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Protect Your Intellectual Capital    [Date Added : 01/10/2004 ]
The findings of a new study by the Centre for Corporate Change at the Australian Graduate School of Management and the law firm Freehills suggest that many companies still have much to learn about smart Intellectual Property (IP) management.

The study asked 100 Australian companies about how they manage their intellectual property assets, such as copyright, patents, trademarks, design rights and trade secrets. It found that companies, particularly medium-size ones with assets of about $15 million, are not meeting world standards in the management of IP. The study's authors say this means that firms risk being left behind by the competition unless they change the way they operate.

A company that manages IP well, according to the study, uses IP to maximize financial benefit, and obtains ownership of all IP rights arising from services provided by outside contractors and consultants. This means converting knowledge from day-to-day operations as well as research & development into IP rights that can be legally protected, and commercializing those rights. Monitoring the developments of competitors and discovering IP infringement by others is also part of good IP management.

The Freehills study finds that, for the survey participants, IP is generally considered the least important activity in the value chain. Only 5.9% of Australian companies surveyed make IP valuations, and only 23% conduct IP audits. Those placing the most emphasis on IP are smaller organizations. The most diligent firms are those with a multinational link, either a local multinational or a subsidiary of a foreign company.

One of the study's project leaders, Adam Liberman, a partner at the law firm Freehills, says the results of the survey reflect what he has seen in 27 years of legal practice. He says that, despite an improved understanding of intellectual property in the business community, IP horror stories still abound.

Liberman recently represented an IT company that was for sale. Its biggest asset was its software. The company's management thought that because it had paid for all work done on the software, it owned it. Not so. Several contractors had worked on the software over six years and had not signed copyright assignments, and they retained some copyright in the software. So, when a buyer asked for proof of ownership, the company could not provide it. This discovery during the due-diligence process led to postponement of the sale for three months while Liberman and his team searched for the contractors and sought copyright assignments from them. Some of the copyright owners were in liquidation and some were no longer in business. Liberman says: "No one is interested at that point, so it's a much harder exercise." He says the company should have required written copyright assignments from the contractors when the work was being done.

Liberman says that to manage IP properly, companies need to develop systems that ensure knowledge is captured and converted into legally protected rights. He says: "It's not just the creation of knowledge that matters any more. It must be captured and converted into marketable intellectual property that can be legally protected, and a proper system of management enforced." He suggests regular meetings between IP managers and scientists or product developers.

Liberman believes IP management requires dedicated management and legal staff and concerted action by senior managers: "Companies should be monitoring world-best practice in their industry and create a culture of IP awareness in their own organizations." For example, he suggests that companies should try to emulate the international market leader in their industry and set up educational programs to keep IP management near the top of staff priorities.

Monitoring IP creation and protection will not always mean applying for a patent; sometimes it will mean electing not to seek legal protection of intellectual property assets. Chris Alp, a partner at the accounting firm Grant Thornton, says legal protection of IP buys time to exploit an idea without competition, but it is often only a matter of time before a competitor produces a copy, legal or otherwise, of the product. Alp believes being first to market can be a company's best protection of its product innovation or good idea.

Adam Liberman says: "IP is not just an esoteric area [of law]. The future will be bright for those who understand the importance of IP for their business and understand how to use that IP."

When creating an IP management strategy:

1. Be thorough about intellectual property. Have specific managers and legal advisers for managing the creation, discovery and protection of IP.

2. Ensure high-level attention from the business owner, board and chief executive to IP management and foster awareness of IP value among all staff.

3. Conduct regular IP audits and valuations to ensure all information and innovation belonging to the company is being fully exploited.

4. Constantly monitor local and overseas competitors' IP activities to be aware of world-best practice.

5. Consider whether the company's new technology will be better protected by keeping it secret, rather than by a patent.

6. Have confidentiality agreements with all staff and contractors that have access to company secrets and inventions.

7. Record the special knowledge and trade secrets in employees' heads to ensure they are not lost if the employee leaves.
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