Weathering the Global Credit Crunch

Teh Hong Koon provides some guidance to IP owners on how to manage their IP assets during the economic downturn

 

The global credit crunch has reared its ugly head and its rage is being felt in every nook and cranny. Increasing redundancies, weakening export orders and dwindling consumer spending are creeping through our economic landscape with escalating speed. It is re-shaping our society in a cruel and painful way.

 

In these turbulent times, Intellectual Property (IP) owners are seeing deteriorating profits and are under intense pressure to scale back on IP budgets. The priority now is for IP owners to strategically manage their IP budget during these challenging times in order to focus on maximizing liquidity, managing profitability and even building for growth.

 

Hasty, arbitrary and reactive cost cutting measures have detrimental effects on the value and profitability of IP assets. It was reported that during the 1990 recession, Reebok, a leading manufacturer of sports shoes became very cautious in spending and made substantial cuts in costs. This move caused Reebok to lose substantial market share to its competitor Nike. Despite the recession, Nike invested aggressively in its branding and increased marketing expenditure three-fold. This paid off when Nike's profits soared nine times higher after the recession.

 

The following are some tips to help IP owners weather the present economic downturn.

 

 

STEP 1: ASSESSING IP ASSET PORTFOLIO AND DEVELOPING IP STRATEGIES

IP owners need to assess their existing IP portfolios and categorize them into one of the following three groups – core IP, the sub-IP and the deadwood.

 

CORE IP ASSETS

Characteristics

:

Value drivers which are aligned with long term business goals

:

Vital for survival and growth

Strategy

:

Continue to renew, maintain, prosecute and enforce IP rights

SUB-IP ASSETS

Characteristics

:

Non-core

 

:

Aligned with short to mid-term business goals

:

Generates some returns or will probably generate returns in future

Strategy

:

Continue to evaluate periodically

 

:

Explore renewal grace period. Allow registrations to lapse if necessary

 

:

Be open to divestment opportunities

DEADWOOD

Characteristics

:

Underperformers

 

:

Maintenance cost exceeds value derived

:

Long term business goals detractors

Strategy

:

Actively seek to divest these to unlock value and cash

 

:

Set a timeline to seek divestment opportunities

 

:

Cease to renew and maintain these IP to reduce IP maintenance cost

 

Core IP are those IP that are aligned with your long term business goals and those that you cannot survive without. Concentrate on your core IP in creating maximum value for the company. Seek all possible avenues to further exploit the IP by licensing, franchising, merchandising, seeking sponsorship and corroboration of the IP. Keep them in tiptop condition and keep them close to your heart.  Continue to renew, maintain, prosecute and enforce these IP.

 

Be innovative with your core IP to find new sources of growth. Being sensitive and responsive to changing consumer trends and social concerns may be a way to stay ahead of stiff competition. Coca-Cola’s Diet Coke and Yeo’s low sugar drinks were introduced in response to those concerned with diabetes and high blood pressure. Kawanfood’s soy-based meat was introduced as a meat-alternative and General Electric’s eco-friendly products were to address the threat of global warming. These companies have created the X-factor that will give them the extra edge in charging ahead in the race.

 

The sub-IP can take a back seat for the time being. Many jurisdictions have a grace period for renewal. The grace period can be used to buy time while you weather the economic storm.

 

The deadwood can be left to rot so to speak. Nonetheless, IP owners should never be too quick in judging an IP as a deadwood. It must be worth at least something for the IP owners to have spent money and efforts in creating it in the first place. Even if the IP owners find such IP practically worthless to them, they should actively seek out potential purchasers for the IP during the lifespan of the IP. A deadwood to one may be the magical wand of another. In the mid 1990s, the brand Schwarzkopf was deemed too old fashioned. Henkel purchased Schwarzkopf and gave it a new lease of life. In 2007, Schwarzkopf’s range of personal care products racked in sales of €1.6 billion.

 

The categorization of IP will be the yardstick when renewal, maintenance and enforcement actions are called for. Thus, it should be conducted with extreme care after consultation with the various stakeholders of the IP within the organization, such as the planning team, the marketing team and the R&D team, i.e. the people with the best information about the value and potential of the IP.

 

The review should be conducted regularly so as to keep up with the changes in the business environment in this volatile market. The IP owners should also actively seek out potential purchasers for the sub-IP and the deadwood. The returns from the sale of IP can be used to strengthen the cash flow of the IP owner in the face of the global economic meltdown.

 

 

STEP 2: MANAGING IP MAINTENANCE COST TO MAXIMISE VALUE

The next step is to scale back and effectively control the cost for IP filings and registrations, which make up a substantial proportion of an IP budget.

 

It may be stating the obvious, but search and register IP only when the IP owner is certain that it will use the IP and that the IP is likely to be cleared for registration. Register your trade marks only for the class of goods and services which you are using the trade marks on and not on unrelated goods and services. Defensive filings and registrations should now be the exception. It should only be effected when there is a real likelihood that a third party will take advantage of your IP if you do not register them.

 

Identify the geographical areas where your products and services are sold. If your market is widespread, adopt as a rule of thumb the filing of international or regional IP registration instead of national IP registration. The exception should be for countries which are not part of the international or regional registration regimes.

 

Consider the life span of your IP. If it is only for short term use, for example fluid trade marks or trade marks and designs which are used in conjunction with certain occasions such as Christmas, or inventions which are easily reproduced at a relatively low cost, you may not want to apply for registration at all.

 

For a trade mark comprising of both words and design elements, you may wish to register it as a composite mark covering both the words and the design, instead of filing them separately. If protection is required for a certain logo or design, consider protecting it as a design or copyright if this is viable.

 

Adopting one universal global name may pay off handsomely in the long run. Focus your resources in one rather than several brands. Massive amounts of money and effort are involved in launching new brands and new products. Thus, adopt one universal brand, if it is feasible. You must however accommodate regional differences in languages. If possible, adopt one which can be pronounced in the same way in most languages. Many major brand owners have led the way with Unilever’s Jif becoming Cif and Procter and Gamble’s Oil of Ulay becoming Olay.

 

 

STEP 3: MANAGING IP LITIGATION COST TO PRESERVE VALUE

The third to go under the knife is IP litigation cost.

 

It is said that the economic downturn is the boom time for IP theft. Based on a recent survey conducted by the Federation Against Software Theft, 79% of company directors felt that businesses would be more likely to turn to unlicensed software in the name of cost cutting.

 

It is time that IP owners should watch their core IP like hawks and adopt aggressive litigation strategies. IP owners must send out a strong message that they are inclined to pursue the infringers and should be perceived to do so. Building up such a reputation will have a deterrent factor against potential infringers of IP rights.

 

Aggressiveness does not necessarily mean costly litigation. IP owners should make it a point to first issue cease and desist letters to the infringers as there are chances that the infringers may respond to the letter and thus a potential legal suit is avoided.

 

When litigation is contemplated, scout around for experienced and specialized lawyers who are well versed in IP laws and have vast experience in your particular type of dispute. Retain lawyers who can obtain expeditious results in the most cost effective ways. Negotiate for the fees to be capped and review the status of the suit with your lawyers periodically. Always explore the possibility of settling the matter. Infringers may be your potential business partners, licensees or purchasers of your IP. Consider alternate dispute resolution such as arbitration and mediation which may be comparatively less costly.

 

 

STEP 4: EVALUATING LOWER COST OPPORTUNITY: OUTSOURCING

Cuts in the bottom line may inevitably lead to cuts in head count. For IP owners with large IP portfolios, the outsourcing of IP legal processes may be an answer. IP legal processes typically covers proof-reading, prior art search or availability search, docketing and like actions.

 

It was reported that IP accounts for over 45% of business process outsourcing. Microsoft is believed to have saved about US$6.5 million in 2008 by outsourcing its IP legal processes.

 

THE MUST-NOT CUT

The one area which an IP owner should not cut when the economy is in turmoil is its advertising and promotional budget. This is the time for you to take measures to position yourself as the market leader in the industry, to retain and strengthen the existing customers’ loyalty to your products and services and to gain market share by winning over your competitor's customers as your rivals cut-back on their advertising and promotion budgets. Once customers switch loyalty, it will take an even bigger budget to regain their loyalty.

 

The cost of advertising and promotional activities can be contained by embracing the digital world. The clever use of online networking applications such as Facebook, MySpace, blogging and instant messaging applications can help strengthen a brand at no cost or relatively low cost.

 

When the dust settles, it is those who persevere in their efforts to market their goods and services who will emerge stronger.

 

 

THE MUST HAVE

All strategies relating to assessment, management and evaluation of IP must be timely and adequately communicated to all levels of employees within the organization for proper execution of these strategies. Thus, it is imperative that these tenets be crafted in a single instrument and that is when IP policy comes into place.

 

IP policy is the life and soul of IP. If the IP owners have not created such a policy, it is high time to do so. It would be a vital survival tool for IP driven companies, especially in this recession.

 

 

CONCLUSION

The economic crisis presents a challenge and an opportunity. The challenge is for IP owners to make the right cuts at the right time so that they will be in a stronger and better position when the economic crisis is over.

 

 

TEH HONG KOON ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 
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