The importance of protecting intellectual property when running a business

- June 9, 2016 4 MIN READ

Intellectual property (IP) can be a small business’ most undervalued and ignored asset.

But the creative ideas and innovative designs of a business, although often intangible, are typically worth more than its physical assets. It is important that small business owners recognise, utilise and protect them in order to acquire concrete value for your enterprise.

A conference held today at the University of Technology, Sydney (UTS) in partnership with the Australian-Israel Chamber of Commerce looks at how IP can significantly affect how you start and run a business and expand its potential. Areas to consider include an IP audit, franchising, branding, doing business overseas and financial matters. IP rights are an incentive to encourage and reward innovation.

Keynote speaker Tim Heberden is the author of the Global Guidance Note on Valuing IP published by the Royal Institute of Chartered Surveyors.

Heberden says there is an increasing awareness of the importance of capturing the value of IP assets including patents, trademarks, copyrights and registered designs should be valued very highly.

“Quite a lot of small businesses, if you are to assess their value and then have a look at what assets they have, you find that only a small proportion of those assets are, let’s say, the traditional tangible assets – you know, plant and equipment and computers and things like that, so a lot of the value of these companies, and the suppliers to big corporates as well as SMEs, a lot of the value is contributed by intangible assets, so you know it might be a brand, technology and human capital, for instance, together with content if they’re creative companies.”

If you don’t ensure that your IP is legally protect, it may be used by others without your permission. Most small businesses do not give enough attention to IP as they are focused on the day-to-day tasks of running their business.

Others fail to recognise what IP they have, its value, and the way to effectively protect it. Giving strategic thought to harnessing the potential of your IP should link to the goals of your business, possibly generate additional revenue and can be thought of in terms of being a competitive business tool.

“Now the really important thing is to make sure that the companies are reliant on these assets, and the reason that they accrue value is that they differentiate the products or the services of the company from its competitors. But obviously if you don’t protect that differentiation, someone is going to copy it or is going to trade off your reputation. So really that’s the nub of the whole thing is to make sure that you do get the protection to control what you’ve created and to maintain the cash flows and the value of the business.”

IP ultimately is a cornerstone of your business if you are reliant on technology, brands and content to generate your earnings and it kind only makes sense to protect those assets. So yes, it sometimes is regarded as a nuisance value and it can be a fairly technical area, but any time and effort spent on it is usually hugely rewarded.

“It’s not to say in all instances it’s necessary or appropriate to apply for patents, but you really need to think about what’s driving your value and how can you protect it and is it a good investment to protect it,” explains Heberden.

Intangible assets aren’t always or generally don’t appear on balance sheets. Companies often aren’t really aware of what they’ve got and how important it is and if that’s the case, it’s unlikely that your strategy for maximising these assets is going to be good. A study of the ASX100 shows that only 45 percent of the total enterprise value of those top 100 companies is explained by the tangible assets on their balance sheet. So that’s saying for those big companies, over half of the value is coming through from, is generated by intangible assets.

Every business owner is devoting huge amounts of time, often big chunks of funding to that business, says Heberden, and it really makes sense to think about what you’ve created in terms of what are the assets that are propping up that, the value of the business. Then developing the strategies, so you can really get the most out of them.

“You know you might have a strong brand and there might be other ways of generating value than what you’re doing at the moment that might be, for instance, licensing options for brands or technologies. So it’s not just about protecting what you’ve already created, but also looking at whether you can make any of your intellectual property work harder and generate new earning streams.”

“So it’s really just that, trying to get better visibility of the assets within your business, step number one, and step number two, how can you best protect that value. Step number three, how can you make each of those assets more valuable, and whilst I’m at it I’ll jump on to step number four, and that is if you are fundraising or licensing or anything, how can you communicate the quality of those intangible assets to the whoever’s sitting at the other side of the table,” said Heberden.

A lot of small companies are perhaps overwhelmed by all of the complexity and they also are apprehensive of potential costs associated with registering IP in all the different jurisdictions. It is best to consider talking to an IP lawyer or patent attorney, and an initial consultation is often of no cost.

“Having that discussion can start providing you with an understanding of what the options are and whether you should be thinking about different types of rights and whether you’ve got anything that can be protected and so on. Obviously if you go further down the track and you do want to develop a strategy or want to register patents or trademarks or designs or anything, you know then you’ll start incurring costs. But I think the backdrop is, have that discussion first and see what options are available to you.”

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