Intellectual Property makes you or your business worth more than you can be worth on your own. IP lets you command a premium for your services. It lets you make money in your sleep. It lets you create a business that can be sold to others or passed on to your heirs.
Too often IP discussions focus only on legal rights: patents, trademarks, copyrights, trade secrets, domain names, and right of publicity. These are important, of course. But they are merely legal tools for protecting key business assets. The starting point for IP should be the underlying assets: information, innovation, content, brands, names, reputation, websites, and more.
Applying IP rights to these key assets can create value in four important ways.
1. Charge a premium for your goods and services.
Consider generic cola v. COKE. Why is one worth more? Because Coca-Cola has used IP to enhance the value of a simple commodity. It receives a premium because it has a secret formula and a distinctive well-known brand. Generic cola has a formula, too, but it’s not secret; it also has a name, but it is not distinctive. Anyone can make cola and use the cola name. IP keeps COKE from being copied. The formula is protected as a trade secret and the brand is protected as a trademark.
2. Earn additional revenue.
Consider the average software developer v. Microsoft. The software developer is a knowledge worker paid for her labor. If she doesn’t work, she can’t make any money. Without her work, her business has no value. Microsoft uses IP to turn the product of many knowledge workers into property that can be licensed and sold. Once that is done, Microsoft can make money without further time and effort from the knowledge worker. Copyrights and patents are the IP rights that keep others from copying Microsoft’s products.
3. Increase market valuation.
The value of a commodity business is typically the book value of its hard assets. The market value of an S&P 500 company is usually several times book value. The difference is largely the value of IP.
4. Create marketable assets.
Markets exist for the resale of IP rights. Ross Perot has invested in a $200 million IP fund based on patent assets. David Bowie raised $57 million selling bonds backed by the royalties in his recordings. These financial strategies let IP owners cash in on IP assets.
Corporations, entrepreneurs and business owners can benefit from the strategies by turning more of their business assets into valuable IP assets. Unfortunately, many ignore simple, inexpensive steps to secure these rights, leaving others – like Apple, Microsoft, and IBM – to charge ahead. What are you doing to secure your business success in the Internet age?