South Africa: Using IP As An Economic Driver

Last Updated: 27 November 2012
Article by Chris Bull

Most Read Contributor in South Africa, September 2016

A US government survey has highlighted the importance of intellectual property in the US economy by reporting that nearly 35% of US gross domestic product ($5 trillion) comes from 75 IP-intensive industries that employ 40 million people. These intellectual- property intensive industries are identified as movie studios, drug manufacturers and high-technology companies.

Thomas Donohue, president of the US Chamber of Commerce, made the comment that "in laboratories and studios and research hubs, and even in home garages, entrepreneurs and innovators are hard at work turning their ideas into real products". But "innovation can't create jobs without strong IP protection". Likewise, IP protection does not create a successful business without a clear intellectual- property commercialisation strategy.

Many companies in South Africa have adopted a traditional approach to the management of their intellectual property and have viewed it narrowly (from a legalistic point of view). The focus has been on protecting patents, trade marks, copyright and designs. Many progressive business leaders, though, are recognising the opportunities that intellectual property offers for value creation. As yet, however, few companies in South Africa have taken the important step of moving from a protectionist approach to intellectual property, to one where intellectual property assets are managed to maximise value.

It is not only high-technology companies with substantial patent portfolios, or brand houses with well-established trade marks, that can take advantage of this opportunity. All forms of intellectual property offer this opportunity, provided that there is underlying value in the intellectual- property assets. For example, Annie Liebovitz, the world-acclaimed photographer, announced a deal during 2010 in terms of which she has used the copyright in her portfolio of photographs as the basis for raising capital with private-equity firms.

She has many famous photographs in her portfolio, not least of which is her Rolling Stone portrait of John Lennon and Yoko Ono, her Vanity Fair photo of a pregnant Demi Moore and her 80th birthday portrait of Queen Elizabeth II. Miss Liebovitz has previously raised capital against the copyright in these assets. Her portfolio is in excess of 100 000 photographs. The deal is estimated to be worth $24 million and is aimed at maximising the value of the photographs through their active management and a collaboration with Colony Capital.

The management of intellectual property to generate additional revenue through licensing and intellectual- property exploitation programmes is not something new. During the 1990s, companies such as IBM and Texas Instruments focused on managing their intellectual property to generate additional revenue out of non-core assets. This programme has proven to be tremendously successful, and at its peak generated in excess of US$1 billion a year for IBM, in addition to the revenue that was generated from intellectual property in core business activities.

One of the key features of all of the companies that have been successful in increasing returns from intellectual property is that their intellectual property is handled at board level. Many South African companies delegate intellectual-property management to legal services departments or other subsidiary operations. As a result, it is often not managed to maximise value. Some companies have introduced rudimentary intellectual-property audits, but few have gone to the next step of setting in place performance metrics for their intellectual-property portfolios.

Lessons can be learned from the experience in the United States, where business leaders are acutely aware of the potential that intellectual property offers for generating revenue and creating value.

Awareness of these issues often differs between industry and services sectors. As one might expect, awareness in high-technology sectors, information technology and communication companies is the highest, whereas financial institutions outside of the US are less active in this area. This does not necessarily reflect the size of the opportunity, but is more a reflection of awareness.

Licensing remains the most common route to follow in intellectual-property exploitation. This is largely because licensing requires a narrower range of skills to implement than other routes. Other routes that are becoming of increasing importance are alliances and partnerships, joint ventures, the sale and securitisation of intellectual property, spin-outs and corporate venturing. Compared with licensing, each of these presents greater challenges, but can offer greater returns on investment.

In conclusion, the opportunity for intellectual-property exploitation programmes does not lie only with multinational corporations with large portfolios of patents and trade marks. There are also opportunities for small and medium-sized businesses, research institutions and even individuals in establishing revenue streams from portfolios of intellectual property.

The advice that we often give to clients is that, when you have developed a new technology or established a successful brand, don't immediately think that you have to sell a product or offer a service to leverage intellectual property. There are many successful businesses that have built themselves entirely on intellectual-property exploitation business models.

Originally published in Legal Times, Friday June 8, 2012

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.

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