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Technological-based intangible assets

Technology-based assets

These days, organizations are concentrating on developing their business on


technology-based products or services. This implies that the management of the technology-
based assets is a very important premise for the success of their business. Their value is,
however, reflected in the future rather that at present because they are intangible. Their
management using traditional concepts and methods is difficult to be done because of this
reason. So, in order to deal with the management of technology-based assets, a strategic
management is required for the process of technological innovation, taking special care of the
management of the intellectual capital (IC) and the intellectual property (IP).
Technology-based assets are determined by the research, the development and the
innovative work of the company. The elements they include are: software, technical drawings,
procedural manuals or even secret formulas. Intangible assets have as a characteristic the fact
that they cannot be depleted, which is an advantage over tangible ones. However, knowledge
(like technology), can become obsolete, so they have to be well managed and continually
upgraded in order to retain value.

Trade secrets

Trade secrets include technical and commercial information that a business uses
internally, but which is maintained by the business as a confidential proprietary right. The
National Conference of Commissioners on Uniform State Laws, Uniform Trade Secrets Act
defines a trade secret as: “any information that can be a formula, pattern, compilation,
program device, method, technique, or process that (i) derives independent economic value,
actual or potential, from not being generally known to, and not readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or use, and (ii) is
the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Conditions for information to be a trade secret:

- the extent to which the information in known outside of the business


- the extent to which it is known by those involved in the business
- the extent of measures taken to guard the secrecy
- the value of the information to the business itself or to its competitors
- the amount of effort or money involved in developing the information
- the ease or difficulty of the information to be acquired or duplicated by others

Trade secret protection does not result in the grant of legal title to the creator of an
original work. Instead, trade secret laws protect creators of trade secrets from the
unauthorized disclosure or use of confidential information. The best example for a trade secret
in the formula for Coca Cola that managed to stay this way for over 100 years. Hybrid plant
varieties kept secret could also be a protected trade secret. Trade secrets may also include
inventions not yet at the patenting stage and customer lists.

Patents

The patents are intellectual property rights that create a link between innovation,
inventions and marketplace. It means a protection for the invention, but at the same time it
makes it public. It assesses the innovative and inventive performance of a country and it
shows the capacity to exploit knowledge and translate it into potential economic gains.

Today's economy is becoming increasingly knowledge-based and intellectual property


in the form of patents plays a vital role in this growth.

Between 1992 and 2002, the number of patent applications filed in Europe, Japan and
the United States grew by more than 40 percent. The number of patents filed with the
European Patent Office reflects that trend, going from approximately 100,000 applications in
1997 to nearly 193,000 in 2005. This is due, in part, to individual inventors, SMEs, large
companies and research institutions realising the importance and economic impact of
patenting their innovations.

The patents are used to spread the technological information. Patent law confers on
patentee right to exclude all others from manufacturing, using, or selling his invention; extent
of that right is limited by definition of his invention, as its boundaries are marked by
specification and claims of patent. The monopoly expires with the term of patent and others
may make and sell the thing patented, subject only to the rule against unfair trade.
Databases

Generally speaking, computer software and electronic databases are considered


intangible assets, though they may exist on tangible media such as diskettes, magnetic tape, or
hard-copy program listings. In most cases, the intrinsec value of these assets is attributable to
the programs or data, not to the physical medium on which they are stored or copied.

Electronic databases are organised collections of related data stored in an electronic


format (e.g., computer disks). These databases are accessed, maintained, and manipulated
using computer software. Most electronic databases are created as a normal part of the
operations and recordkeeping of a business. They include customer information, inventory
records, open order files etc.

However, there are many specialized proprietary databases that have broad
commercialization potential. Examples of this type of database are mailing lists, credit
information, financial studies or compilations, and scientific data. These databases are
sometimes bought and sold in their entirety, including the associated proprietary rights. More
often, the database in used to generate income either directly, through the sale or licence of
the data to customers, or indirectly, through the internal use of the data to perform a service
for customers.
The New Economy was marked by a development of computer, telecomunications and
internet companies (AOL, Amazon, eBay, and a raft of „dot-com” firms). Most Old Economy
companies have adopted to this trend though, and applied the new internet-driven
technologies. The Internet plays a big part in this tendency as business are ran using it because
it lowers dramatically the cost of communication. The vast stores of information in databases
is behind all these, having a great importance.

Software

The main meaning of „software” is reffering to the computer instructions, programs


or data, but a more broad meaning is anything that could be stored electronically on the
computer. It exists in two forms: as systems software and applications software.
Under most circumstances, computer software is classifiecd as an intangible asset
because of its non physical nature. However, sometimes it can be clasified as Property Plant
and Equipment (PPE). There are two rules in this case. Firstly, it would be classified as PPE
in case it is used in a major part of the company’s operations that is intended to obtain profit.
But if the software provides means for a warehouse to efficiently perform inventory
management duties it would be an intangible. Secondly if a single copy of a software costs
more than $100,000 it is included in PPE. Intangible assets may be contained in or on a
physical substance (e.g. a compact disc for software).
Software is a relatively low-investment, environmentally friendly, high-growth global
industry – a good target growth industry for many countries. But it has also become the most
critical and expensive element of the government and business systems that every nation must
build for itself. Not only is software a critical part of modern industrial infrastructure and an
important industry in its own right, but it is also the vehicle for implementing the other key
elements of a knowledge economy: responsive and transparent government; a supportive
business environment with low transaction costs; enhanced learning environments; and
effective social programs.

References

• http://www.uncitral.org/pdf/english/colloquia/2secint/Seiler.pdf - retrieved 28 Dec. 2010


• http://www.patents4technologies.com/ - retrieved 29 Dec. 2010
• http://basicip.wordpress.com/2010/08/15/what-is-an-intellectual-property-strategy/ -
retrieved 29 Dec. 2010
• http://astahost.com/info.php/Databases_t16557.html - retrieved 28 Dec. 2010
• http://www.toptechreviews.net/computer-technology/databases-the-digital-economy-e-
business-e-commerce/ - retrieved 28 Dec. 2010
• http://www.patents4technologies.com/PatentLaw.htm#1 – retrieved 29 Dec. 2010
• http://www.investopedia.com/ask/answers/09/computer-software-intangible-asset.asp -
retrieved 28 Dec. 2010
• http://www.aldo.com/Publications/Papers/National_SWI_Development_050303.pdf -
retrieved 29 Dec. 2010
• Reilly,Robert – Valuing Intangible Assets(1999), Irwin Library of Investment and Finance