The Value of Intellectual Property

Intellectual property has almost limitless value.  Microsoft Corporation has a stranglehold on computer operating systems due to its intellectual property.  If the Windows™ operating system could be freely copied, Microsoft would be devastated.  If the Coca-Cola Company did not obtain and enforce its many trademarks, we might all be drinking Pepsi™.  Intellectual property protection promotes growth by limiting competition.

Initially, the value of intellectual property may be roughly estimated based on how big the marketplace is and how much competition is limited.  If the marketplace is $1,000,000 per year and competition is totally excluded by a broad patent, the patent’s value could approach the entire profit on the $1,000,000 per year.  Even without patent protection, strong trademark and trade dress protection may entrench a company as market leader and therefore are also valuable.  McDonald’s Corporation is a market leader maintained mainly by trademark and trade dress protection on McDonald’s™ and its golden arches design.  While it has about twelve patents, none of them can stop other companies from competing in the fast food market.  Yet, McDonald’s Corporation remains the leader with about $15 billion in annual revenues and about a fifteen percent U.S. market share.  (“Street Wise”, Business Week Online, October 15, 2002) Burger King is in second place with about half of McDonalds’ sales.   McDonald’s trademark rights could be valued at the profit on $7.5 billion.

Good protection provides an important barrier to competition.  Over time, that barrier can be eroded without enforcement.  Even limited or tenuous protection can be valuable with strong enforcement.  A good example of a company trying to make the most of its intellectual property protection is Razor USA, maker of the Razor™ scooters.  There are many competitors of Razor USA, which sued a number of them to protect its rights.  Razor USA asserted a patent on its braking system, and trade dress rights which cover the way the scooter looks (chrome/silver color with black handles and a black oval sticker on the footrest, along with colored but translucent wheels).  It also has rights in the name Razor™.  These rights do not totally exclude competition, because one can make a scooter which looks different, has a different trademark and uses different brakes.  Nevertheless, these asserted patent and trade dress rights collectively have helped Razor USA maintain the market lead.  The acquisition costs for its rights and enforcement costs of its lawsuit probably were well below the value of the excluded competition.

Think of patents, trademarks and copyrights as you would think of your home and yard.  If the boundaries are not clear, e.g., if there were no fence or shrubs (preferably with big thorns) around your yard, your neighbors might start planting or building structures partly on your property.  Moreover, you do not want to build or plant on your neighbor’s property.  Establishing an intellectual property protection program can help you make the boundaries clear.

There are a few basic steps business owners can follow.  Whenever you are selecting a name for a product, service, or company, at a minimum it would be beneficial to search for trademarks of others using the U.S. Trademark Office web site (www.uspto.gov/main/trademarks.htm) and using your internet search engines (e.g., www.yahoo.com).  If you find a mark that sounds or looks close to your mark, modify your mark so that it is much different from what you find.  File a federal trademark application, or at least consider a state trademark application, depending on whether you engage in “interstate commerce.”  Consider what confidential information your company has (e.g., customer lists, formulas) and implement procedures to protect that information.  Whenever you or an employee has an idea, whether it is software, internet, product or service related, and whether it is new or even just a modification, consider whether that has sufficient value to want to put a “fence” around it.  For larger companies, have a policy requiring employees to bring all new ideas to managers or supervisors or directly to a designated person, and all managers or supervisors to bring the employees and their own new ideas to the designated person.

To get and keep a head start over competition, identifying, obtaining and enforcing intellectual property rights can be critical.  Without such rights, it is hard to keep competitors off of your property.

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One comment on “The Value of Intellectual Property

  1. sasaka says:

    Reblogged this on thesikri.

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