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Protecting the Intellectual Assets of an Organization Wassim Boustani Business Continuity Planning and Disaster Recovery (SMT-274604; Fall 2006) SUNY Empire State College Professor V. Friedman 22 December 2006
Boustani 2 Protecting the Intellectual Assets of an Organization Abstract The purpose of this paper is to discuss the processes for identifying, measuring, managing and protecting intellectual assets to sustain their value to the organization and its stakeholders. It is intended for senior management whose organization depends on essential intellectual assets. Introduction Intellectual assets are intangibles that stem from innovation; an organization’s future earning potential depends on exploiting these assets. These include patents, trademarks, brands, corporate identity and logos, proprietary designs, ideas, know-how, copyrights, trade secrets, and organizational reputation. This paper will describe how to identify the organization’s intangible intellectual assets, how to strategically prioritize them, and how to safeguard them. A business must protect intellectual assets to achieve their maximum commercial value. Exposition Defining Intellectual Assets An audit can be conducted to identify the intellectual assets owned by the company in order to obtain the best protection for them. The process usually involves a questionnaire or forms that are completed by employees, who mostly include those that create or manage intellectual property. Audit forms can include specific instructions for sales and marketing; human resources; contracts and administrative; graphics, production, and information services; research, engineering, and development; and general instructions for all other departments. Legal counsel can then review the results
Boustani 3 to further assess the protection requirements. Most companies will appoint an audit officer that oversees the project, maintains an updated list of intellectual property, and performs regular audits as needed. Audits are especially important when selling a company, since the buyer will want to know what intellectual property s/he is receiving, and outstanding infringements. Intellectual asset portfolios can also be used as collateral to secure bank loans, can be given to other organizations as tax deductible donations, and are often required by shareholders (Bouchoux, 2001). Businesses use trademarks to identify products and services, as well as provide quality and consistency assurances to consumers. Trademarks can include any word, name, symbol, or device used to distinguish one’s product from others, while indicating the source. A trademark can protect words, numbers and letters, designs, fragrances, sounds, shapes, color, moving images, and trade dress. Exclusions from trademark protection include immoral or scandalous matter, deceptive matter, disparaging matter, government insignia, names, portraits and signatures, merely descriptive marks, geographic terms, surnames, functional marks, confusingly similar marks, and statutorily protected marks. The careful selection of a trademark is important and usually includes participants from sales, marketing, and the legal department (Bouchoux, 2001). In the United States, the right to a trademark arises from the use of the mark. The use of a mark in interstate commerce is required before registering it with the Patent and Trademark Office (PTO), although state registration is acceptable for intrastate commerce. The benefits of federal registration include priority for use of the mark, the right to legal action for infringement, the right to use the trademark registration symbol (®), and the right to stop imports of infringing goods to the United States. Those with a
Boustani 4 historical use of a trademark will have priority of its use in their geographic region, regardless of a new trademark registration by someone that has never used the trademark, which is why a history of usage is highly recommended. Trademarks can last forever if properly protected and maintained (Bouchoux, 2001). Businesses use copyrights to protect intellectual property and original works. A copyright can protect literary works, including computer programs and online works; musical works; dramatic works; pantomimes and choreographic works; pictorial, graphic, and sculptural works; motion pictures and audio-visual work; sound recordings; and architectural works. Exclusions from copyright protection include ideas, methods, or systems; useful articles; titles, names, short phrases, slogans, familiar symbols or designs, and mere lists of ingredients; common property; U.S. government works; public domain works; and facts. Copyright owners, and authorized persons, have the exclusive right to reproduce works; prepare derivative works based on the work; distribute copies of the work by sale, rental, lease, or lending; to perform the work publicly; to display the work publicly; and to perform sound recordings publicly by means of a digital audio transmission. Copyrights currently last the author’s life, plus seventy years (Bouchoux, 2001). Businesses file for patents with the federal government to give them the right to exclude others from making, selling, or using their inventions. However, this does not give them the exclusive right to make, use, or sell an invention. Patents can protect inventions for useful items, inventions for designs, and new varieties of asexually produced plants. Patents usually need to be filed within one year of an invention’s use in public, or rights to the patent can be lost. Patents for business methods that produce
Boustani 5 useful, tangible, and concrete results have been allowed since 1998. Exclusions from patent protection include inventions relating to nuclear material or atomic energy for atomic weapons; laws of nature, such as gravity or math formulae; products of nature that occur naturally; printed matter; and abstract ideas or suggestions. Depending on the type, patents last between fourteen and twenty years, before being released for public use (Bouchoux, 2001). Business trade secrets are information that are valuable to a company, and that could give competitors an advantage in the market if they are released to them. Examples of trade secrets include customer lists, product sales data, financial forecasts, chemical formulas and compounds, and methods used to conduct business. Trade secrets do not require registration or government intervention, although espionage laws and state statutes have been enacted to protect them. Unlike patents, trade secrets are not released for public use once their protection expires. It is the company’s responsibility to properly protect them, which if done well, could protect them forever. Factors that are considered to qualify for protection include the extent to which the information is known outside the business or within the company; the extent of measures taken to protect the secrecy of the information; the value of the information to the company and its competitors; the effort expended in developing the information; and the ease with which other companies could develop the information (Bouchoux, 2001).
Boustani 6 Managing Intellectual Assets There are principles that are recommended for the proper management of IP and other knowledge assets. Managers must understand the significance of computer networking, which has dramatically affected the creation, distribution, and use of knowledge. Diverse forms of knowledge must be recognized, such as know-how and information that may not be protected by IP law, but that holds significant value to the company (Matsuura, 2003). All available asset management tools should be applied, including the application of legal rights, digital rights management technology, and economic incentives for developers and users of the property. In today’s networked environment, the value of IP is more short-lived and may not be sustainable for an extended period of time. Different assets will have different values, and they should be used accordingly; rigorously protecting the most valuable assets and extending the value of less valuable ones (Matsuura, 2003). A company can accommodate open access, such as open source development; and broad collaboration, such as peer-to-peer sharing, for the development and use of IP. The expansion of digital networks allows a company to experiment with different distribution models, or risk becoming irrelevant in a differently structured market. Furthermore, access to digital content empowers asset users by providing them greater access to, and control over, digital content. A company can further enhance the value of its assets by understanding the globalization of knowledge assets, which are becoming more recognized worldwide for their economic value, increasing competition for their creation and use (Matsuura, 2003).
Boustani 7 Approximately 50 to 70 percent of a country’s gross domestic product can be attributed to intellectual property. However, over US $1 trillion dollars is wasted by the misuse of intellectual assets in the United States alone. Most companies do not use intellectual property as a strategic tool, losing any market advantage they may have gained. Intellectual property is spread across a company and can be present in many unseen parts of it, making them easy to use or abuse. This is why it is important that these assets be held centrally so that the company can decide how to use them to create value (Jolly, 2004). A properly managed collection of intellectual property increases the potential of licensing and other profitable uses. Some IP may not be useful at the time of invention, but may develop a use later on; a management system would then be crucial to identifying IP and its potential uses. The collection of protected IP can be made available to online databases that are known references for locating IP. Companies will use these resources to avoid infringements, or to search for technologies that are already existent in an effort to reduce R&D spending, creating potential revenue streams for the source company in the process. Over 45 million patents from around the world can now be accessed through online databases; however, billions of dollars are wasted yearly on R&D for technologies already available on these databases. Companies have been known to find patents in databases that are decades old in an effort to solve a problem, only to discover that the original patent was filed by the same company! Searching a public intellectual asset database could be very beneficial to a company. Patents, for instance, are only approved half the time; while most are not renewed annually, as required, before their 20 year
Boustani 8 maximum lifetime. Therefore, many patents that are listed are most likely free to copy; if they were not granted, if they were not renewed, or are in a territory outside of their planned use, import, or sale (Jolly, 2004). Safeguarding Intellectual Assets The protection that intellectual property receives is related to its uniqueness and originality compared to other products; the more distinctive it is, the more protection it is likely to receive. Measures can be taken to protect products that are already on the market, such as clear and updated markings to identify the protective rights that a product holds; and prompt action against infringements to secure enforcement rights, further discouraging infringements by others who may perceive a lack of protection by the organization. Responses to infringers vary from negotiations for royalties, to warnings of potential legal actions against them (Jolly, 2004). The adage “if you can’t measure it, you can’t manage it” has a precursor that is often ignored. This is, “if you can’t see it, you can’t measure it.” An enterprise increases its value when management has a complete understanding of all value drivers, and can communicate relevant data to stakeholders. A theory of management should be developed in relation to IP resources and activities to create value. IP reporting and performance disclosure should become part of the enterprise, and not simply an option in enhanced reporting. IP identification, quantification, management and reporting must be achieved (Marr, 2005). Companies must protect against retribution from within, especially in the new global economy. The notion of stealing trade secrets in some parts of the world, are considered a way of doing business. The outsourcing of the workforce by many
Boustani 9 American companies may also cause the exporting of IP to foreign individuals that may have a greater incentive to sell them to competitors. This is especially true with foreign employees in developing countries who are suddenly without work, and who must find other ways of supporting their families (Fink, 2001). Discovering that a company in another country is using trade secrets may be more difficult, making it harder to bring legal action against it. Foreign companies may be more willing to reach out and entice American employees to divulge trade secrets, as they try to find ways to keep pace with the United States. Many foreign companies, having negative feelings towards the U.S., may have little reason to support any economic espionage laws. Office locations outside of the U.S. may be more vulnerable targets; protection and recovery procedures for all these locations must be considered (Fink, 2001). A company must do what it can to make an espionage crime more difficult to commit. Its compliance standards and procedures should reduce the prospect of criminal conduct, and should be overseen by someone at a high level. These standards and procedures must be communicated to employees and outsiders, must be enforced, and there must be an immediate response to offenses. Trade secrets must be monitored constantly, and audits must be updated continuously, to identify what can or cannot be claimed as protected trade secrets (Fink, 2001). A survey of large companies found that those likely to be trade secret thieves included current employees (30%); former employees (28%); vendors, contractors, or consultants (22%); domestic and foreign competitors, or foreign governments (20%). The trade secrets that are most targeted included customer lists, pricing data, R&D data,
Boustani 10 sales data, manufacturing data, strategic plans, and cost data. The industries that are targeted the most included pharmaceutical, chemical, food, computer software, aerospace, and automobile. The high-profile targets were generally those that worked with formulas, patterns, programs, devices, methods, techniques, and proprietary processes (Fink, 2001). Companies are not alone in the fight against IP theft. An organization’s security director and executives can receive assistance from ANSIR – the FBI’s Awareness of National Security Issues and Response Program. The program provides unclassified national security threat and warning information to U.S. companies, law enforcement, and other government agencies (Fink, 2001). It is sometimes in a company’s best interest to license a technology to other companies, rather than develop the products related to the technology. For instance, IBM generates US $1.5 billion a year in royalties from IP that it chose to license rather than market itself. However, most companies are too protective of their inventions to see the value in licensing (Jolly, 2004). In addition to protecting one’s own intellectual property, it is as important to not infringe on the intellectual property of others. To do so can be costly in both time and money; and can affect the company’s qualifications when obtaining capital. Tips to protect against infringements include owning the work product produced by employees and contractors; reviewing marketing materials to verify originality; maintaining a list of nondisclosure agreements with other companies; educating employees through policies about the use of confidential information; only allowing authorized and licensed
Boustani 11 software; not hiring new employees that have infringing agreements with other companies; and obtaining insurance coverage for infringement claims (Bouchoux, 2001). Businesses use asset management systems to handle physical assets, whereas intellectual property management tools are for intangible intellectual materials. These IP assets are associated with legal, financial and regulatory issues; which may require monitoring, as well as licensing and royalty tracking that can be provided by the management system. These systems can help organize, manage, and distribute content; while helping them extend branding, promotion and co-marketing by automating the sharing, licensing and distribution of digital assets and promotional materials (Janes & Napper, 2004). IP management software aims to increase efficiency, but this is difficult to measure ROI on. System pricing depends on its capabilities, the number of users, and other factors. Systems from PLX start at about $20,000 per year; whereas Halo Solutions’ IPDOX is available on an ASP model at $1,500 per year for up to 99 users. These systems provide cost savings by removing the need for outside storage, and improve security by centralizing storage onto a secure server, all while offering market specific customization (Janes & Napper, 2004). A company wide embrace of the technology comes from cooperation between the IT department and legal counsel. While IT has to explain the technology to lawyers, they in turn have to tell IT what the benefits are. The greatest challenge however is getting the property into the system, which will initially require a large amount of manual labor; as well as keeping it organized. Employees must be trained in the software’s use and be convinced of the solution’s benefits (Janes & Napper, 2004).
Boustani 12 Properly managed intellectual assets can yield the benefits of revenue generation and protections for products and technologies. For instance, IBM manages more than 37,000 patents in its portfolio, which generated approximately $10 billion in revenue in the last decade. With an IAM system, a company can keep track of patent-renewal deadlines and manage the development process, among other benefits. IP information can be captured, classified, standardized, and mined; this in turn confirms what the company owns while revealing gaps caused by assumptions, letting the organization manage its intellectual output proactively (Edwards, 2003). Other IAM commercial solution providers include SAP, Anaqua, Computer Packages Inc., Deris, and Master Data Center. According to 2004 Gartner research, companies that adopt an IAM could increase their IP related revenue by at least 50%. Not having an IAM system can hinder a company’s ability to capitalize on opportunities from IP, allowing important information and tax advantages to go unrecognized. Moreover, money could be wasted on excessive licensing fees, and the exposure to lawsuits can increase from improper usage (Edwards, 2003). The CIO must be aware of support programs and combine them to improve processes that support the IAM system. The IAM team must define needs, select systems, and integrate and maintain software programs that support the initiative. Different departments within an organization must work together to identify technology gaps, royalties, and other processes to ensure that an IAM system enjoys a good ROI. Research firm IDC forecasts that 40% of revenues will come from IP by 2010. Increasing the importance of IAM is the fact that losses from piracy to U.S. industries alone are $200 billion to $250 billion per year (Edwards, 2003).
Boustani 13 Conclusion This paper has presented a solid case as to the importance of intellectual property, its management, and its protection. An organization in today’s networked global economy must make use of its intellectual assets in order to compete and survive, but not without first protecting these assets. An intellectual asset management system becomes a crucial aid in organizing the company’s intellectual property portfolio, and empowering its employees in their use.
Boustani 14 References: Bouchoux, D. E. (2001). Protecting Your Company's Intellectual Property. Saranac Lake, NY, USA: AMACOM. Edwards, J. (2003). Creative Management: Intellectual property asset management tools help businesses get a handle on mind-based products. Retrieved October 25, 2006 from http://www.cio.com/archive/060103/et_article.html Fink, S. (2001). Sticky Fingers: Managing the Global Risk of Economic Espionage. Chicago: Dearborn Trade. Janes, J. & Napper, B. (2004). Safeguarding Intellectual Assets: With the right systems, CIOs can protect the hidden resources of their companies' intellectual property. Retrieved October 25, 2006 from http://www.optimizemag.com/article/showArticle.jhtml?articleId=17701041 Jolly, A. (2004). A Handbook of Intellectual Property Management. London: Kogan Page Limited. Marr, B. (2005). Management Consulting Practice in Intellectual Capital. United Kingdom: Emerald Group Publishing Limited. Matsuura, J. (2003). Managing Intellectual Assets in the Digital Age. Norwood, MA, USA: Artech House Inc. Wallace, M., & Webber, L. (2004). The Disaster Recovery Handbook. New York: AMACOM.
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