An organization that can protect nurture and capitalize on its

							                                                    The know-how
                                                    component
ILLUSTRATION: GRAY NEILL




                                An organization that can protect, nurture and capitalize on its intellectual property assets,
                                   says Wilf Altman, can unlock hidden potential and get the most from its employees

                                         anaging intellectual property (IP) assets is becoming a         Globalization, shorter product life cycles, skill shortages and




                           M
                                         major challenge facing organizations in the financial ser-       advanced technology are some of the factors making IP more impor-
                                         vices sector. The challenge is two-fold: to value, protect      tant to business.”
                                         and nurture often intangible assets and to capitalize on           Martin Kelso, director of strategy at Halifax Group’s Intelligent
                                         their value in the marketplace. Yet how many firms have          Finance, believes that valuing intangible assets is comparable to share
                                         the necessary structure to protect their intellectual           valuation, although significantly more problematic. “One challenge is
                           property assets and leverage their business potential?                        that the value of an intangible is not fixed, in fact that value is con-
                              Research carried out by PricewaterhouseCoopers, 2004 Global                stantly changing, based on market conditions and in concert with
                           Review: Unlocking Hidden Value in Intellectual Property, suggests that once   business strategy.” Barclays offers finance against a wide range of
                           the benefits – and the risks – of IP deals are properly recognized, com-       intellectual properties, lending up to 66 per cent of the independent
                           panies can unlock the value in the patents, trademarks and copyrights                           ,
                                                                                                         valuation of an IP such as music, film or TV catalogues, or to release
                           that they own – and profit from the know-how of their employees.               funds to make new acquisitions or launch a new marketing initiative.
                              However, according to David Eastwood, head of KPMG’s                          Niche companies competing against major brands regard IP as
                           Intellectual Property Services, while patents, trademarks and some            particularly important because, according to a 2004 study by KPMG,
                           designs remain the main areas of business interest, “companies at the         Enhancing Organizational Success, the exclusive rights to particular
                           leading edge are starting to focus on the broader picture.                    intellectual property assets allow these entities to compete effectively


                           46     November 2005 FINANCIAL WORLD
with more powerful organizations. “In contrast,” the report states,
“companies that produce parity components or commodity products
have tended to de-emphasise intellectual property. Some commodi-
                                                                              Unleashing your potential
ties, financial products among them, are increasingly building value          For companies aiming to get the most out of their IP assets,
with brands that differentiate intangibles. Direct Line, for example,         KPMG’s David Eastwood recommends putting in place a series of
has become a big player in the UK insurance market, precisely                 building blocks, once the organization knows what it has – not
because it has built a strong brand through marketing communica-              just in legal terms, but in terms of potential business impact.
tions, the internet, and public relations.”
                                                                              It’s not an overnight solution and every company will be different,
Creating a management tool                                                    but in broad outline the following should help:
For companies that haven’t taken intellectual property opportunities             Establish what IP assets the company has, where these are
seriously, the first step, according to the KPMG study, is to create an        held and how they are protected. This needs a mixture of both
               ,
inventory of IP but one that is a management tool, rather than simply         business and legal skills.
a catalogue. The process of taking an inventory can be a means of                Assess these assets from several viewpoints. For example, what
identifying marketable know-how and trade secrets that the organiza-          is their significance to the business and to competitors. Is the
tion may not realize it has or for which it has not considered an alter-      core asset a single patent, a cluster of related patents or a
native use. It can also assess the asset’s statues and usefulness, for        business and management team?
example: “idle”; “expiring”; “licensed out”; “earning royalties”.                Determine the appropriate business treatment, that is, invest,
    “Distinctive financial products clearly have both strong intellectual      maintain or divest, and the best way to achieve this.
property and marketing value. What differentiates Intelligent Finance            Where appropriate, license assets out, for example, in
from other UK banking propositions,” says Halifax’s Kelso, “is our over-      geographic areas or market niches that are not already served.
all customer proposition, which is a mixture of our innovative processes,        Dispose of non-core assets – if they have value – or simply stop
our systems and the way we present ourselves to potential customers.          renewal of registrations. The mechanics of disposal will depend
We think there is an IP value around these areas and we want to maxi-         on whether the asset is a single technology or a bundle of
mize the benefit from this, over and above the benefit arising from oper-       standalone businesses.
ating a banking operation. To that end we have copyrighted the                   Focus development effort on IP that has specific business
branding. We have applied for patents on elements of our systems              objectives and in response to the business direction and the
processes and are considering third-party licences and joint-venture          activity of competitors. Supplement this with targeted purchasing
                                               ,
opportunities. The cost of failing to manage IP is revenue foregone.”         or the licensing of complementary brands or technologies.
    Companies operating in multiple industries or those that have                Create an IP strategy that is consistent with the business strategy.
recently merged, made an acquisition or entered into a joint venture
should look for significant IP assets and seek out cross-industry or
cross-company uses and optimize their value as a revenue generator.         Gaining a competitive edge
    The benefits gained by companies in other sectors should tempt          PWC predicts that technology deals of this type, put together by com-
more in financial services that haven’t explored their own potential        panies that combine licensing know-how under one roof, are likely to
winners. Procter & Gamble and Texas Instruments are two that have           become more commonplace. Franchising royalty securitization is
successfully added millions – sometimes billions – of dollars to their      becoming more common in the retail and leisure sectors.
bottom line by developing an in-depth understanding of the attrib-              Law firm Osborne Clarke, makes the point that for many compa-
utes and value of their intellectual assets.                                nies, intellectual property isn’t just a valuable element of their busi-
    General Electric (GE) earlier this year purchased a portfolio of IP     ness but provides their competitive edge. “You’ve only got to look at
assets from Motorola. The revenue-generating assets within that port-       the results of the software,” a spokesperson says.
folio formed part of the patent pool underlying the industry standard           “Patent disputes based on the Freeny (download) patent or the bat-
of the Moving Picture Experts Group. They represented a sufficiently         tle between Yahoo! and Google, which was recently settled at great
predictable source of cashflow to fund the licensing and exploitation        cost to Google.” Skandia is believed to have pioneered the measure-
of development-stage IP assets in the portfolio, thereby enabling the       ment of intellectual capital through the enthusiasm of one of its for-
whole deal to be successfully structured.                                   mer directors, Leif Edvinsson, and for a while the company’s share
    From Motorola’s viewpoint, according to PWC, the transaction            price benefited. “Most UK companies,” says KPMG’s David Eastwood,
offered an attractive combination of cash and participation in any          “are still at a very early stage in this process. To the extent that they are
future revenue flows from the development-stage IP assets. As a part-                                 ,
                                                                            starting to look at IP they are generally focusing on taking stock of
ner, GE had the credibility and capability to extend Motorola’s licens-     what they have and on the cost-efficiencies in managing it. Although
ing reach without further investment. And the deal structure created        these are necessary early steps, the potential of IP as a revenue source
a mutual interest in the success of the development-stage assets – giv-     and business driver should be the real goal.”                              FW

ing GE an incentive to fund ongoing IP maintenance costs and
enforce Motorola’s patent rights.                                           Wilf Altman writes for the national press and specialist titles such as Business Voice.



                                                                                                                        FINANCIAL WORLD November 2005            47