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  • Three steps you must take when innovation underpins your livelihood…and two more you must absolutely, positively avoid.

    1823b88e-b7a0-41e4-befd-440333ad2b2eThe world’s biggest company, Apple, has a secret. Using its secret, Apple has grown from a tiny home business to a market value of US$700 billion (that’s about half of Australia’s GDP), making it the most valuable company ever.

    I want to share that secret with you so you can increase the value of your company, which could be especially important if you are preparing for sale or investment. The secret’s hiding in the table below, which shows the distribution of value for the iPhone in 2010 – can you spot it?

     

    Distribution of value for the iPhone:

    58%: Technology and brand
    22%: Materials
    14%: Technology inputs (US, EU, Taiwan, others)
    4%: Labour, non-China
    2%: Labour, China

    That’s right, the iconic product of the world’s biggest company derives most of its value from distinctive brands protected with trademarks and distinctive technologies protected by patents and secrecy.

    The phone is assembled in China, but China realises almost none of the value.

    Apple has brought home the bacon because it has been able to differentiate itself in the marketplace and tightly control its intellectual assets. The differentiation and control would quickly erode without Apple’s patents and trademarks, as would Apple’s value. While companies have in the past depended mainly on physical assets, their wealth (like Apple’s) is now driven more by knowledge and information.

    Unique intellectual assets are a major point of differentiation between companies and can protect a company from being no more than just another commodity provider. Patents and trademarks can be the most powerful intellectual assets of all because they present a barrier against followers. In addition to this, commercialised inventions protected by a patent in Australia are, on average, 40% to 50% more valuable than inventions without patents.

    So how can you be like Apple and increase your value? Here are the three steps you must take when innovation underpins your livelihood (which is true for everyone):

    1. Determine your company’s intellectual asset position.

    Around 70% plus of a modern company’s value is in intellectual assets. Can you account for these right now? Are these in your annual reports? If not, you’re not getting full value.

    Do you know your company’s valuable commercial secrets and how to stop employees walking out the door with them? Do you know what intellectual assets you need in order to achieve your commercial objectives?

    2. Work out a strategy for developing and extracting value from that unique and differentiating 70% of your company’s assets.

    Once you have determined your intellectual asset position, you can determine actions to take you from your current to your ideal position. It’s really important to plan your actions and budget because you’re going to get significant leverage on your investment.

    3. Make your point of differentiation in the market sustainable by protecting intellectual assets, where possible, to stop competitors adopting your innovations.

    When appropriately exploited, this will increase your market share and enable you to command higher prices – and who wouldn’t want that?

    Protection can include, for example, patenting your important technology, registering your trademarks, documenting your secrets and developing protocols for keeping them secret. Investors greatly value patents and trademarks. You want to grow like Apple, don’t you?

    On the other hand, there are two things you must absolutely and positively NOT DO if you want to grow like Apple:

    1. Don’t think for a second that protected intellectual assets in the form of patents and trademarks are a cost rather than an investment. This view threatens company value.

    Do you really believe your competitors will let you keep your point of differentiation and attractiveness to your customers unless you’re legally protected? Is that how Apple became the biggest company ever? Of course not.

    2. Don’t tell others about an invention before you file a patent application.

    Telling third parties about your invention will dramatically lessen the value of your asset and may even prevent a valid patent being granted to you in many jurisdictions.

    Apple doesn’t give away its intellectual assets, and neither should you. Keep your invention secret until filing a patent application, and use non-disclosure agreements if you must talk to someone about it beforehand.

    I promised you two things you must NOT DO if you want to grow like Apple, but I want to share another with you: Don’t let your strategy collect dust.

    Markets change, competitors come and go, and technologies emerge and disappear. You need an agile intellectual property position. When the only constant is change, not revising your strategy regularly is sure to cause you to come unstuck.

    Adding significant value by developing sustainably differentiated intellectual assets, and leveraging those intellectual assets in the marketplace is not only for Apple: your company can do it too.

    Justin Blows

    j.blows@phoenixIP.com.au