Intellectual property is your greatest asset: four ways to create value
Intellectual Property makes you or your company worth more than it can be worth on its own. IP allows you to request a premium for its services. It allows you to earn money while you sleep. It allows you to create a business that can be sold to others or passed on to your heirs.
Too often, IP discussions focus solely on legal rights: patents, trademarks, copyrights, trade secrets, domain names, and right of publicity. These are important, of course. But they are merely legal tools to protect key business assets. The starting point of IP must be the underlying assets: information, innovation, content, brands, names, reputation, websites and more.
The application of IP rights to these key assets can create value in four important ways.
1. Charge a premium for your goods and services.
Consider the generic queue v. COKE. Why is one worth more? Because Coca-Cola has used IP to increase the value of a commodity. It receives a premium because it has a secret formula and a well-known distinctive brand. Generic glue also has a formula, but it’s not a secret; It also has a name, but it is not distinctive. Anyone can queue and use the queue name. IP prevents COKE from being copied. The formula is protected as a trade secret and the brand is protected as a trademark.
2. Earn additional income.
Consider the average software developer v. Microsoft. The software developer is a knowledge worker paid for his work. If you don’t work, you can’t earn money. Without his work, your business is worthless. Microsoft uses IP to turn the product of many knowledge workers into a property that can be licensed and sold. Once this is done, Microsoft can make money without more time and effort on the part of the knowledge worker. Copyrights and patents are the intellectual property rights that prevent others from copying Microsoft products.
3. Increase market valuation.
The value of a commodity business is usually the book value of its tangible assets. The market value of an S&P 500 company is typically several times the book value. The difference is largely the IP value.
4. Create tradable assets.
There are markets for the resale of IP rights. Ross Perot has invested in a $200 million intellectual property fund based on patent assets. David Bowie raised $57 million by selling bonds backed by royalties from his recordings. These financial strategies allow IP owners to capitalize on IP assets.
Corporations, entrepreneurs, and business owners can benefit from the strategies by converting more of their business assets into valuable IP assets. Unfortunately, many ignore the simple and inexpensive steps to secure these rights, leaving others, such as Apple, Microsoft and IBM, to jump ahead. What are you doing to ensure the success of your business in the Internet age?