What is Intellectual Property (IP)? How is it valued and protected? Why should you care? And once you figure out what it is, what are you going to do about it?
Intellectual property is the intangible know-how that resides in the minds of the individuals within an organization. It is the knowledge that has been accumulated through learning. It is acquired through experimentation, observation, and teaching. It can result from the combined effort of hundreds of researchers with multi-million-dollar research programs, or the discoveries of a lone individual.
PriceWaterhouseCoopers states in a recent report (http://www.buildingipvalue.com/) that intellectual property has become one of the key corporate assets of the 21st century. It is through copyright, trademarks and patents that corporations attempt to secure these increasingly important assets. The factors of production have become land (sometimes), labor, capital and intellectual property. Over half the value of today’s Fortune 500 companies is in their intellectual property.
One of the challenges with intellectual property rights is that it is up to the holder of those rights to defend them. While this may not be a challenge to large corporations with battalions of attorneys, it could be a formable obstacle for a small firm with limited resources.
The know-how of the companies within your area is a critical component of their ability to create wealth and provide jobs and pay taxes. With over 80% of businesses having fewer than 10 employees, one can begin to see the challenge. One of the ways in which small firms attempt to protect themselves is through employee non-compete and non-disclosure agreements. However, in some states such as California, non-compete agreements are illegal.
The ultimate answer to protecting intellectual property for small and large firms lies in knowledge-worker equity. We all do what is in our own best self-interest. Giving employees virtual or actual ownership is key to encouraging them to secure and maintain the intellectual property of the company out of self-interest.
So what can and should the economic development professional do about intellectual property? For one thing, we can become informed about it and help educate the business community on how to develop and secure intellectual property. Next, we can work with the financial services companies to help them better understand the nature of intangible assets and how they can be valued as an asset of the company.
Isn’t it interesting that equipment, buildings and physical objects are considered assets on the balance sheet, while the employees in whose minds 50% of the wealth of a company resides are considered an expense? It’s up to us to help develop new business models that enable companies to capitalize this important asset.