IP strategist: The inverse relationship between brand-based and tech-based intellectual property
Patents tend to dominate discussions of IP value, while brands, know-how and other assets are all too often absent
As a speaker or attendee at many IP conferences over the years, one of the continuing features of conference agendas has been the segregation of intellectual property into its separate legal forms: topics address patents or trademarks or trade secrets, with patents clearly dominant. A random sample of IP conferences in the fourth quarter of this year alone reveals a heavy focus on patents, limited discussion on trademarks (as a legal right, rather than brands) and still less on trade secrets, and only then as a foil to patent strategy.
At IPBC Global in June – a compelling and worthwhile event – the world’s foremost gathering of IP strategists saw little representation from the content or brand IP industries. Patent discussions dominated and the segregation of rights into silos remained in place. Likewise, the Boston Consulting Group’s recent excellent article on Tesla’s decision to open source its IP strategy focused exclusively on patents. Brands, know-how, copyright and trade secrets (all of which Tesla has in abundance) did not feature at all.
In short, the IP silos are proving difficult to budge. There is (as yet) little discussion of IP strategy that is integrated and blends the different rights together in a comprehensive, holistic approach to intellectual property. The focus still largely remains on intellectual property as a series of separate, though related legal rights.
If we accept the often repeated statement that 80% of the value of the S&P 500 derives from intangible assets (and there is considerable evidence that this statement is not in fact correct), it is clear from recent transaction data that most of this value does not derive from patents, but must instead emanate from softer rights, such as brands and know-how. It is also clear from analysing companies with large patent holdings that there is little correlation between stock performance and the size of the company’s patent estate – as many companies with large patent estates outperform as underperform the broader indices. However, what is interesting is that brand and manufacturing know-how rich companies such as Procter & Gamble, Coca-Cola and General Mills have significantly outlasted other S&P 500 listed peers.
This points to a pervasive and emerging truth: that intellectual property delivers its most powerful impact when it is correctly and carefully managed via a business-centric strategy, which integrates the various classes of intellectual property to produce a comprehensive, coherent platform to drive and grow business. By way of analogy, just as a single stick is easily broken, a bundle of sticks wrapped together in an aligned structure is far stronger.
One striking example of the importance of integrating rights is the relationship between technology-based rights (ie, systems, processes and the functionality of a product or service) and reputational rights (ie, the brand).
Technology rights tend to erode over time due to both the speed of technology development, which renders innovations obsolete, and the fact that the favoured legal mechanism for protecting technology (ie, patents) is time limited. Compare this to brands. A brand – provided that it is carefully managed – tends to accrete value over time as users of the product become more familiar with it and its reputation builds. In addition, trademarks (again, provided that they are correctly managed) can effectively last forever.
Hence, there is an inverse relationship between technology and reputation-based rights. Technology rights can provide instant, specific protection but expire after a period of time. Reputational rights take longer to build, but deliver long-term value. This relationship provides unique lessons and opportunities for IP strategists seeking to drive value by integrating the different IP classes. Companies need to look at building an IP strategy that incorporates the reputational rights of brand, rather than just technology. They need to use technology-based innovation to build longer-term brand positions, because if they rely solely on technology, then over time its strength inevitably erodes away. Equally, it is extremely difficult to build a brand without competitive differentiation based around technology, features or function sets that are perceived as valuable by the market.
Apple represents a good example. The value of the technology rights inside Apple’s original iPod products has waned since the product’s launch in 2001 as technology has moved on and the relevant patents run down towards expiry. However, the reputational rights which have accrued as a result of the technology remain as part of the accumulated value that is the Apple brand. In fact, Apple was recently selected as the most valuable brand in the world. Would this have been possible without the substantial technology rights (eg, inventions, designs, know-how and code) that supported its products? Unlikely. Likewise, the technology innovations which built the valuable Ford brand are unlikely to provide Ford with any significant direct value today, but were critical in their time.
This relationship is just one example of how breaking down walls between IP classes and integrating rights in a coherent, coordinated strategy is critical to achieving long-term value from intellectual property. It is an approach that has the potential to deliver huge value to both strategists and clients alike by unlocking the unrealised value in technology and brand-driven companies the world over.