13 January, 2017
“Over the last 10 years, it has become imperative for CEOs to have not just a general understanding of the intellectual property issues facing their business and their industry, but to have quite a refined expertise relating to those issues… It is no longer simply the legal department’s problem. CEOs must now be able to formulate strategies that capitalize on and maximize the value of their company’s intellectual property assets to drive growth, innovation and cooperative relationships with other companies” by Microsoft Chairman, Bill Gates in 2004.
Today, the competitive landscape is experiencing a major change. Global level companies are increasingly aggressive in their approach. The emphasis has moved steadily from tangible or physical assets to intangible assets. Approximately 80% of the market capitalization of Fortune 100 companies is represented by intangible assets,i.e.,Intellectual Property Rights (IPR). IPR plays an important role in the world economy and has grown to acquire a position on the agenda of senior executives of a wide variety of companies and in almost every sector of industry. Majority of the companies have fathomed the importance of IP as a vital tool and its impact on a company’s performance. In brief, intellectual property is becoming increasingly important.
A strong IP strategy has the potential to employ these assets in the best possible way to achieve the larger objectives of companies. To develop and implement an effective IP strategy an understanding of the impact of economic, technological and social change on intellectual property has become necessary.An IP strategy is oriented towards long term product development and launch goals, not just innovations.
An effective IP strategy can become competitive as more and more start-ups decide for reverse engineering the technology practiced by multinational companies. The start-ups may then proceed with protecting their unique product or technology through intellectual property. This may develop mutual corporate synergies or licensing agreement between the firms.
The main objective of having an IP Strategy:
An IP strategy is a set of course of actions that allows an organization to efficiently realize higher prices than the competitors, improve its market share and sustain lower costs than the competitors. So, a strong IP strategy should make contributions to the organization’s profits.
Realization of the higher prices:
One of the important benefits of a strong IP strategy is the higher price realization than competitors. For example, in the pharmaceutical companies, drugs fetch a higher price during the patent protected period and as the drug completes its patent term, the prices drop from the high margin levels by 75% to 85%.
For example, The Arrow Coated Products Ltd, a BSE listed company, has hit revenues and profits highest in its history. Arrow is a technology company and has protected its technology by filing a large number of patent applications.
The trend in the industry is to protect intellectual property rights in a number of countries. IPR may help a company for generating revenues either by selling their unique technology or product to customers or through licensing. The IPR may also provide defense, if competitor or others, bring infringement charges on a company.
Capture market share:
Customers usually choose products that fulfill the feature, performance and price needs in a better way than other products. Companies that can easily differentiate their products in order to make it difficult for competitors to reproduce the same will most likely capture huge market share.
For example, most of the Apple’s products such as iPhone and iPads capture 35% to 55% of the US market and Apple seems to be extremely forceful in IP rights enforcements in order to maintain and protect the unique features of their products. Another example is Gillette,which maintains around 75% share with respect to the razor blade market by innovating constantly and enforcing IP rights for those innovations and building up the brand.
Incur lower costs:
A strong IP strategy may contribute to the company’s profit by assisting the company to
incur lower costs than competitors. In many markets, technology cost leads to significant contributions to the cost of the goods sold. In some extremely complex markets a company’s product may require technology developed by the other companies. In such cases, companies are forced to license the technology of others and release their products into the market. The access to required technology is achieved through licensing and cross-licensing. For example, in the electronics market, the technology cost with royalties can make up 25% to 35% of the selling price of a specific product. The companies that can achieve lower technology costs by achieving good patent royalties can sustain higher profit margins compared to its competitors.
With the increasing importance of Intellectual property rights, IP strategy is being implemented by a large number of companies. The IP strategy makes a direct contribution to the company’s ability to sustain and maintain competitive advantage and achieve higher returns for its shareholders. A well thought out and consistently implemented IP strategy can, not only help mitigate risks and avoid costs, but can also allow a company to grow for generations.
For further information, please contact:
Khaja Safiullah Haruni, LexOrbis