Invisible assets, real risk: why intellectual property belongs in the boardroom

For a small or medium-sized enterprise, such a situation may feel like a total catastrophe. Yet this risk is invisible for many, precisely because intellectual property has never been on the agenda in the boardroom.

Figures from, among others, the Norwegian Industrial Property Office and international surveys show that a large proportion of small and medium sized enterprises lack a conscious and structured approach to intangible assets. European studies from the EPO and EUIPO also show that businesses that actively work with patents, trademarks and designs on average perform better financially than those that do not – both in terms of profitability and revenue per employee. Nevertheless, IP is in many SME’s only addressed when a conflict arises.

What intangible assets actually are

Intangible assets comprise more than “a patent on a gadget”. They include technical solutions and inventions, software, trademarks and logos, product design, content and copyright, databases, customer lists, methods, trade secrets and know how.

In many knowledge and technology companies, it is these rights that in reality constitute the company’s value, while the balance sheet almost only shows office furniture and computers. The gap between what actually generates future income and what is formally identified and protected is often substantial.

When this is not mapped out, the company is in a weak position both when facing competitors and in relation to investors and potential buyers. European analyses from EPO/EUIPO show that companies with registered intellectual property rights are more likely to succeed with scaling and internationalization precisely because they have formalized ownership of their “invisible capital”.

When lack of IP strategy becomes acute risk

One of the main problems is that IP is far too seldom regarded as part of the company’s strategy and risk management, even though the board and the general manager are responsible for sound organization, including handling key risks.

The consequences of insufficient IP work are usually only felt when something goes wrong. The patent infringement warning described above is a typical example: the counterparty claims that their patent gives them exclusive rights to a solution you are using, and demands that you stop sales. The product has already been launched, the marketing campaign is running, and distributors are expecting deliveries.

Uncomfortable questions then arise: Is the claim real? Have we actually assessed the IP landscape before launch? Could this have been discovered earlier? Often the answer is yes. A simple freedom to operate assessment (FTO) before launch, where patents and other relevant rights in the relevant markets are reviewed, could in many cases have clarified whether there was significant risk. The same goes for searches in trademark and design registers before choosing a name, logo or product appearance.

Nevertheless, such assessments are often deprioritized because they are perceived as too expensive, too complicated, or because no one has a clear responsibility. The result is that the company reacts only when the situation has already become a potential crisis.

IP as an offensive competitive tool

Intellectual property is not only about defending yourself when you are attacked. Used correctly, IP can be one of the company’s most effective offensive tools for building and protecting market position. A deliberate IP strategy can be used to support specific business objectives by keeping competitors out of core markets, opening up licensing revenues, or securing unique collaborations where the company’s technology or data is the key others need access to.
To achieve this, IP must not only be viewed as legal insurance, but as an active instrument in business development and competitive strategy.

The board’s role in protecting and building value

IP is therefore both about reducing risk and about securing and developing business critical assets. For the board, it may be useful to think of IP in three parallel tracks: risk, value and implementation.

Risk is about avoiding infringing others’ rights and being prepared for how to respond if a claim nevertheless arises. This means ensuring that rights searches are actually carried out before key product launches and market entries, and that collaborations and development projects are governed by clear agreements on IP ownership.

Value is about identifying what is distinctive and business critical in the company’s solutions, and protecting this through patents, trademarks, designs, copyright or deliberate secrecy. Without such mapping, it is difficult to explain to investors and others what the company actually owns, and why it has a predictable competitive advantage.

Implementation is about establishing simple, practical routines. Who is responsible for IP internally? At what point in the development process should IP assessments be made? How are rights secured in contracts with employees, consultants, designers and developers?

This does not mean that all companies must build large and costly IP portfolios. For many, it will be sufficient to obtain an overview of what they have, clarify who owns it, make some targeted registrations where they have the greatest effect, and otherwise ensure good agreements and routines. This is often enough to significantly reduce risk while at the same time strengthening the company’s negotiating position and competitiveness.

For IP work to actually take place, it must be built into the formal structures and not only handled ad hoc when someone sounds the alarm. This means, among other things, that IP should be a fixed item in the board’s annual plan for strategy and risk review. Budget funds must be allocated to necessary searches, registrations and maintenance, on a par with other critical investments. Finally, it is important that the board requests concrete plans and reporting: which rights do we have, what is their status, which new rights should we build, and where do we see the greatest risk?

Intellectual property is capital that must be managed. This requires prioritization of both time and money. That is precisely why the topic belongs in the boardroom: because the decision to protect or not to protect is in reality a decision to invest, or not to invest, in the company’s competitive advantage.

How Bryn Aarflot can help you move from ad hoc to strategy

For many boards and management teams, the practical threshold is precisely moving from recognition to action: where do we start, what should be prioritized, what will it cost – and what is “good enough” for our situation?

Here, an expert environment such as Bryn Aarflot can be an efficient shortcut. As a combined law firm and patent attorney office, we can, among other things:

• ·carry out a high-level IP mapping that gives the board an initial, structured picture of which intangible assets you actually have, where they are located, and which gaps represent the greatest risk
• ·conduct targeted prior searches of patents, trademarks and designs before launching new products or services, so that you gain a realistic picture of your freedom to operate and avoid unnecessary disputes
• ·assist in acute situations, such as when a notice of possible infringement appears in your inbox, with a rapid assessment of the claim, negotiation strategy and possible adaptations
• ·prepare a clear, business-adapted IP strategy that can be anchored in the board and that builds fixed IP checkpoints into innovation and launch processes
• ·ensure that agreements with employees, consultants, partners and suppliers actually reflect the desired ownership of technology, software, design and other IP.

The point is not to turn IP into a separate “project alongside operations”, but to integrate intellectual property into the strategic decisions you must make anyway: which products to further develop, which markets to prioritize, which partnerships to enter into – and which levels of risk and investment you accept.

Get IP on the agenda before the crisis hits

The initial story about the shock of receiving a patent infringement notice should serve as a wake-up call. For most companies, this is a manageable risk, provided that it is recognized early. This requires that intangible assets are no longer treated as a side issue, but as an integrated part of strategy, innovation and risk management.

For the board and the general manager, this concretely means ensuring that IP is discussed regularly.

The cost of carrying out such assessments in advance is usually far lower than the price of handling a dispute afterwards. With the right assistance, you can move from gut feeling to informed decisions – and reduce the risk that a patent infringement notice will have critical consequences for your business.