The Real Value Of Intellectual Property

Very few things have such a wide range of value as Intellectual Property.  It can also have an emotional and sentimental value which often greatly surpasses its actual value.  The real purpose of Intellectual Property law is to turn intangible ideas into assets that have legal protection.  It allows the person to claim ownership over an idea, and grants the ability to reap the sole financial reward from those ideas. More importantly it gives one company a competitive advantage over another company.  One thing that is certain is that it is almost impossible to weigh the true value of Intellectual Property on our society.

Intellectual Property Attorney Perry Clegg, sums it up best. “I am frequently asked about the value of intellectual property. Businesses want to know how their investment in intellectual property will go to their bottom line, how it will increase their revenues and the value of their business. For each business it will be different.   For some it may be 10% to 20% of their company’s value, for others the value of their IP assets may far exceed the value of their physical assets. How a business values its Intellectual property will vary from business to business because IP derives its value from a wide range of parameters such as market share, barriers to entry, enforceability, licensing revenues, growth projections, remaining economic life, and new technology markets.”

Investors, financial advisors and stock market brokers have become aware of this, and it is starting to change the way people invest.  In the past, people would invest in factories.  The factories would take up acres of land, cost millions to build.  The factory may be worth 20 million dollars and the business may bring in 2 million a year.  In today’s investing climate, an idea and the blueprint for that idea may fit into a manila folder.  That manila folder can fit in a filing cabinet with 500 other manila folders.  However, the rights for that idea, may be worth 100 billion a year without having a single cost.

The Real Value Of Intellectual Property

The other side of intellectual property is the emotional attachment that over values the intellectual property.  This is more common with ideas such as copyrights. When someone writes something, it usually comes from a very emotional part of them or focuses on something they cherish. However, it may not resonate with others.  So instances of copyright infringement don’t always get a very big settlement. Inventors will often invent something that they themselves have a need for and fail to realize that very few people have a need for the same item.  When they seek investors, they often won’t offer terms favorable to investors, because they are too attached to the product to realistically appraise its value.

A great example of the valuation of intellectual property is the TV series Shark Tank.  People with ideas pitch them to investors. The investors decide whether to invest or not to invest.  Usually the people seeking funding make an offer and the investors make a counter offer.  One of the most common questions that some of the investors ask, is if someone has obtained or has exclusive rights to something.  Other times the investors counter offer will suggest a percentage of the royalties which are earned from licensing the rights to other companies.  A lot of times, no arrangement is made and the people seeking investments leave empty handed.  This is usually a result of someone overvaluing their invention or idea.  The one thing that shouldn’t be overvalued is its impact on the economy.

Recent figures from Sonecon suggest that the total value of Intellectual Property and the Research and Development that produces them is more than 50% of the United States GDP.  The report claims that they are worth $9.2 trillion for the US Economy.  Other numbers suggest numbers of only $5.06 Trillion. No matter which number you are basing your decision on, intellectual property has an enormous impact on the nations financial status as well as economic growth.

Owning a competitive advantage, and exclusive financial right to that advantage is one of the major reasons why companies are willing to invest so much money in research and development for new technologies.  The recent advancements of technology in industries such as virtual reality have already led to $500 million dollar lawsuits with several more companies investing into the industry. When one company holds the competitive edge over the others, companies are more likely to invest more money into research and development, or face becoming obsolete.  This type of Intellectual Property Arms Race not only stimulates more jobs, but spurs creativity.

One of the biggest and most visible industries where creativity has been influenced by increased spending in research an development, is the cell phone industry.   Since  the turn of the century we have migrated from pagers, to flip phones, to Blackberries to smart phones that are controlled without using keys.  As each company has tried to out perform each other the evolution of the cell phone happens in leaps and bounds.

Thanks to the principle of intellectual property, things that were once considered a luxury are now a necessity.  The pursuit to hold the right to a competitive advantage has not only advanced the technology that we bring into our home, but has made it affordable.  We used to watch people ‘skype’ on hand held devices or unlock doors from a distance in Sci-Fi movies.  Today, there are numerous apps available for smart phones that allow in-person communication even when they are oceans apart.  We have home automation and [home security systems] that are wireless and easily controlled by our mini-computers, we call phones.  The value of intellectual property goes way beyond its contributions to our GDP.

The contributions that Intellectual property has made on our lifestyles, our security and our comfort is beyond measure.  The creativity that has been inspired because of the competition that is created in pursuit of the rights granted by intellectual property, have made societal contributions beyond measure. Maybe intellectual property is accountable for more than half the GDP,  I would suggest its accountable for more than that.