Intellectual property is your greatest asset – Four ways to create value

Intellectual property makes you or your business worth more than you could be worth on your own. IP allows you to charge a premium for your services. You can make money with it while you sleep. This allows you to start a business that can be sold to others or passed on to your heirs.

Too often IP discussions only focus on legal rights: patents, trademarks, copyrights, trade secrets, domain names and publicity rights. These are of course important. But these are the purely legal instruments for protecting important corporate assets. Intellectual property should start with the underlying assets: information, innovation, content, brands, names, reputation, websites and more.

Applying IP rights to these important assets can create value in four important ways.

1. Calculate a premium for your goods and services.

Consider Generic Coke vs. COKE. Why is one worth more? Because Coca-Cola used IP to add value to a simple commodity. It gets a premium because it has a secret formula and a distinctive well-known brand. Generic Coke also has a formula, but it’s no secret; it also has a name, but it’s not distinctive. Anyone can make cola and use the cola name. IP prevents COKE from being copied. The formula is protected as a trade secret and the brand as a trademark.

2. Earn additional income.

Look at the average software developer versus Microsoft. The software developer is a knowledge worker who is paid for her work. If she doesn’t work, she can’t make money. Without their work, their business has no value. Microsoft uses intellectual property to turn many knowledge workers’ product into property that can be licensed and sold. Once this is done, Microsoft can monetize the knowledge worker without any further investment of time and effort. Copyrights and patents are intellectual property rights that prevent others from copying Microsoft products.

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3. Increase market valuation.

The value of a commodity business is typically the book value of its property, plant and equipment. The market value of an S&P 500 company is usually a multiple of its book value. The difference is mainly in the value of IP.

4. Create marketable assets.

There are markets for the resale of IP rights. Ross Perot has invested in a $200 million IP fund based on patent assets. David Bowie raised $57 million through the sale of bonds backed by royalties from his recordings. With these financial strategies, IP owners can benefit from IP assets.

Companies, entrepreneurs and business owners can benefit from the strategies by turning more of their business assets into valuable IP assets. Unfortunately, many ignore simple, inexpensive steps to secure these rights, leaving others — like Apple, Microsoft, and IBM — to rush ahead. What are you doing to ensure your business success in the internet age?