Chartered Management Institute companion Ian Harvey, chief executive of BTG, urges companies to forge a proper strategy on intellectual property.
Natural selection takes care of chief executives who don't understand the difference between profit and cashflow. And we are moving into an era where CEOs who cannot explain to their board the difference between patentability and freedom-to-use will go the same way (for the answer, see below). Today, intellectual property (IP) should be at the heart of most corporate strategies. Yet 95% of CEOs - even those that lead technology-based companies - have a poor grasp of it.
Over the past few years, UK corporate growth has come from the knowledge-based industries - at the last DTI review they accounted for about 70% of the value of UK quoted equities. And an OECD study shows that the largest component of economic growth in the G8 countries between 1970 and 1990 came from innovation and technology developments.
The knowledge stemming from innovation is one of the most precious corporate assets. Yet until it is encapsulated in a legally protectable form - through patents, copyright or trademarks - it can walk out of the door, it can be copied or just plain lost.
In today's interlinked world, IP is one of the few competitive tools that can be enforced in court. Technology and the IP that complements it have a central role in helping companies to develop, compete and create wealth. With trade barriers coming down, it's hard for UK businesses to compete on price against low-cost, high-quality manufacturers from East Asia. But a competitive edge can come from innovation and effective marketing, and this is exactly what IP rights can protect so effectively.
There are two key questions in developing an IP strategy. First, why have one? Is it to protect your own technologies in the market and to stop others? Or is it to license your erstwhile competitors and take revenue from the entire market? Second, how can you use IP to greatest strategic effect? Are there gaps in your IP, which could be filled by acquiring other IP or companies with a suitable IP base?
As an example, after Microsoft was forced to pay dollars 30 million to IBM following a patent dispute, the company reassessed its previous reliance on copyright to protect its software. Eight years ago, Microsoft owned just 30 or so patents. Now it has about 300, with a further 4,000 in application.
Several years ago, it paid dollars 425 million for Web TV, a start-up, to gain access to 35 key patents covering Internet content over television. These were 'business method' patents, which - you could argue - are not patentable in Europe and therefore not relevant to a UK company. The first point may be (almost) true. But in this frictionless world, to compete in the US you have to use and play by American IP rules to gain maximum advantage.
And the US has several key differences in patent law. Some of them can cause problems, but others present real commercial opportunities not open in other jurisdictions. Several years ago the general counsel of a major European bank was taken aback when he discovered that its US competitors had already filed business method patents covering products the bank intended to introduce into the US. On the other hand, it is possible to split and modify a US patent application over time, so that it covers more of what your competitors are actually doing.
Any company should take maximum advantage of the IP laws in each country. They are there to stimulate innovation. However, there are also pressures, real or perceived, on parts of the global patent system, and companies need to understand these challenges to IP policy.
Take the recent 'access to medicines' issue that centred on South Africa. The pharmaceutical companies, surprisingly, failed to see the situation emerging. What began essentially as an ability-to-pay problem developed into a patents issue. Had senior people in the pharma companies seen this earlier, they could have taken the initiative, as GSK ultimately did, to deal with the real problem of access without damaging either their patents or their reputations.
Around the world, patent law is slowly coalescing as the need to have global standards is being addressed. With greater harmonisation, the importance of IP will continue to increase. Business partners and shareholders will pay much greater attention to a company's management of its IP and its IP strategy.
By the way - are you filing patents in China yet? You should be, as this country is one of the world's fastest-growing economies, with state-of-the-art manufacturing and an innovative and entrepreneurial population. Just as Japan, Taiwan and Korea came into the IP fold in the 1960s, '70s and '80s, so too is China today.
And, oh yes, the answer: you can be granted a patent, which allows you to stop someone else from using your invention (patentability). But it does not give you the right to use your invention (freedom-to-use) because someone else's patent may dominate yours.
Still not clear? The full answer, with an example, is at www.btgplc.com/patentability.php. Or talk to a patent attorney, because not understanding this concept has caused problems for many a company.