By Luxmore Chiwuta
The continuous global shift towards a knowledge-based and innovation-driven economy has brought to the fore the issue of how intellectual property rights (IPR) are created, disseminated, retained and used to obtain economic returns (OECD, 2006). Institutions are now focusing on innovation to nurture creative entrepreneurial intellect among its staff. It is from innovative activities of institutional staff that intellectual property assets are created, which can grow the intangible asset portfolio and revenue.
Assets in an organisation can be broadly divided into two categories, which are physical assets and intangible assets. Physical assets include buildings, machinery, financial assets and infrastructure while intangible assets “intellectual property (IP) assets” range from human capital and know-how to ideas, brands, designs and other intangible fruits of a company’s creative and innovative capacity (Business Assets, n.d). Physical assets were traditionally considered critical in determining a company’s competitive position in the marketplace. However, this has changed as a result of the information technologies and growth of the service economy where intangible assets are often becoming more valuable than physical assets. The increasing importance of intangible assets demands more ways of revenue generation to be identified. Intellectual capital is recognized as the most important asset in many of the world’s largest and most powerful companies. It is the foundation for the market dominance and continuing profitability of leading corporations.
According to the World Trademark Review, in 2019, Manchester United had the most valuable footballing brand “trademarks” in the world valued over $1.89 billion a feat which is attributed to a strong IP protection culture at the club. In 2018 the club had over 413 marks in their IP portfolio while 2019 they had 479 marks. These statistics demonstrate how valuable the IP portfolio is to an organisation. This article looks at some of the ways of increasing revenue generation riding on the institutional intellectual property assets
IP Portfolio Strengthening
For more revenue to be generated, portfolio strengthening must come from internal development, strategic patenting and product line acquisition. A strategic IP minded company focuses on ‘inventing’ around its core capabilities and looking to acquire necessary assets from others operating within their core competencies. The effective combination of these elements can establish a deep thicket around core IP-driven products. Strategic patenting “IP Fencing” to protect a core idea starts with building a patent portfolio around the core technology that covers not only what you do, but also the product, service or market alternatives that could allow a competitor to operate in a parallel technology plane or work directly in your plane by skirting around your patents (Business Assets, n.d.). It is often the follower and not the first to market that is most successful in revenue generation when this kind of effective patent thicket is not developed.
Invest in IP Capacity (Human and Tools)
The rewards from successful IP management can be enormous and the consequences of failure can be costly, even disastrous. When it comes to IP management, the institution must invest in the tools, people and processes to improve and maximise IP management, revenue generation activities and increase the IP value within the organisation. Capacity building in terms of people skills and tools is critical to successful revenue generation from IP assets. The following skills and tools are critical for any organisation that is serious about generating revenue from its IP assets, technology search (state of the art, prior art and freedom to operate), IP audit, IP assets valuation, IP licensing negotiations, software tools, databases, IP monitoring and IP enforcement. All these skills and tools have a bearing on your ability to generate revenue. The processes and systems have to be regularly updated reflecting evolving corporate needs and resources, new legislation, recent court decisions and other IP related environmental factors.
File IPRs in Emerging markets
Companies and inventors should file for IPRs at a rapid pace anticipating where their markets and products will be going. The institution should build a strong IP rights to protect products and emerging markets. Some of the major IP rights categories that a company can use include patents, utility models, industrial designs, trademarks, copyrights and geographical indications. There is usually no one size fit all when it comes to the forms of IP protection that a company can choose to file in any market. However, the major determining factors are legislative provisions, knowledge, filing and maintenance cost. If IPR are not protected in these emerging markets or in any market the institution will end up losing a lot of revenue from these markets. Africa is one huge, raw and untapped emerging IPR market that is waiting to be exploited by any willing entrepreneur.
Regular analysis of the potential value of various IPR in the portfolio can help improve the bottom line by elimination of unnecessary IPRs annual maintenance and renewal costs. A company with 20 000 patents can save about $40 million in annual maintenance fees by cutting out 10,000 patents that are not being commercially exploited. Disposing these 10 000 patents by selling or licensing them to possible users can generate revenue to the company. For example IBM is said to be generating revenue in the region of $2 billion a year from licensing its non-core patent which is a very high profit margin by any standard (R O’ Haver, n.d.). So organisations should be very careful not to maintain trademarks and patents portfolio which are not being exploited.
Aggressive Legal Prosecutions
An important aspect of IP protection is the ability to use aggressive legal prosecutions against businesses that infringe on your IP. Aggressive and frequent use of litigation can be a lucrative method of monetizing your IP, even if you are just starting your business. Litigation can turn your IP into very large source of profits if successful, though using this approach is not always profitable. The strategic goal is not to block competitors but rather to charge competitors a hefty access fee (Monetize IP Assets, n.d.) as enforcement of IP rights also promotes revenue generation for the institution. It is interesting to note that prosecution relating to IP matters are not used that much in most African markets as compared to American, European and Asian markets.
Direct use is core to the competitiveness of a company’s products or services. This entails individual exploitation of IP assets in one of the many ways to generate revenue and maintain competitiveness. In direct exploitation companies spend their valuable resources turning their intellectual property (IP) into products, valuing the results, and then marketing them to customers. The industry’s mantra when it comes to IPRs, “invent it, develop it, manufacture it, market it, and sell it”, has created some of most successful companies (pubs.acs.org, n.d). In direct exploitation the company has direct control over how the IP assets are exploited and protected or leased out for indirect exploitation.
Indirect use is the exploitation of IP Assets by third parties based on contractual agreements with the IP owner. One of the key factors affecting a company’s success or failure is the degree to which it effectively exploits intellectual capital and values risk. Management should know the value of their IPR and risks for the same reason that they need to know the value of their tangible assets (Business Assets, n.d.). IP assets revenue generation through indirect exploitation is usually through third parties using options that include licencing, selling, merchandising and /or franchising. This can be done for IP rights that include trademarks, patents, industrial designs, copyright, and know-how. Indirect exploitation requires low investment and offers low risks with potentially high returns. Its major drawback is the lack of control in the exploitation process by the IP owner. Forms of indirect use include licencing, franchising and merchandising.
Revenue can be generated by granting the right to use the IPRs to a third party under contractually agreed conditions. Licencing also enables you to access new markets and your business to enter into new product categories or in new geographical areas in a relatively risk-free and cost-effective way thus increase the business’ exposure and recognition. Various types of licenses are available which include unilateral licensing, cross-licensing and patent pools, all of which involve an agreement by the owner of a patent (licensor) to allow another party (licensee) to make, sell and use the patented invention on an exclusive or non-exclusive basis, without transferring ownership of the patent (STI Working Paper, 2006). The licensor receives financial rewards in exchange for the licence, typically in the form of royalty payments.
Another revenue generation stream worth exploring for any successful business venture is franchising. This revenue generation approach provides a specialized license where the franchisee is allowed by the franchisor in return for a fee to use a particular business model and is licensed a bundle of IP rights which may include trademarks, service marks, patents, trade secrets and copyrighted works among others. Alternatively it can be defined as granting of a licence by one person or business, (the franchisor) to another (the franchisee) which enables the franchisee to operate its business under the brand of the franchisor (McGuire, 2015). The franchisee has access to the franchisor’s brand reputation, reducing time and resources the business would otherwise spend in order to be successful. An important point on note is that franchising is mostly applicable or useful for revenue generation in institutions that have an established reputation for success. This is because IPR bundle that is granted by the franchising licensing is usually supported by training, technical support and mentoring provided by the franchising firm. IPRs are an essential part of all franchise agreements, hence, before commencing a franchising relationship, a prospective franchisor must ensure that all the relevant intellectual property associated with the business is adequately protected (Kariyawasam, 2018).
In franchising the company gets two streams of income which are the Franchise Fee, which is a one time, upfront payment to join the franchise and the royalty, which is an ongoing payment made in return for continued support over the length of the franchise relationship.
Character merchandising is defined as creating a merchantable product around a famous character, whether real or fictional (Sambhar, 2019). Character merchandising is a supplementary exploitation of existing intellectual property rights which broadens the reach of an institution’s IP and generate a separate profit domain. The profit generating capacity of character merchandising should never be underestimated as merchandises can be created from any form of IPR ranging literary work, artistic works, films characters, celebrity personality, places and institutional names among others (Mathew and Shashikant, 2019)). The merchandise can be a t-shirt, key holder, cap, cup, bottle, toy, poster etc. Merchandising can be done by either the owner of the IP or it can be done by another company which is licensed to use the IP. In the case of a company, it then gives the owners of the IP a share of the profits or royalties.
Valuation of IP
The valuation process and the choice of which approach to use to determine the value of an IP asset must be acceptable by person interested in using or acquiring your IP. The evaluation method must be objective and credible to other interested parties (OECD, 2006). The success of using strategies of monetising your IP identified in this article are heavily dependent on the ability of an institution to correctly predict and value its IP. The value of IP assets is never constant as it is affected by a lot of environmental factors. The factors include for example term of patent, that is patents at the begin of their 20 year life span tend to have more value but this is subject to sudden change in customer preferences, regulatory changes, new alternative technologies, counterfeits among a host of other factors. Hence valuation of IP should be done regularly and every time before committing to a business transaction. Companies should take steps to identify and monitor the IP assets owned and used, to assess risks, to overcome problems and to assess their commercial value, these actions are known as IP due diligence. IP due diligence is intended as an exercise to gather as much information as possible on the value and the risks of a company’s intangible assets, with a view to acquiring IP, raising capital and seeking financial assistance (EU IPR Desk, 2015).
It must be noted that most accounting systems in use world over don’t measure or record IP assets in their books of accounts. Investments “budgets” in IP assets generation “R&D” are actually treated as expenses not asset acquisitions. Hence it’s even not in the scheme of strategic planning to work out the long term anticipated exploitation of these investments “expenses”. This can be largely attributed to the fact that IP assets investments are risky and have high depreciation rates. Though empirical research suggests that capital markets already incorporate intellectual assets in companies’ valuation to some degree, this may not apply equally to all markets and to all segments, and especially to small listed companies (OECD, 2006).
All the ways of increasing revenue for an institution mentioned above can be adopted for use after an IP Audit has been conducted to evaluate the existing IP Assets. The evaluation of the IP assets will help identify the most suitable way to exploit them as there is no one size fit all approach when it comes to generating revenue from IP assets. All this is possible riding on a sound intellectual property policy for the institution. It’s high time all institutions in developing countries must have institutional intellectual property policies and implementation strategies (Rodrigues, 2018) as the ability to create economic value from intellectual assets is highly contingent on the management capabilities of individual firms and the implementation of appropriate business strategies (OECD, 2006).
Luxmore Chiwuta is an Intellectual Property, Information Technology and Research & Development Specialist in Zimbabwe. He is a PhD Candidate at the University of Cape Town. His current research focuses on IP Enforcement and Artificial Intelligence. He can be contacted on email email@example.com or Phone/WhatsApp +263773578278, +263715292810
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Valuation and Exploitation of Intellectual Property, STI Working Paper, 2006
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Meril Mathew and Shubhankar Shashikant , (2019) India: Character Merchandising And Copyright: An Analysis from https://www.mondaq.com/india/copyright/859794/character-merchandising-and-copyright-an-analysis
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