Global Intellectual Property Risks Still Misunderstood?
The days when only highly-trained lawyers could explain the concept of intangible assets and intellectual property (IP) rights are long gone. In 2011, consumers and businesses alike are well accustomed to headline-grabbing patent disputes, copyright infringements and trademark violations. With some of the world's biggest and best-known brands having publicly battled to protect their most-valuable differentiators, the tremendous importance of IP is now recognised globally in every sector imaginable.
And yet the risks to the loss of value to IP still often lie solely with lawyers who all too frequently are not within the family of risk management and insurance experts. A recent report joint published by Liberty International Underwriters (LIU) and risk advisory Marsh, on findings from their Intellectual Property Survey conducted in late 2010, notes the "imperative" nature of a thorough risk management approach to IP.
Regardless of their size or industry sector, all modern businesses must be aware that the value associated with IP can far outstrip the value of the tangible assets owned by a company. But the LIU and Marsh report indicated that many global firms still do not understand the IP risks facing their organisation, nor do they recognise the value of their intangible assets.
In fact, the researchers found that around three-quarters of global organisations were unable to identify the proportion of their firm's value that could be directly attributed to intangible assets or goodwill. It is widely agreed that for the vast majority of businesses, they carry at least 70 per cent of market value, though in many sectors this figure can top 80 or 90 per cent. For instance, in a 2010 Ocean Tomo study of the composition of equity market value, it was estimated that the implied tangible asset value of the S&P 500 reached 81 per cent.
The LIU and Marsh report found that almost 70 per cent of major corporations identify the protection of IP as a "crucial incentive to innovation" within their organisation. This is despite the fact that so few global firms appear able to recognise the true value of IP to their core business. Furthermore, most of the companies surveyed admitted that IP was not specifically included in their risk management programmes. Worryingly, just 16 per cent of respondents were found to be protected by insurance cover for the main types of IP risk.
Fredrik Motzfeldt, Communications, Media and Technology Leader for Europe Middle East and Africa at Marsh, summarised: "Intellectual property is often the critical asset for firms to protect. Our survey shows there is a real need for organisations to take a more proactive risk management approach to the protection of vital assets."
Similarly, Vice President of Strategic Assets at LIU, Matthew Hogg, warned: "Failure to provide adequate protection for IP has the potential to threaten an organisation's survival. The survey makes clear that firms in the US are taking this threat more seriously than their European counterparts; this could impact global competitiveness."
Mr Hogg was responding to the discovery that over 70 per cent of North American firms had described patents as being of 'high' or 'medium' importance, compared to just 56 per cent of European firms.
Three-quarters of respondents from Europe perceived the risk of patent invalidity proceedings to be low, against only 37 per cent of US companies with a similar view. Interestingly, Europeans believed the risk of IP litigation in the US to be much higher than the levels perceived by American firms themselves. A third of EU companies noted a 'high' risk of litigation in the States, compared with only 15.8 per cent of US respondents.
What is clear from the findings is that while most businesses recognise at least some of IP's value, there remains a great deal of confusion over where the major risks lie and it seems firms would benefit from learning just how much failure to protect assets could cost a global company.