid of mathematics, I’ve noticed that Katfriends seem keen to paw over statistics relevant to our profession. It is with this interest in mind that I’d like to share some rather startling IP-related survey results.

Infojustice.org reports that the United States Patent and Trademark Office (USPTO) and the National Science Foundation (NSF) each conducted surveys that aimed to quantify the value placed on various IP rights, including trade marks, trade secrets, copyrights and patents by companies operating in industries that would generally be expected to rely on, and thus prize, such IP rights. Both the USPTO and the NSF found that respondents did not report valuing applicable IP as highly as one would expect.

For example, only about 40% - 45% of publishers (“Information” sector in the NSF chart titled Figure 1) felt that copyrights were either Very Important or Somewhat Important. 85% of companies in the manufacturing sector did not consider patents to be of importance to their businesses, though nearly 30% did consider trade marks and trade secrets to be important.

 
Do these results reveal a widespread and fundamental misunderstanding of the use, impact and value of IP by the companies surveyed (which would likely suggest a broader misunderstanding)? Or is there something else affecting the results? For what it’s worth, here are some of my thoughts on these questions.

First, I do think there is some degree of misunderstanding among non-lawyer business executives with respect to the impact that IP has or can have on their businesses.

Over the years, I have encountered many business clients and contacts in industries that rely on – and even live and die by – the ability to leverage various intellectual property rights, and yet these clients do not realize that they are working with IP protected products or services every day in the course of their work. However, I suspect that a more significant reason for the undervaluing of IP, especially patents, may arise from the sheer cost of maintaining and enforcing IP rights, especially in the United States, where these surveys were conducted. The NSF chart below, which breaks their survey results down by companies that conduct research and development versus companies that do not, inspired my theory.

 
According to these NSF results, only 35% - 40% of companies that conduct R&D place some importance on either design or utility patents. On the other hand, more than 60% of those same companies believe that trade marks and trade secrets are very or somewhat important. Companies actively conducting R&D value trade marks significantly more highly than patent rights. 
Merpel ponders the value of IPR
My US-based perspective on this surprising result is that years of difficult navigation of the patent registration system, coupled with the practically prohibitively high cost of enforcing patents through litigation, has eroded the perceived value of patents within companies that would be expected to value them most. This isn’t to say that such companies do not continue to register patent applications or to enforce them when appropriate. However, imagine yourself as in-house counsel advising your internal clients that the enforcement process will cost the company millions of US dollars over several years of proceedings: is the company likely to fight on, or is it more likely to either settle with a claimant or ignore a potential defendant? It seems reasonable to think that such companies might place more importance on the notion (whether or not appropriate) that having a strong, recognizable trade mark and a high level of consumer goodwill would help attract and retain customers even when competition arises that may or may not be peddling potentially infringing goods or services.  
What do readers think? I’d be delighted if you would share your own comments or theories in the comments section of this post.

USPTO report here
NSF report here

4 comments:

Anonymous said...

Interesting stats! Yes, there are a number of barriers. Costs of enforcement, initial costs of protection in the early stages of a business when cash is limited, technical complexity, both in the drafting and the process and lack of clarity are all reasons why companies fail to do down the patenting route. In certain fast moving sectors there is also a short-termism approach and the patenting process is considered to be too lengthy to apply. Jackie

Miri Frankel said...

Thank you, Jackie! Your point about the burden to start-up companies in getting set up initially is well taken. I suspect that in some industries a start-up may opt to rely on unregistered rights protections to the exent available in the jurisdiction. Others may well wade through the sometimes daunting registration process, but unfortunately may not emerge from that process with fond thoughts!

In my mind, trademarks may be more well regarded by companies because of the sheer power of branding in attracting loyal consumers and because the registration process is much more straightforward (not necessarily easy, but at least relatively easy to understand) than, say, the patent registration process.

Anonymous said...

I think what's really important to keep in mind is how much of the value of the company is present in each type of IP right. For early stage biotech companies close to 100% of their value can be in their patents. For companies in the ICT sector it is usually a much smaller proportion, and whilst they may not realise it, it could be close to 0% for their patents.

Meldrew said...

I find that companies regularly overvalue trade secrets, largely because they are rarely subjected to a search to determine whether they are that secret at all. I know of a case where a European patent was opposed by several opponents, at least two of whom found that what they thought was a trade secret was long practised [and obscurely published] by one of their competitor opponents. If you have no reason to doubt the value of something you value it highly. A patent has been through a searching process and so you know the limits of its value.

As for trademarks, these are valued highly, because generally they recognise and follow success rather than precede it. Although a mark may be registered before trading, it is the value of the trading that adheres to the mark. A well used trade mark is crystallised reputation.

I was always taught that the purpose of a patent was to give you time to establish your trade mark. Is this old fashioned?

Finally, trademarks are valuable for some non-traditional purposes but I feel that in hard times the tax man is more likely to look harder at licensing practices for trade marks. Patents may become more popular with some tax initiatives [e.g. the Patent Box] but again the tax man is looking closely at ownership and licensing structures.

Unfortunately, from being a nice quiet backwater, IP has become fashionable and of interest to more than its practitioners. A life of quiet obscurity has much to recommend it.......

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