Intellectual property is one of your company’s greatest assets, but modern technology makes it easy for that property to be stolen or infringed upon if it’s not properly protected.
Having an up-to-date inventory of your intellectual property will help should a dispute arise. If a dispute happens, experts may be called upon to place a value on those potential intellectual property infringements.
Keith Hock, CPA, CFF, CFFA, CVA, director, Financial Advisory Services with GBQ Consulting LLC, says that companies are often missing out on opportunities or forced to defend themselves in situations that have significant financial consequences — all because they did not have a complete catalog of their intellectual property.
“It’s important for companies to think about, catalog and inventory potential intellectual property and understand its value,” says Hock. “Then you know what steps need to be taken to protect that value, or prevent creating exposure by infringing on someone else’s intellectual property.”
Smart Business spoke with Hock about how to catalog and value your intellectual property.
How do you take proactive steps to protect your intellectual property?
You have to understand what items can be intellectual property. It’s always good to talk with legal counsel or an intellectual property valuation person. You need to gain an understanding of what constitutes intellectual property and understand the value, or range of value. This allows you to know whether it’s worth trying to protect, what your exposure may be if you choose not to protect it or what your exposure may be if you have infringed on someone else’s intellectual property.
Oftentimes companies do not fully appreciate the potential scope of their intellectual property and its value. Patents, trademarks and copyrights are the most common forms of intellectual property.
A fourth type, trade secrets, is often overlooked, and these can have significant value. You have to take certain steps to protect those and treat them as such, or you’ll lose the protection provided by the laws governing trade secrets.
How can you calculate the damages lost in an intellectual property suit?
That’s the million-dollar question. There are methodologies that are generally used.
In some cases, the best indication of intellectual property value may be a license agreement for that same piece of intellectual property. If a patent has been licensed at a particular rate, that’s a good indication of the value. Unfortunately, those types of license agreements don’t always exist; in those cases there are other approaches to assess the value. But that’s always a good starting point.
It’s similar to real estate. If you’re interested in finding out what your house sold for, you look at the selling prices of other houses in your neighborhood.
There are also other valuation techniques that can be applied, such as the amount of incremental cash the patent is expected to generate.
What are the risks of not understanding your intellectual property inventory?
The risk of not understanding your own intellectual property is that you are not necessarily fully exploiting it, in terms of leveraging its use in your business, or you’re not fully protecting it. Not being proactive can put you at risk for litigation that can have significant consequences.
Keith Hock, CPA, CFF, CFFA, CVA, is director, Financial Advisory Services, at GBQ Consulting LLC. Reach him at (513) 252-0223 or [email protected]
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