Intangible assets as a leading driver of growth

For innovation-focused companies, intangible assets represent a significantly larger share of value than ever before. Intangible assets are identifiable holdings that do not take a physical form and can include, among other things, intellectual property, customer data, and proprietary software. 

Recent analysis by the Ocean Tomo Study shows that, as of 2020, intangible assets make up as much as 90% of the market value of the entire S&P 500. In real dollars, that puts the overall value of intangibles above $21 trillion on that exchange alone. This is an astounding five times the value of tangible holdings like real estate and equipment. 

Over the last 35 years or so, the percentage of intangible asset value has tripled. This sustained and dominant upward trend is nothing short of revolutionary, indicating a complete supplanting of physical assets for enterprise-level corporations. It signals a permanent shift away from the industrial base of the past in favor of an innovation-oriented economy. 

Globally, intangible asset value is even more impressive. In 2021, the annual Brand Finance GIFT™ report demonstrated the accelerating effect of the COVID-19 pandemic on intangibles, estimating a global value of $74 trillion, 23% higher than in 2019. Looking further out, their projections put the global value of intangible assets at $1 quadrillion by 2050. 

It’s no wonder, then, that the world’s most valuable companies are also the companies who are richest in intangible assets. For years now, companies like Apple and Amazon have been sitting at the top of both the Fortune 500 and Brand Finance’s list of companies with the highest intangible value. 

Given the current and future imperative placed on intangible assets as the leading driver of growth for innovation companies, aligning your business strategy around the identification, capture, and defense of your intangibles, especially your intellectual property, is crucial to the ongoing viability of your enterprise. 

Risks associated with insufficiently protecting innovation

As we’ve seen, today’s technology and innovation companies derive an increasing majority of their value from intangible assets, most especially their intellectual property. Leveraging patents, trademarks, and trade secrets is key to increasing market share and growing enterprise value. Protecting your IP from a myriad of vulnerabilities is therefore crucial to the health of your company. 

So often, however, companies lack the internal infrastructure necessary to adequately protect and defend their IP. Unlike securing tangible assets like real property, the mechanisms for protecting IP are far more complex. This is because, in part, the threats posed to IP are multiple, and the lines of attack can be both subtle and intricate in nature.

It is important to remember that no matter how well-established your company may be, a deficit in IP protection and an insufficient IP strategy puts you at risk for losing market share and endangering your overall enterprise value. IP risk exposure can result in diminished market share and can compromise your leveraging opportunities in terms of licensing, financing, M&A, and sale. 

To mitigate the risks to your intellectual property, you must first know what they are. Below are three general areas of concern that need to be addressed as part of an overall IP aligned strategy. 

For a more in-depth treatment, our eBook, A Business Leader’s Guide to IP: Achieving Impact Through IP Integration, provides insight into the risks of having a weak or non-existent IP strategy and how to overcome that deficiency.

Decreased Market Share

IP assets that are left under-protected, or protections that are not enforced, often results in a decrease in your enterprise’s market share and risks weakening your company’s overall viability in the marketplace. Your IP’s value, and therefore your company’s value, is contingent upon how well protected it is from theft, infringement, and counterfeiting. 

Growing your market share in a competitive landscape hinges on your ability and willingness to actively protect your IP assets effectively. Establishing firm protocols and incentives for identifying and capturing IP, and rigorously enforcing your ownership rights is a central component of a highly functioning IP strategy.

Weakened Assets for Leveraging and Monetizing

Your IP’s value isn’t only tied to your ability to bring a product to market using your proprietary innovations. IP can also be a revenue driver when you are able to sell or license it to others who may be able to use your technology or brands themselves and generate recurring revenue with minimal capital expenditure. Further, a strong IP portfolio plays a critical role in overall enterprise valuation, providing leverage when seeking outside investment or financing, negotiating the sale of your company or a particular business unit, or in a variety of merger and acquisition scenarios. 

A weak IP position, illustrated by unprotected brands or technologies, a lack of protection in key commercial jurisdictions, and assets that are routinely left to fall fallow and not enforced against infringers, diminishes your ability to leverage and monetize your assets, and threatens the overall value and viability of your enterprise.

IP Theft, Infringement, and Counterfeiting 

IP theft can take a number of forms and come from a variety of sources. The scope of theft has grown exponentially alongside the growth in intangible asset value and the advancement in technologies associated with breaching cybersecurity safeguards. IP theft is therefore impossible to thwart wholesale, but strong IP protections can give you solid options for legal recourse in the event your valuable IP is compromised. 

Various threats to IP can arise from a multitude of sources. In the past, IP theft was most often traced to disgruntled or unscrupulous employees or partners with physical access to proprietary information. In the digital age, however, hostile entities such as market competitors, hackers, or foreign actors looking for a leg up in the global marketplace are a constant worry for innovation companies.

Infringement and counterfeiting are forms of IP theft that can be subtle and difficult to ferret out, but the negative consequences to future product development or lucrative licensing deals can be massive. Brand dilution and reputational risk at the hands of unscrupulous counterfeiters can take years or even decades to overcome. Having tactics in place to identify and then take action against these bad actors is a vital component to an IP strategy that starts with strong and deliberate patent and trademark protection. 

For further insights into how to guard against IP theft in your enterprise, check out our article, “Combatting Theft of Your IP Assets.” 

Defend your intangible assets with an IP-aligned business strategy.

Threats to your valuable IP and other intangible assets are commensurate to a direct threat to your company’s overall value and viability. In order to best protect these assets, it is more important now than it has ever been for innovation companies to fully align their IP strategy with their overall business strategy.

When your IP strategy is aligned with your business goals, you are in a strong position to defend your IP against vulnerabilities and threats. An aligned IP strategy will help you to identify, capture, safeguard, and leverage your valuable assets, protecting them from theft and strengthening your market share.  Those protected assets will be a primary driver to your enterprise’s overall value and profitability.

To learn more about the essential elements and key stakeholders involved in developing an aligned IP strategy, read our article, “Shore Up Your Market Position with a Focused IP Strategy.”

 

             Thomas DeFelice

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.