Intellectual Property. Why It Matters.
Do Not Forget About Your Intellectual Property
The future of your business rests on the decisions you make today. If a transaction can be forecasted in the near or distant future, then deciding to become familiar with your business’s intellectual property will better prepare you for when you eventually reach the negotiation table. In reality, business owners may focus their efforts on other forms of value for their business and neglect to understand the price of their own intellectual property. Michael Friedman of Hilco IP Merchant Banking passionately states that, “There is an enormous gulf between what IP professionals understand about value and what financiers and corporations, on the other hand, understand about value.” Consider these next questions as catalysts in narrowing this gap of understanding for your business.
What Do You Have?
This is a simple question at its core, but the answer may render more complexity with details. It is asking what are the elements that make your business worth what it is? What do you consider important assets to your business? Challenge yourself to look past the tangible assets of your company when thinking about valuation. What else does your company offer to a prospective buyer? Intangible assets can range anywhere from copyrights and trademarks to even your mailing list, backlog, and reputation. While these do not carry physical weight, they significantly affect business value because they concern ownership and represent aspects of the business identity that can possibly be monetized in the future.
What Are You Currently Valuing?
Patents are ways of both protecting your IP while also creating a potential revenue stream through that protection. One way to think about patents is in light of an example provided by John Veschi at the 2017 Transaction Advisors M&A Spring Conference. If you had a property that was located in an area where individuals could use it as a means to get to the other side of the road more efficiently, then you could charge them for using your property in this way. However, while your cash flow may be increasing because of this exchange, the property or asset itself weakens with every use of it beyond just your own. Hence, there are perspectives that need to be considered about how your intellectual property is being valued because this focus will affect the outcome of a transaction. He reiterates, “The patents that have the highest cash flow are probably the least valuable patents.”
What is the Patent’s Purpose?
Your business can have thousands of patents, but as Adam Gill of IP Principal states, “The quality of IP boils down to its validity and usefulness.” Assets cannot be deemed intellectual property merely by title. They are valuable to a business when they exist with purpose. When such purposeful assets grow, strategic action is needed to maintain an organized reputation for the duration of your business, at the transaction table, and for legal security in your business’ favor. Joe Hadzima of MIT’s Sloan School of Management states, “Many companies view a patent portfolio as essential…They believe that having a portfolio of patents allows them to settle infringement claims against them by ‘cross licensing’ patents with the other side.” The patent offers protection that may be able to translate positively in a transaction. Yet, because they are not a cheap resource to obtain, it is important that your business’ IP shows worth by carrying an unmistakably significant influence in its individual market.
Intellectual property offers value to your business that when accurately protected, can be monetized in a successful transaction. As the business world moves towards valuing intangible assets more and more because of the increasing digital landscape, now is the time to do the same for your own business.