As intellectual capital becomes more fundamental to businesses, the need to identify and value these assets grows more urgent.

Intellectual property (IP) may sound like a highbrow legal concept but the truth is - IP is everywhere.

Think of Google’s famous PageRank patent or Nike’s trademark slogan “Just Do It”. Every product or service that we use in our daily lives is the result of a long chain of big or small inventions, which were protected and spurred on through intellectual property.

Intellectual capital is one the most important assets of many of the world’s largest and most powerful companies. A staggering 85% of market value of S&P 500 companies is in their intangible assets.(1)

Accelerating Awareness

At its loosest and broadest definition, an intangible asset is one that brings value and benefit to a company but cannot be seen nor felt. This includes intellectual property including copyrights, trademarks, patents and designs.

But even more than that, intangible assets can also include data and proprietary software algorithms, which are increasingly valuable in our digital economy, know-how found in human capital, and goodwill.

While almost half of the global economy (US$50 trillion) is already being held in intangible assets, the concept in business is insufficiently understood.

“Many CEOs tend to think about IA on a more ad-hoc basis rather than seeing them as strategic assets to be managed and integrated into their business strategy,” says James Cheah, IP strategist at IPOS International.

Cheah mentions the example of company trade secrets or valuable know-how. While CEOs may worry about information being leaked, signing an NDA is not sufficient to prevent divulgement. Instead, active management of trade secrets are much more effective. This principle applies to other classes of intangible assets. Cheah conveys that one has to think about IA holistically and how it fits within different facets of the organization, from HR to finance departments, so that these business units are engaged in the management of these business assets.

“Retaining know-how is very important,” says Victor Neo, chief executive and founder of creative technology provider Revez. “I make sure that not one person holds the entire bag of secrets. For example, we split our developers into different teams with separate job scopes to minimise risks of any trade secrets being leaked.”

Getting A Competitive Advantage

While many company directors may think of intellectual property as a matter for lawyers, ultimately IP is about creating revenue streams and building investor trust.

This is one of the biggest reasons behind the Intangible Disclosure Evaluation and Audit Scheme (IDEAS) Pilot launched in February this year via the Intellectual Property Office of Singapore (IPOS) and the Singapore Exchange (SGX).

Under the programme, listed companies or those preparing for an IPO undergo a subsidised IA evaluation and audit process to realise the value of their IA in order to communicate it clearly to stakeholders.

“The IDEAS programme accelerates awareness within companies and empowers them with a greater understanding of their assets,” says Andy Leck, principal and head of IP practice at Baker McKenzie Wong & Leow. “It’s only with this understanding that companies are able to take the necessary steps to protect it and the easier it is to exploit these assets.”

Fang Lee Wei, chief financial officer at Hyphens Pharma International Limited, one of the participants of IDEAS, conveys that the programme helped to identify key assets that are often overlooked by investors as it is not on the balance sheet or profit and loss statement.

“For example, we have built strong relationships with drug companies in Europe that we distribute for and have a network of over 9000 doctors in 5 countries in SEA over 32 cities,” says Fang. “As each country has a different product registration process, this know-how adds to the stickiness of our business.”

Before the programme, Fang shares that the company tended to look at intangible assets in terms of what can be registered but this has broadened greatly to include branding, reputation, know-how and even data.

Revez’s Neo, who was also part of the IDEAS programme says he would recommend it to others. “I always stress the importance of proper IP management to other business owners as I feel not many SMEs understand the value of IP,” he continues. “Personally, it was really only after I encountered some difficulties that I truly understood.”

Mitigating Risks

Unlike tangible assets, intangible assets do not physically diminish through use and can usually be used by several parties simultaneously.

While some intangible assets contribute to the main economic benefit of the company, such as supporting the manufacture of its products, additional revenue streams may be generated through processes such as licensing; co-development or spinning-out that part of the business. In addition, IA and IP can be used as collateral to raise financing for business expansion.

Being conversant in a business’s IP traits is not only about building future revenue streams but also about mitigating risks.

“During overseas expansion, some SMEs tend to overshare business information, which can include valuable trade secrets” continues Cheah. “It could be due to a feeling of being a smaller player in a bigger market, or simply not having identified what they should not be sharing, but most deals do not require opening up and sharing the whole chest of jewels.”

“Knowing what should and should not be shared decreases the risk of your partner becoming your competitor.”

Effective enforcement of IP rights is the basis of its usefulness. That said, taking action against infringement can often be costly. To mitigate the risk of IP infringement, and support IP rights holders in effectively enforcing their IP rights, IPOS has rolled out an insurance for IP rights holders, i.e., the IP Insurance Initiative for Innovators (IPIII). The IPIII provides enterprises with insurance coverage for legal expenses that may be incurred in IP infringement proceedings.

Driving Growth

COVID 19, in many ways, represents the perfect time for companies to take stock and evaluate their IA value.

As companies embark on digitalizing or pivoting their business in search of other revenue streams, it is important to consider how best to use and value their intangible assets and IP to drive business growth

As the world enters a more challenging time economically, it is important to remember that IP is the key to remaining competitive.

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