A Business Leader’s Guide to IP: Part 1 – Understanding Your Potential Risks
Editor’s Note: This article is part one of a seven-part series titled “A Business Leader’s Guide to IP”, in which we will focus on the strategies, opportunities, and impact you can achieve by integrating IP as a core element of your overall business and innovation strategy. As each article is published, we will update links here:
- A Business Leader’s Guide to IP: Part 1 – Understanding Your Potential Risks [this article]
A Business Leader’s Guide to IP:
Part 1 – Understanding Your Potential Risks
In the business world in general, but perhaps most significantly in the technology sector, intellectual property (IP) is the lifeblood of an organization. From fueling ideas for innovation and informing research and development efforts to establishing a competitive market position with industry-leading products, it’s no wonder that IP accounts for an estimated 70% or higher of a company’s real-world valuation. But the intangible nature of IP makes protecting it far more complex than securing physical property or valuables, and the nature of the threats to which businesses are exposed in regard to their IP is equally nuanced.
In this two-part series, we’ll be taking a closer look first at the specific risks that businesses—in particular technology firms—can face in the realm of IP, and second at the ways that those risks can be reduced by effective management of IP contracts.
Threats to Your IP
Because your IP comprises such a significant portion of your valued assets, threats to its integrity, usefulness, and potential pose a serious risk to current and future profitability. While IP related threats exist in many forms and will vary in type and severity depending on the organization, the market, and the IP in question, it is safe to say that the major risks to which businesses are most commonly exposed fall into three main categories:
Threat #1: Theft
While the word “pirate” traditionally conjures up images of peg legs, parrots, and walking the plank, today’s pirates have traded swashbuckling for copyright infringement, trade secret theft, and brand impersonation.
IP thieves bypass the years of research and expense involved in developing ideas, technologies, and products by copying or stealing what has already been developed or discovered by others. The fewer legal protections you have in place, the more vulnerable you are to having your IP co-opted by another party.
Often we think of IP being potentially stolen by an unscrupulous competitor eager to take advantage of your hard work to advance their own profit margins. While this can certainly be the case, competitors aren’t the only patent and copyright pirates out there. Threats to your IP can also come from within your own organization, from independent third parties, from government entities, and of course from illegal entities like hackers.
It is important to note that, while it is paramount to have legal protections in place, they do not categorically thwart attempts at IP theft by these or other parties; what they do offer is legal recourse to reclaim what is rightfully yours and to stop the unlawful usage of your IP for another’s profit.
Threat #2: Decreased Market Share
Consider the impact of being poised to launch an innovative product that will revolutionize your industry, only to have someone beat you to the revolution—and the profits—by releasing the product first. Or the difference it will make in your market standing to go from dominating the marketplace as the only source of a unique product to treading water as one of many in a sea of copycat products.
When copyright, patent, and trade secret theft are played out to their inevitable conclusion, these are the scenarios most likely to follow. Thieves don’t steal IP to keep it as a treasured possession, but to use it for their own profit, and when it comes to profits, most roads lead to the market.
Whether your market is a broad consumer base of cell phone users, a more specialized niche of clinicians dispensing durable medical equipment, or government agencies utilizing your data storage services, the bottom line is that if another organization’s share of that market increases because they stole your tech, your share decreases.
Threat #3: Compromised Leverage
Your IP plays an even wider role in your profitability, opening up possibilities for licensing of technology as well as providing you with leverage to command a greater value in the sale of your business, financing, or mergers and acquisitions. Lack of proper protection here places you at risk for a lower valuation, not to mention the loss of potential additional streams of revenue from copyright licensing.
Consider as well that sale, financing, and M&A processes also expose your company to potential lenders, buyers, investors, or partners who, even in the exploratory and negotiating phases, will have greater access to your IP than would otherwise be the case. These can become occasions of vulnerability, and especially so in the absence of legal protection.
Technology firms have always been on the forefront of innovation, but today’s evolving social conditions and resultant market changes have elevated innovation from beneficial for success to essential for viability. Knowing the risks associated with your most valuable asset is the first step to mitigating them, and ensuring that your IP remains a greater source of profit for you than liability.
>> Please join us for the next article in this series,
A Business Leader’s Guide to IP: Part 2 – Sound Strategies to Mitigate Your Risks <<
Image Credit: Forest Service, USDA (Flickr @ Creative Commons)
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.