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Leveraging IP

Issued: October 31 2018

Overall, the trend of IP worldwide is positive across jurisdictions.

Companies increasingly recognize the need to leverage their IP in order to enhance value and competitiveness. “IP is important to maximize value to any company, whether it is a start-up, a well-established company operating in their key home country, or a multinational. Innovation is increasingly recognized as necessary for market competitiveness in a range of sectors. Some companies are looking to collaboration and open innovation to build and develop IP that can then be leveraged by participants,” says Kristin Stammer, a partner at Herbert Smith Freehills in Sydney. “Developing countries are also increasingly being explored for IP leveraging, particularly brands and using capital light structures of entering new markets.”

Nowadays, IP is not used only to protect proprietary rights, but also to gain a competitive advantage and drive new revenue streams, says Cyril Abrol, a partner at Remfry & Sagar in Gurgaon. “May it be a brand, logo, literary/ artistic work, design or invention, such intangible assets have substantial value and are undoubtedly essential in the formulation of business strategies. Apple is recently valued at US$182.8 billion as the most valuable brand followed by Google at US$132.1 billion, as reported by Forbes.”

Forbes reported its findings in May in its World’s Most Valuable Brands 2018 research.

Protection of IP gives business conglomerates a competitive advantage in that they can leverage IP to safely generate revenues by licensing, franchising, merchandising, entering into strategic alliances and providing products/services or simply assigning them to others. “Collaborated efforts and expertise is an avenue where cross border transactions and joint ventures assist in creating synergies and increased consumer demand. This may give rise to co-branding opportunities where two brand names are used together,” Abrol says. “Co-branding allows participants to leverage their respective brands. Each of the participants in the co-branding scheme relies on the other’s image, products, services or location to increase their own market penetration and share. Both brands can gain access to new markets.”

Businesses also commonly leverage their IP by using it as collateral for financing alternatives.

“Ranging from traditional loans to mezzanine debt, many creative forms of financing are now available,” he says. “IP is generally used as collateral in obtaining IP-backed loans, IP collateral enhancement, IP royalty securitisation, and IP sale and license-back transactions.”

In fact, if leveraged effectively, IP can be a key growth driver at every stage of an organization. “At inception, it assists in building brand recognition and securing investment. For a growing organization, diligent use of IP as a marketing tool has turned out to be extremely advantageous with a dual effect – in addition to entering new markets and establishing itself as a market leader, it helps in plugging competition,” he says. “Diversifying business by leveraging existing IP as building blocks is also a commonly-used tool to facilitate growth. IP is used by established organizations for limiting costs. IP data analysis assists in identifying performing assets over non-performing ones. Such information is vital in generating additional income by licensingout IP and divesting wasting assets.”

Hence, the creation and acquisition of IP should definitely be considered by businesses not as a cost centre (beyond the narrow use of the concept of exclusivity) but as an investment decision, Abrol says.

Indeed, industries are beginning to realize the value of IP. “It may be commercialized through licensing or used as collateral for loans. Rights owners may look towards insurance products which cater for possible enforcement situations,” says Siau Wen Lim, a director at Drew & Napier in Singapore. “IP valuation and due diligence is a burgeoning field that is becoming increasingly relevant in M&A, and in financial strategy.”

Rights owners and licensees will need to keep abreast of judicial developments to better negotiate and leverage IP, Lim says. “For instance, there have been important developments concerning fair, reasonable and non-discriminatory terms for standard essential patent licensing. In the first decision of its kind in the United Kingdom, the English High Court in Unwired Planet International v. Huawei Technologies recognized two methods for determining FRAND rates: either by deriving the rates from existing comparable licenses, or by calculating the SEP owner’s share of royalty across the total relevant patent portfolio essential to that standard (the top down approach). This decision is currently pending appeal. The English position may be contrasted against the US approach in TCL v. Ericsson and the Chinese approach in Huawei v. Samsung. English authorities are considered by the Singapore courts.”

In Vietnam, IP has an increasingly important role in the socioeconomic development and promotion of innovation. This can be seen through the constantly increasing numbers of applications shown in Tables 1 and Figure 1 on the previous page.

In the past few years, trademarks and designs have been subject to a higher level of growth than patents and utility models, says Nguyen Duc Xuan, managing partner at Ageless IP Attorneys and Consultants in Hanoi. “However, 2017 witnessed the strong growth of patents and utility models that increased by 46.2 percent compared to 2016. Though trademarks and designs are still growing, it isn’t large in term of scale.”

The change in proportions of IP objects filed for registration as shown aligns to the trend of Vietnam’s economic development in the process of global integration, Xuan says. “We are showing the world our great potential in e-commerce, B2B and B2C internet services, mobile applications, automation and technology in agriculture and many other sectors. In the context of the ongoing global Industrial Revolution 4.0, the government has developed policies to promote the application of science and technology in all sectors, especially agriculture which is our traditional economic sector.”

Instead of concentrating on brand naming (trademark) and packaging (design) for goods/products, businesses are increasingly focusing on process improvement, technology (invention) to improve their competitiveness, he adds.

Leveraging Strategies

People have different ways of doing things, and deciding how to leverage one’s IP is no exception.

According to Stammer, key types of leveraging strategies include:

Protecting IP – ensuring IP is identified early, ownership is correctly managed, confidentiality is preserved and IP is registered where appropriate. Building a solid and commercially-focussed portfolio of IP can attract investment, develop brand recognition with customers and increase market longevity;

• Licensing out of IP – to build on existing revenue streams (such as by capitalizing on existing and recognized brands) or to create revenue streams (finding opportunities to exploit new innovations); and

• Licensing in of IP – such as through joint ventures, alliance agreements or technology transfer agreements, in order to create co-branding opportunities, distribution or commercialization rights, or to conduct joint research, both with competitors and non-competitors, or within and across the supply chain.

Abrol adds some basic steps towards maximizing returns from intangible assets:

Understanding. The need for IP and advantage of protection.

Identifying. Observe what is happening in the industry. Know your competition and its strengths; look at your core competencies and identify white spaces. Also, diagnose the IP issues/challenges with regard to a particular line of business.

Articulate. Articulating the approach your business will take towards IP. Make a plan for creating and leveraging IP, factoring in core competency, investment limits, and time horizons. This is beneficial to channelize efforts towards the right direction.

Align. Align you the IP strategies of your business with business goals and policies. Do you want to lead the market today, or follow today and lead tomorrow?

Integrate. IP moves from only supporting business and its research and development activities, to finding ways that IP actually drives the direction of R&D and business strategy.

“All in all, a careful selection of members of the IP asset management team is vital and regular IP audit is a must,” Abrol says. “A company must create an ‘IP pathway’ aligned with its overall business objectives.”

In today’s market, there could be several manner and extent of strategizing options available to IP owners, says Raka Roy, head of trademark department at United Trademark & Patent Services in Dubai. “A need to reconsider its current associating commercial tie ups and partnerships is extremely important,” Roy says, noting that as part of this exercise, it is important to continually evaluate the following:

• Are our strategies the best to achieve the objectives?

• Reevaluate the source of the teaming agreements and associations.

• What could be the possible consequences, including politics, that would be affected if these agreements are reassessed?

• Even if there is a seeming imbalance in the financial and economic environment, will there be a restructuring considered? Or should one wait for the actual issues to arise?

As a matter of practice, it is important to also focus on repairing earlier broken networks and to analyze whether a different approach on those channels would yield better fallouts, adds Roy.

With an increasing amount of employee turnover and general business competitiveness, it is important that employees are aware of the company’s intellectual property and understand they are obligated to protect the IP, both while under employment and beyond it, she says. “From a licensing-out approach, there could be companies who haven’t explored their latent patent portfolios and technologies. There may be brands they haven’t explored in extending to levels which can earn them major benefits.”

She suggests the following patent leveraging options, which can be explored by companies with existing patent portfolios:

• Implementing and applying the patents in the company’s current core business.

• Licensing any of the existing nonexploited patents to a third company, one which is not competitive with the core business of the company in the same country, or to a competitor but in countries which aren’t of business interest to the company which owns the patent.

• Licensing to service providers in the aftermarket, such as those which do maintenance, sell spare parts, etc.

• A company with existing technology might have an option of licensingin patents and pairing them up with company’s technology portfolio to create more innovative ideas.

Other leveraging strategies including extending the company’s brand and further licensing the patents, creating strategically planned and executed agreements and joint ventures, and franchising the business model in order to receive considerable franchise fees.

These IP leveraging strategies are often the triggers for major capital formations, like venture investments and acquisitions, she says. “Further, where companies are continually evaluating M&A, it is always important to keep a regular review and analysis of your intangible assets and seek options of exploiting them under any and all given circumstances so that the revenues can be increased.”

Strategies Against Obstacles

While the above tactics are all feasible, there are often challenges to their implementation.

Companies often are not aware of the value of the IP they are creating and do not protect and leverage it appropriately, Stammer says. “Other companies want to share valuable IP too early with their alliance partners, before patent or other appropriate applications are filed. Some companies prepare to list on their stock exchange, and realize as part of the preparation of the lack of protection of their IP.”

To overcome those challenges, she adds that a company strategy around innovation and maximizing the value of intangible assets is important. The strategy should involve the following:

• Decisions on whether third parties, such as universities, research institutions or innovation companies, should be involved in the creation or development of IP and, if so, determining the best way of structuring this to ensure you are maximizing your strategy of leveraging your IP;

• Ensuring your IP is being identified and recognized so that you are ahead of the market, and ensuring innovations are turned into valuable IP giving your company a market edge; and

• Regular reviews of IP assets and commercialization strategies are important. For instance, determining whether existing alliances are best leveraging your IP and, if not, whether they can be easily re-evaluated, and whether there is IP that is not being used or licensed that could be.

International Waters

When it comes to open innovation, many may worry that their IP is threatened. Fear not, say our experts.

The fundamental premise of open innovation – an ecosystem where ideas and knowledge flow across organizations – appears to be in conflict with IP protection’s “exclusionary” rights, says Pankaj Soni, a partner at Remfry & Sagar. “With open innovation, if one can share freely, why would anyone want to protect?”

But, innovation is not a charitable activity, Soni says. “Innovation happens when resources are put to use which costs money. Therefore, innovation comes with a price tag, and making it free would counter its future growth potential.”

So, an ideal situation is a symbiotic one – you open what you can share and protect what needs to be protected, Sonj adds. “Also, you can leverage open innovation when differentiation lies not in the open technology, but in its implementation. The threat is more from reactionary processes or ideologies than from open innovation.”

Stanley Lai, partner and head of IP at Allen & Gledhill in Singapore reinforces the idea that IP will not be threatened by open innovation. “If properly managed, the concept of open innovation can enhance innovation and create IP. Different protocols have to be established to capture and harvest IP that is the direct result of open innovation, with safeguards against unauthorized disclosure or appropriation. If the fruits of successful IP creation are shared between stakeholders of an ‘open innovation’ model, this can lead to exponential growth and commercial potential. The success of any IP that is created from open innovation is also dependent on the management of intangible assets and strategies for effective downstream commercialization. In these areas, businesses may need to adapt their practices under closed innovation programmes, which traditionally operate away from collective and collaborative acts of innovation and creation.”

The Outliers

As hinted at the very beginning, IP rights holders in many jurisdictions are leveraging their IP heavily, but there are some jurisdictions where they are not.

Take Thailand for example, where both private and public sectors have not really leveraged IP at any level. “Perhaps, only top organizations of both sectors have used IP at some aspects,” says Panisa Suwanmatajarn, managing partner at The Legal Co in Bangkok. “For the private sector, trademarks are mostly recognized but other IP like patents and trade secrets are almost disregarded. For the public sector, research institutions are being pushed to claim patent protections, but most inventions have not been even attempted to be put in use.”


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