Leveraging on Intangible Assets in a Post-Pandemic World
(Written by Mark Cheng)
Leveraging on Intangible Assets in a Post-Pandemic World
As countries around the world prepare to open up their economies following months of lockdown, businesses large and small will need to find their feet as they seek to adjust to the new normal that confronts them.
In what is being described as the worst global decline since the Great Depression of the 1930s, the COVID-19 pandemic and the ensuing lockdowns are expected to knock almost $9 trillion off global GDP over the next two years. Singapore will not be spared, with the local economy bracing for its worst recession, and authorities forecasting shrinking projections for 2020 at between -4% and -7%.
Faced with this harsh reality, many will struggle to adapt. Thankfully, strategic leveraging of a firm’s intangible assets (“IA”) can help enterprises to weather the storm. IA generally refers to valuable assets that are not physical in nature – such as, goodwill, brand recognition, data – as well as recognized forms of intellectual property (“IP”) – such as patents, trade marks and copyright. Given their intangible nature, IA may prove to be a particularly flexible tool to help businesses navigate the post-pandemic world.
The first of a 4-part series, this article will examine how companies can better manage their IP portfolios in order to reduce costs and increase liquidity.
Trimming the Fat
As firms shift business strategies to adapt to a new economic climate, IP portfolios should also be reviewed to determine which assets will still continue to bring value to the organization. Statistically, it has often been said that only a small portion of a firm’s IP portfolio is truly valuable to the firm, with the number being bandied about often hovering at between 2 – 5%.
Further, the cost of obtaining IP protection is often merely only the initial investment. Many forms of registered IP (such as patents, designs and trade marks) require ongoing maintenance fees to remain effective. For patents in particular, the costs of holding and maintaining a granted patent can escalate exponentially the older the patent gets. Without payment of these fees, the government-granted monopoly surrounding these IP rights will die. As a result, many firms and managers simply place their IP portfolios on autopilot and continue paying all maintenance fees unless an explicit decision to the contrary is made. This leads to expensive and underutilized IP portfolios.
Firms that do not engage in active management of their IP portfolios may therefore find themselves saddled with inflated and costly IP portfolios for a number of reasons:
- Portfolio misalignment: This often occurs in industries with high rates of technology obsolescence (e.g. IT, telecommunications, consumer electronics), or may be a result of market evolution rendering certain products obsolete.
- Vanity assets: Some firms choose to file patents for branding purposes, regardless of its commercial utility or value. This is particularly common in start-ups looking to attract investors with their shiny new patent.
- Mergers and acquisitions: Consolidation following an M&A frequently leads to a disconnect between the more efficient merged business, and their now inefficient IP portfolios.
- Risk aversion: Simply put, no manager wants to be identified as being responsible for selling the golden goose. Decision makers will therefore often choose to act with an over-abundance of caution when making decisions on asset disposal.
However, in the face of a looming recession, few businesses can afford the luxury of holding on to inflated IP portfolios. IP that is no longer generating value should therefore be moved off the books to stave the bleed. Even better, the “pruning” exercise might inadvertently identify unanticipated IP asset monetization opportunities.
For example, registered IPs that are not in use, no longer aligned with the firm’s long-term strategy, or filed around outdated technologies, are the low-hanging fruits which may be ripe for such a “pruning” exercise. Such assets should be allowed to lapse or be abandoned.
Where the asset may potentially still bring value to third-parties, the firm may consider entering into an assignment or licensing agreement for the use of the asset, in exchange for monetary compensation. In so doing, the firm salvages some residual value from the asset, and may even open up a profitable new stream of revenue. However, before jumping into such agreements, it is best to consult the opinion of an IP professional who is familiar with IP management, licensing and assignment. While licensing or assignment of IA can generate revenue, you may also inadvertently empower your competition by handing them the keys to your kingdom.
A clearer understanding of where savings can be made within a firm’s IP portfolio can be gained by undertaking a full IA audit. Each piece of IA within the organization should be clearly identified and its role within the context of the business should be fully understood. Any “pruning” of the assets should also be conducted based on a data-driven methodology, and not simply become an ad hoc and untimed exercise.
Contact us if you’d like to find out more about conducting an IA audit, pruning your IP portfolio, or if you require any general IA or IP assistance.
In the meantime, stay tuned for part 2 of this 4 part series, where we explore how firms with strong cash-flows can leverage on their IA to consolidate their business positions, even in a post-pandemic climate.
 Stephen Key, 97 Percent of All Patents Never Make Money, All Business, available at: https://www.allbusiness.com/97-percent-of-all-patents-never-make-any-money-15258080-1.html#:~:text=97%20Percent%20of%20All%20Patents%20Never%20Make%20Any%20Money.,-By%20Stephen%20Key&text=Ninety%2Dseven%20percent%20of%20all%20patents%20never%20make%20any%20money. See also Peter T. Gianiodis and Jill A. Brown, Entrepreneurial Action, Emerald Group Publishing, at page 72, and Alexander Butler and Daniela Hoyos, Patent Portfolio Pruning (Or Tuning) to Increase IP Investment Returns, IAM Media, available at: https://www.iam-media.com/patent-portfolio-pruning-or-tuning-increase-ip-investment-returns.