IP Branding: Adding Value to a Business

As the U.S. economy begins to switch from an industrial model to a knowledge-based one, business owners must adapt their traditional means for conveying the value of their assets. Intellectual property ('IP') is an intangible asset often overlooked by investors in assessing the value of a business, because companies fail to provide a useful metric for its value. IP branding is a business strategy that educates potential investors, licensees, and even competitors about the quantifiable worth of a company's intangible assets, such as patents and trademarks. Although branding has historically functioned in the traditional trademark sense to identify tangible products and services and to distinguish them from competitors, thereby giving the owner of the brand market power, it applies equally to other forms of IP. In a nutshell, the value of a firm or business is equal to not only the inherent value of its IP, but also the value added from the successful branding of a company's intangible assets. This article presents four key steps, with a focus on patents and trademarks, toward adding an IP branding strategy to an existing business model.

Step One: Identify and Protect IP Assets

This foundational step is the prerequisite for a company incorporating any form of knowledge-based assets into its operations. If a company cannot identify the intangible assets that it relies upon, it will not be able to value them and communicate this value to others. Further, once identified, these assets must be protected either as trade secrets, patents, copyrights, or trademarks. As such, a company should have in place a business unit that can control and direct the flow of intangible assets from separate units. Such a unit should also coordinate and communicate with the financial, marketing, and research arms of the company. This level of integration allows a central structure in the business to adequately compile the needed information about these intangible assets and to then direct an IP branding strategy to add further value to these assets. Having an integrated unit also ensures that a discrete IP strategy is not only identified but also instituted. In identifying a company's IP, such a unit should not only identify the technologies that form the core of products or service lines, but also identify those of the company's competitors. Such due diligence should also include identifying the means by which a company's competitors brand their products, the trademarks that they use, the patents that they possess, and the impression such branding has had on the market.

Step Two: Quantify the Value of IP Assets

The valuation of intellectual property is a murky field but it does not need to be so. At its core, valuation determines the increased opportunities for revenues and exploitation of a market that accrue because of an IP asset, as opposed to those which would exist in its absence. Most companies can benefit from a straightforward approach toward valuation that does not require the use of techniques, such as patent citation analysis, or sophisticated econometric techniques, such as cost, market, and income based methods. While these techniques are useful, they can also be multivariate and complex. A successful branding strategy must communicate not only value, but also the metric used to determine value. So how can an intellectual property brand simply convey the quality of the portfolio? Such quality can be demonstrated by comparative data and by building reputation through effective licensing or litigation schemes.

A useful first step is to determine the size of the IP portfolio. In the patent arena, mega-powerhouse companies such as GE have a de facto patent branding strategy from sheer quantity alone. As the former chief IP officer at GE has stated, '[T]here is a reasonably good correlation between the number of patents and the value that the company attaches to its portfolio.' (At GE, the IP Department Brings Good Ideas to Life, Corporate Legal Times, March 2000, p. 16.) But even if the sheer size of a portfolio were sufficient to convey its strength, which for most companies is not true, effectively conveying the inherent value of individual patents or trademarks can add even more strength. Most pharmaceutical companies, in contrast to companies such as GE, IBM, and Intel, have smaller numbers of IP assets, especially patents. These patents are valued extremely highly, though. All companies that rely on a few patents to protect their core technologies can also demonstrate strength by a portfolio that includes 'picket-fence' patents. A picket-fence patent is a patent that protects against likely minor improvements that might arise, thereby making it difficult for competitors to design around a core product.

The value that trademarks add to a company's intangible assets can also be quantified. A company that has identified its intangible assets and protected them with trademarks has made an initial showing of value. Branding seeks to add to this initial showing by demonstrating that such marks provide strong protection for the distinctiveness of a product. First, since federal registration can be used to provide constructive notice in the United States to all potential infringers that a mark is owned, a company should value registration and convey its benefit to potential licensees and investors. Second, like picket-fence patents, trademarks can provide a shell around all aspects of a company's product and service lines. A company that utilizes such multiple trademarks and conveys this is instituting a branding strategy. For example, a patented excipient might be called 'Duraflow” brand excipient. But it could also be packaged in a container that proudly proclaims that the excipient uses 'Maxifine” technology. The first mark provides a hook whereby the market is apprised of the source of the product, and the second mark adds value to the product by identifying a technology used therein. The value that accrues to a mark because of its association with a desired characteristic allows the mark to transfer value to new products incorporating old technologies. Such a strategy brands the product line for the consumer, and because it adds value to the product, it also adds value to the underlying technologies. As such, investors and licensees value a company's intangible assets more.

As a whole, the IP portfolio, which includes a discrete number and type of assets, should also communicate a specific intellectual property strategy. It should include the value that IP brings in from licensing and should also demonstrate that the company's IP is positioned competitively. In other words, the question a brand must address is: What aspects of a company's IP provide it with an advantage? For example, if the IP portfolio consisted of the 'Duraflow” patented excipient in a pharmaceutical product, the brand must convey to potential licensees what they can expect from the product and that such success creates transferable goodwill. Further, if competitors are successfully blocked from entering a market niche by either an offensive or defensive use of such IP assets, there is a distinct advantage to convey to the market. This value and others, which a company identifies, when communicated to potential licensees, can result in increased profits and bargaining strength.

Step Three: Communicate with an Eye Toward the Audience

Integrating a patent or trademark branding strategy into a company's business model requires a flexible strategy. Potential markets are prepared to understand the value of IP in different ways. This requires that the potential audience be identified and that sufficient information is included with the product to educate the intended audience. For example, depending on how litigations are structured, litigation over a core patent right might communicate that a patent portfolio is open to challenge or, alternatively, it might communicate that the portfolio is aggressively seeking out infringers. Previous successful litigation bolsters the latter view and should be revealed when branding IP. This can help the market appreciate that intellectual property assets provide discrete marketplace power that has already been tested. In addition, company reports should contain a statement of the company's IP strategy; how it values its IP; and how its tangible assets have grown as a result of the IP portfolio and strategy. A company's IP strategy may even be a brand itself, if a company effectively conveys the distinguishing characteristics of the strategy and identifies them as an integral part of the company's structure and management.

The information a company provides to the marketplace about the value of a branded product should also attempt to communicate the underlying value of the IP behind it. A successful branding strategy affects both the consumer and the investor. The 'Duraflow” trademark speaks not just to the general consumer, but also to business managers, investors, and licensees. To an investor, a patent should reflect a company's view that its technology is valuable enough to be protected; whereas to the consumer, a patent should reflect newness, innovation, and rarity.

Step Four: Control

Modern aggressive IP strategies recognize that intangible assets are more than mere litigation muscle: They are revenue generating centers too. A company can extract value from its intangible assets by licensing. While that value may be increased by a successful branding strategy, it also requires a strict adherence to responsible management. The companies that are licensed or with whom collaborations exist can contribute both positively and negatively to any goodwill for products or services. Therefore, prudent due diligence and quality control standards must be maintained over all aspects of the tangible incarnations of the intangible assets. Indeed, trademark rights can be lost by 'naked licensing,' in which the goodwill associated with a mark is transferred without retaining any measure of control over the specific uses of the mark. A patented product loses value when a licensee manufactures a substandard version or fails to properly incorporate the licensed technology. At the most basic level, a company must continue to identify its assets, evaluate those assets in relation to some metric, and communicate that metric and value to its market. When entering into a collaboration or license, the same standards of quality that have added value to a company's assets must be maintained by third parties.

Conclusion

When a company experiences growth and share prices rise, the company is primed to take advantage of momentum. IP branding continues the momentum built by success, because it identifies the company's success with its unique characteristics. An investor who has to choose between two equally competent business enterprises will favor the company that can demonstrate that it is not only successful, but also that it knows why it is successful and can build on that success. Branding communicates this message to the public and can act as a conduit whereby the goodwill from one endeavor can transfer to a new one. The added confidence that a mark and a patent instill increases the inherent value of a company's intangible assets. A branding strategy is therefore a critical component of any business plan.

This article originally appeared in Patent Strategy & Management, a sister publication of this newsletter.

Stefan Miller, Ph.D. is a registered patent agent before the USPTO and holds a doctorate in organic chemistry. Currently, he is a second-year law student at New York University and clerks at the law firm of Hunton & Williams LLP. The views expressed in this article are the opinions and not the legal advice of the author and do not represent the views of Hunton & Williams, its clients, or its affiliates. The marks 'Duraflow' and 'Maxifine' are fictional; any resemblance to existing trademarks is purely coincidental.

As the U.S. economy begins to switch from an industrial model to a knowledge-based one, business owners must adapt their traditional means for conveying the value of their assets. Intellectual property ('IP') is an intangible asset often overlooked by investors in assessing the value of a business, because companies fail to provide a useful metric for its value. IP branding is a business strategy that educates potential investors, licensees, and even competitors about the quantifiable worth of a company's intangible assets, such as patents and trademarks. Although branding has historically functioned in the traditional trademark sense to identify tangible products and services and to distinguish them from competitors, thereby giving the owner of the brand market power, it applies equally to other forms of IP. In a nutshell, the value of a firm or business is equal to not only the inherent value of its IP, but also the value added from the successful branding of a company's intangible assets. This article presents four key steps, with a focus on patents and trademarks, toward adding an IP branding strategy to an existing business model.

Step One: Identify and Protect IP Assets

This foundational step is the prerequisite for a company incorporating any form of knowledge-based assets into its operations. If a company cannot identify the intangible assets that it relies upon, it will not be able to value them and communicate this value to others. Further, once identified, these assets must be protected either as trade secrets, patents, copyrights, or trademarks. As such, a company should have in place a business unit that can control and direct the flow of intangible assets from separate units. Such a unit should also coordinate and communicate with the financial, marketing, and research arms of the company. This level of integration allows a central structure in the business to adequately compile the needed information about these intangible assets and to then direct an IP branding strategy to add further value to these assets. Having an integrated unit also ensures that a discrete IP strategy is not only identified but also instituted. In identifying a company's IP, such a unit should not only identify the technologies that form the core of products or service lines, but also identify those of the company's competitors. Such due diligence should also include identifying the means by which a company's competitors brand their products, the trademarks that they use, the patents that they possess, and the impression such branding has had on the market.

Step Two: Quantify the Value of IP Assets

The valuation of intellectual property is a murky field but it does not need to be so. At its core, valuation determines the increased opportunities for revenues and exploitation of a market that accrue because of an IP asset, as opposed to those which would exist in its absence. Most companies can benefit from a straightforward approach toward valuation that does not require the use of techniques, such as patent citation analysis, or sophisticated econometric techniques, such as cost, market, and income based methods. While these techniques are useful, they can also be multivariate and complex. A successful branding strategy must communicate not only value, but also the metric used to determine value. So how can an intellectual property brand simply convey the quality of the portfolio? Such quality can be demonstrated by comparative data and by building reputation through effective licensing or litigation schemes.

A useful first step is to determine the size of the IP portfolio. In the patent arena, mega-powerhouse companies such as GE have a de facto patent branding strategy from sheer quantity alone. As the former chief IP officer at GE has stated, '[T]here is a reasonably good correlation between the number of patents and the value that the company attaches to its portfolio.' (At GE, the IP Department Brings Good Ideas to Life, Corporate Legal Times, March 2000, p. 16.) But even if the sheer size of a portfolio were sufficient to convey its strength, which for most companies is not true, effectively conveying the inherent value of individual patents or trademarks can add even more strength. Most pharmaceutical companies, in contrast to companies such as GE, IBM, and Intel, have smaller numbers of IP assets, especially patents. These patents are valued extremely highly, though. All companies that rely on a few patents to protect their core technologies can also demonstrate strength by a portfolio that includes 'picket-fence' patents. A picket-fence patent is a patent that protects against likely minor improvements that might arise, thereby making it difficult for competitors to design around a core product.

The value that trademarks add to a company's intangible assets can also be quantified. A company that has identified its intangible assets and protected them with trademarks has made an initial showing of value. Branding seeks to add to this initial showing by demonstrating that such marks provide strong protection for the distinctiveness of a product. First, since federal registration can be used to provide constructive notice in the United States to all potential infringers that a mark is owned, a company should value registration and convey its benefit to potential licensees and investors. Second, like picket-fence patents, trademarks can provide a shell around all aspects of a company's product and service lines. A company that utilizes such multiple trademarks and conveys this is instituting a branding strategy. For example, a patented excipient might be called 'Duraflow” brand excipient. But it could also be packaged in a container that proudly proclaims that the excipient uses 'Maxifine” technology. The first mark provides a hook whereby the market is apprised of the source of the product, and the second mark adds value to the product by identifying a technology used therein. The value that accrues to a mark because of its association with a desired characteristic allows the mark to transfer value to new products incorporating old technologies. Such a strategy brands the product line for the consumer, and because it adds value to the product, it also adds value to the underlying technologies. As such, investors and licensees value a company's intangible assets more.

As a whole, the IP portfolio, which includes a discrete number and type of assets, should also communicate a specific intellectual property strategy. It should include the value that IP brings in from licensing and should also demonstrate that the company's IP is positioned competitively. In other words, the question a brand must address is: What aspects of a company's IP provide it with an advantage? For example, if the IP portfolio consisted of the 'Duraflow” patented excipient in a pharmaceutical product, the brand must convey to potential licensees what they can expect from the product and that such success creates transferable goodwill. Further, if competitors are successfully blocked from entering a market niche by either an offensive or defensive use of such IP assets, there is a distinct advantage to convey to the market. This value and others, which a company identifies, when communicated to potential licensees, can result in increased profits and bargaining strength.

Step Three: Communicate with an Eye Toward the Audience

Integrating a patent or trademark branding strategy into a company's business model requires a flexible strategy. Potential markets are prepared to understand the value of IP in different ways. This requires that the potential audience be identified and that sufficient information is included with the product to educate the intended audience. For example, depending on how litigations are structured, litigation over a core patent right might communicate that a patent portfolio is open to challenge or, alternatively, it might communicate that the portfolio is aggressively seeking out infringers. Previous successful litigation bolsters the latter view and should be revealed when branding IP. This can help the market appreciate that intellectual property assets provide discrete marketplace power that has already been tested. In addition, company reports should contain a statement of the company's IP strategy; how it values its IP; and how its tangible assets have grown as a result of the IP portfolio and strategy. A company's IP strategy may even be a brand itself, if a company effectively conveys the distinguishing characteristics of the strategy and identifies them as an integral part of the company's structure and management.

The information a company provides to the marketplace about the value of a branded product should also attempt to communicate the underlying value of the IP behind it. A successful branding strategy affects both the consumer and the investor. The 'Duraflow” trademark speaks not just to the general consumer, but also to business managers, investors, and licensees. To an investor, a patent should reflect a company's view that its technology is valuable enough to be protected; whereas to the consumer, a patent should reflect newness, innovation, and rarity.

Step Four: Control

Modern aggressive IP strategies recognize that intangible assets are more than mere litigation muscle: They are revenue generating centers too. A company can extract value from its intangible assets by licensing. While that value may be increased by a successful branding strategy, it also requires a strict adherence to responsible management. The companies that are licensed or with whom collaborations exist can contribute both positively and negatively to any goodwill for products or services. Therefore, prudent due diligence and quality control standards must be maintained over all aspects of the tangible incarnations of the intangible assets. Indeed, trademark rights can be lost by 'naked licensing,' in which the goodwill associated with a mark is transferred without retaining any measure of control over the specific uses of the mark. A patented product loses value when a licensee manufactures a substandard version or fails to properly incorporate the licensed technology. At the most basic level, a company must continue to identify its assets, evaluate those assets in relation to some metric, and communicate that metric and value to its market. When entering into a collaboration or license, the same standards of quality that have added value to a company's assets must be maintained by third parties.

Conclusion

When a company experiences growth and share prices rise, the company is primed to take advantage of momentum. IP branding continues the momentum built by success, because it identifies the company's success with its unique characteristics. An investor who has to choose between two equally competent business enterprises will favor the company that can demonstrate that it is not only successful, but also that it knows why it is successful and can build on that success. Branding communicates this message to the public and can act as a conduit whereby the goodwill from one endeavor can transfer to a new one. The added confidence that a mark and a patent instill increases the inherent value of a company's intangible assets. A branding strategy is therefore a critical component of any business plan.

This article originally appeared in Patent Strategy & Management, a sister publication of this newsletter.

Stefan Miller, Ph.D. is a registered patent agent before the USPTO and holds a doctorate in organic chemistry. Currently, he is a second-year law student at New York University and clerks at the law firm of Hunton & Williams LLP. The views expressed in this article are the opinions and not the legal advice of the author and do not represent the views of Hunton & Williams, its clients, or its affiliates. The marks 'Duraflow' and 'Maxifine' are fictional; any resemblance to existing trademarks is purely coincidental.