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H. Ward Classen: Unlocking Hidden Value in Intellectual Property

As corporations seek to generate increased revenue and profit, they often overlook the hidden value within their existing assets. Specifically, many corporations fail to recognize the intrinsic value of their intellectual property. Savvy in-house counsel can help unlock that value by identifying and exploiting this important asset.

Intellectual property is intangible property that results from original creative thought. It is most commonly protected with patents, copyrights, trademarks and trade secrets. The ownership rights associated with intellectual property allow for sustainable differentiation of the employer’s products and services in a competitive marketplace.

The increasing importance of intellectual property is illustrated by Microsoft’s recent acquisition of Skype. Based on Skype’s financial statements, the acquisition appears to make little sense. Microsoft paid $8.5 billion for a company with $860 million in revenue and an annual loss of $69 million. Skype’s debt of $689 million significantly exceeded its $320 million in assets. The true value to Microsoft was in Skype’s intellectual property, as Skype had more than 400 patents pending and the Skype trademark is known worldwide.

Corporate counsel should be proactive in establishing an intellectual property program and harvesting its fruits. A successful IP program should not only identify a company’s existing intellectual property but should also encourage and document innovation within the company. It should increase awareness of the importance of intellectual property and its inherent value to the company.

A significant factor in the success of any IP program is the development of a program to identify and reward employees for the creation of intellectual property. Corporate counsel should lead the effort to create and operate such a program as well as evaluate the appropriateness of intellectual property protection for any proposed invention or innovation, as not all concepts justify protection and in fact may not be eligible for protection.

Patent licensing royalties are just some of the tangible benefits of a thorough intellectual property program. Strong patents may also provide a defense against third-party claims that a company’s products or services infringe on the third party’s intellectual property. Patent trolls and patent infringement claims are increasingly prevalent in the business landscape. According to Forbes, the average cost to defend a high-stakes patent suit is $10 million while the median damage award is $3.8 million. More than 2,700 patent infringement lawsuits are filed on average each year.

A well-developed patent portfolio may allow a company to vigorously assert its own counterclaims against the party alleging infringement. Such counterclaims may entirely overcome the original infringement claims or give the accused company substantial leverage at the settlement table.

In short, implementing and funding a robust IP program will likely increase a company’s revenue and margin while differentiating its products in the marketplace. By helping employers identify, develop and exploit intellectual property, corporate counsel can often create unrealized value and, possibly, turn the legal department into a profit center. As intellectual property continues to grow in importance, corporate counsel’s value to a corporation will increasingly be measured by his or her ability to exploit the value of this key asset.

Mr. Classen is Deputy General Counsel of Computer Sciences Corporation. The views expressed herein are those of Mr. Classen and not those of Computer Sciences Corporation.