New Zealand: How IP savvy is your CEO?

The CEO's role is multi-faceted. CEOs liaise with the governance board and executive management, they're the voice of the company for internal and external stakeholders, they're visionary leaders who scan the environment, set the appropriate direction for the company and align the whole organisation to that purpose.

But what role should the CEO have in managing the company's intellectual property IP?¹ Great CEOs will be intimately involved in intellectual property strategy and management.

Protecting the competitive advantage of a company

Intellectual property protects the competitive advantage of the company and managing it appropriately ensures long term sustainability.  Mistakes in relation to IP can be costly. Kodak, for example, made a $1 billion mistake when it attempted to enter the instant camera market and was sued by Polaroid.

Comparing the market capitalisation of listed companies to the book value of their bricks and mortar assets shows intangible assets including intellectual property account for anywhere between 60% and 80% of a company's value. If actively managing the intellectual property is not a priority for the CEO, that's a fundamental problem.

The CEO can delegate responsibility for day-to-day management of IP, but he or she must be involved in setting the IP direction for the company. It is not sufficient to address intellectual property issues in an ad hoc manner. Smart companies will treat intellectual property as a strategic issue that requires proactive management for optimal performance.

Value hierarchy

In their book Edison in the Boardroom, Suzanne Harrison and Julie Davis categorise companies' approaches to the IP management function according to five levels in a 'value hierarchy'. Each new level builds on the one before it.

Companies at level one view IP as a defensive legal asset, used to shield their patch from competitors, and leave management of IP to legal counsel.

Level two companies are most concerned about managing the costs of establishing and maintaining their IP portfolios. At this level the function is likely managed by a defense-minded attorney or financial controller and IP is still regarded as a legal asset.

Level three companies treat the IP function as a profit centre. At this level there's a major change in attitude, where IP is viewed as a business asset - rather than a legal asset - that can contribute significant bottom line growth through proactive strategies, especially around licensing. Companies at this level look to actively manage returns from their IP portfolio, selling or licensing out redundant IP and possibly even licensing out core IP to competitors. Usually companies at this level have a dedicated IP function.

At level four, the IP function is integrated into departmental processes. It's embedded into operations and strategies across the organisation in much the same way that quality control is integrated into a manufacturing organisation, rather than a standalone department.

Level five companies operate in a visionary manner, embedding IP into their cultural fabric. The few companies that operate at this level anticipate technological revolutions and acquire or develop the IP required to protect future margins and market share.

Which level is your company at? What capacity does your CEO have to take IP to higher levels in the value hierarchy?

Understanding intellectual property as a business tool

My view is the vast majority of New Zealand companies would be operating at level one or two, with little prospect of attaining higher levels due to a lack of IP knowledge among the leadership. It is an institutional problem because there is virtually no education in New Zealand about understanding intellectual property as a business tool. Having completed both legal and business degrees, I encountered one elective IP paper in fourth year law, and a brief mention of it in one post-graduate level entrepreneurship paper in business school. I would be pleasantly surprised if much had changed since.

We need to change our education system and there are various international conferences and organisations where CEOs can learn from their peers in other countries. There is a role for a formal mentoring for New Zealand CEOs by Kiwis leading large, offshore corporations. This is one of the great developments Unlimited has brought to the Investment Challenge through its Kiwi Expatriate Association connections.

If New Zealand companies are to truly compete on the world stage and win, then we need to bring more of our CEOs quickly up to speed with intellectual property and how it is managed as a business asset.

Footnotes

¹ Refers to the ownership of an intangible thing - the innovative idea behind a new technology, product, process, design or plant variety, and other intangibles such as trade secrets, goodwill and reputation, and trade marks. Although intangible, the law recognises intellectual property as a form of property which can be sold, licensed, damaged or trespassed upon. Intellectual property encompasses patents, designs, trade marks and copyright.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James and Wells is the 2010 New Zealand Law Awards winner of the Intellectual Property Law Award for excellence in client service.