Infringement of intellectual property rights undermines long-term progress in innovation, which is why many businesses should be realizing that their IP may be the most valuable asset they own. It may also be the most under-appreciated asset.

Following an extremely productive 2006, United States government agencies continue to seize large shipments of counterfeit goods in 2007.

Innovation may be the engine that drives economies, but what is the point of promoting it if you’re not protecting it?

Companies are not extracting maximum value from their intellectual property (IP), despite being aware of the increasing importance of owning research and ideas, according to a recent survey by PricewaterhouseCoopers (PWC).

In fact, while 85 percent of tech executives believe their IP will increase in importance for their organizations over the next three to five years, more than half of all technology companies do not extract the full value from their IP.

It may be that research and development (R&D) moves at such a fast pace that identification and exploitation of IP is sometimes difficult. “Today entire industries are conceived, developed, deployed, exploited and made obsolete within 17 years,” notes Dave Dargo at InfoWorld.

Estimates place the costs of counterfeit goods, stolen patents and pirated copyright works at greater than $200 billion to U.S. companies and anywhere from $500 billion to $650 billion to the world economy. U.S. software companies alone suffered $7.3 billion in losses to piracy last year, according to intelligence firm IDC, which estimated in a study released in May that for every $2 of software purchased legitimately worldwide, $1 worth was obtained illegally.

Of course, given that the activities are illegal, it’s hard to know precisely how large a monetary price is truly paid.

“Go on all you want about big company greed,” InformationWeek‘s Rob Preston recently wrote, “but the intellectual property of the software, semiconductor, entertainment, biotechnology and other industries is the fragile marrow of the U.S. economy.”

With so much at stake, there has been vigorous patent litigation last year and this year, with awards valued at $3.4 billion. Industries such as financial services are seeing litigation rates of nearly 30 times the average, according to a study by Harvard Business School professor Josh Lerner.

The tech industry has been pushing for patent reform for decades, of course. Apparently, the government has been listening.

In a unanimous voice vote last week, the U.S. House Judiciary Committee endorsed patent-reform legislation in the Patent Reform Act of 2007. Although couched in terms of the importance of patents and patent quality, the thrust of many of the measures are clearly directed at “limiting litigation abuses,” explains the patent law blog Patently-O. Among other things, it would narrow the definition of willful infringement and calls for limiting infringement damages to the economic value of a patent’s contribution to an overall product.

Since the legislation was first introduced in April, the pharmaceutical, biotech and manufacturing companies have lined up to oppose the key portions of the legislation. As of last Wednesday, though, that opposition seemed to be lessening.

More than two-thirds of PWC survey respondents believe that their IP management too often is treated as a legal issue, a view particularly prevalent among North American and Asian respondents, according to the PWC survey.

Others view this approach as out of date and unlikely to work in today’s technology markets.

Forty-seven percent of the executives also suggested that a large majority of IP-related lawsuits are spurious and intended simply to harass the competition.

The survey also found a lack of clarity about where the responsibility for IP sits within an organization.

In 38 percent of companies, responsibility sits with C-suite executives and only 21 percent have dedicated specialist IP management units.

Pat Toole, VP for IBM’s Technology & Intellectual Property group, recently wrote at IndustryWeek:

Companies must be aware of others that may be infringing on their patent, as well as ensure that they are not infringing, themselves. Customers are also increasingly demanding to be indemnified against legal action, so that they cannot be held liable if the product they use is found to infringe on the IP property of others.

As demands for corporate reporting transparency increase, 35 percent of executive respondents told PWC they will add IP-related information to reporting within the next three to five years. Currently, only 16 percent provide supplementary reporting to financial data.

Historically, company valuations were determined by capital assets, such as plant and equipment, but today intangibles often account for more than half the market value for the average company listed worldwide.

That is why managing IP has gone from a necessary evil and an expense to a competitive advantage and profit center. Businesses not only have to create and track R&D and patents, but also increase, improve, license, share, sell and protect IP.

Resources

Technology Executive Connections: Exploiting intellectual property in a complex world
PricewaterhouseCoopers, June 2007

Worldwide Software Piracy Rate Holds Steady at 35%, Global Losses Up 15%
IDC, May 2007

Getting Smart About Intellectual Property Is A No-Brainer
by Pat Toole
IndustryWeek, July 11, 2007

Down To Business: Why Our Intellectual Property Is Worth Protecting
by Rob Preston
InformationWeek, July 7, 2007

Intellectual Dishonesty
by Dave Dargo
InfoWorld, June 27, 2007

Patent Reform Act of 2007
by Dennis Crouch
Patently-O, April 18, 2007

Patent Reform Bill Moves Forward in U.S. House
by Roy Mark
InternetNews.com, July 19, 2007