Developing effective patent licensing/enforcement programs: determining and setting business objectives.

The licensing profession is on the threshold of the most important challenges and opportunities ever to face the industry. Two streams of business accounting awareness have merged into one--the post-Enron realization that conventional accounting fails to accurately reflect true company value or to accurately forecast a company's future or the quality of its management, and the ever-growing realization that intangible assets, including intellectual assets, are more important than ever to a company's well-being.

New accounting techniques and capabilities are needed to accurately reflect the real value and prospects of companies. With the necessary skill sets, insight and integrity, no group is more suited than licensing professionals to manipulate intellectual asset accounting into giving management and shareholders a practical vision of corporate reality. Central to successful intellectual asset accounting is determining and setting business objectives and discerning actions to be taken.

The simple, yet enduring, goal of business is to convert assets into owner value by generating revenue or the prospect of future revenue. The process is cyclical, as profits help a business acquire more assets. However, many businesses today have significant intangible assets that are not used to their fullest potential to help generate revenue and, hence, shareholder value. It is important to note, though, that this evolving concept of leveraging and managing intellectual assets is becoming a predominant factor in the success of contemporary business.

The statistics of market capitalization to book value ratios for US companies for the last two or three decades demonstrate this emerging concept. The numbers show a steady increase in these ratios over time. Put another way, hard assets: buildings, machinery, vehicles, etc, are far less important to the success of companies today than intangible assets: clever people, smart systems, proprietary technology, trademarks, and such. Management of these critical assets has become a key feature of the business future. And, of course, anything that needs to be managed needs to be accounted for--a job that will fall largely to licensing professionals and similarly trained people who are familiar with working at the intersection of technology, law, and business.

Generating Revenue from Intellectual Assets

The intellectual assets of a company create the advantages for its products and services in the marketplace, which drive revenue and shareholder value. This is merely the tip of the iceberg in terms of total revenue-generating capacity for most companies, however. An effective licensing/enforcement (L/E) program enables a company to realize all possible returns on its intellectual asset investments.

Intellectual assets include the traditional categories of intellectual property that are legally protected such as patents, trademarks, and copyrights. Additionally, yet often not categorized or realized as such, a company's brand names, trade secrets, the business knowledge of employees, and the overall goodwill of the company also contribute to its intellectual capital. A company can drive its market capitalization by using marketing expertise to leverage these assets. It is the role of the licensing professional to ensure that upper management has the proper understanding of this arsenal of assets and how it can be leverage.

Structuring a Company to Leverage Intellectual Assets

Companies typically take a passive approach to L/E. For example, a company may wait for a lawsuit to come along that sets the stage for a license here, a handful of royalties there, or an injunction on a certain technology. But this reactionary strategy will produce, at best, limited results. Alternatively, building an effective L/E program puts a company in charge of its intellectual capital. Where to begin? Within the company, particular attention should be paid to its structure and how it does or doesn't place premium importance on intellectual assets.

Most companies are not optimally structured to maximize their returns on intellectual capital in today's business world. Ultimately, the intellectual capital or L/E function should sit at the highest level of companies' senior management. Although tangible assets accounted for 80 percent of companies market values 20 years ago, today they account for only 20 percent. This being the case, companies need to begin shifting management priorities toward intangible assets. Change won't happen overnight, however, and it's the responsibility of intellectual property and licensing professionals to elevate awareness at the highest levels.

Forcing an intellectual capital-based business model upstream is a complicated internal sales pitch for any licensing professional. But companies that spurn this business model may wake up some day to find they are infringing or that they've lost critical market advantage because they overlooked the role of intellectual capital and L/E.

One effective way to drive intellectual capital to the forefront is to employ an attorney trained in intellectual property in the general counsel position. This strategy will put someone with a built-in bias into a high-level role to drive change and leverage intellectual capital. Another critical role is that of the Chief Intellectual Capital Officer. This role will be most effective if filled by someone with business development and strategic alliance experience, in …