Invest in the Future

Have you wondered about how larger businesses use Intellectual Property to create long term value? Were you aware that this value can be used to generate income? Do you want to know how to use IP to invest into the long-term future?

Most businesses use Intellectual Property to focus on short to medium goals. In this regard IP can be very effective, allowing IP owners to exercise market control, create barriers for competitors, as well as to create opportunities. However, astute businesses realise that long-term success cannot be based on one product alone and will ensure that there are successive generations of new products or services with a corresponding IP portfolio. Each generation, though, will have a limited life – typically determined by the market (which may be quite short), or the maximum life of the protected IP (often a maximum of 15 to 20 years). Continuing R&D represents a wise investment for any business who plans to be in the market for a long time. While a business will keep innovating if it wants to stay ahead in the market, is there anything else with a longer lifespan which can capitalise on all this effort and innovation?

The answer to this is yes, and is ‘goodwill’. Goodwill is that intangible asset that a business accrues that essentially reflects how the market responds to it. This may be represented by customer loyalty, perceptions of value and quality, and in actual sales. As the goodwill grows, not only does its value increase but other benefits can present themselves. For any business, goodwill is invaluable and ultimately (in an ideal situation) will become its most valuable asset – any one who has recently acquired a thriving business will attest that the goodwill would have been the largest part of the purchase cost.

How does this help the business though? The value of the goodwill may be realised if the business is eventually sold, though may also form security against any loans for expansion. Goodwill cannot be sold off piecemeal to raise capital, though it provides a few unique opportunities. A high level of goodwill can be attractive to others, which opens up the door to licensing and franchising. MacDonalds, the fast food franchise, is the classic example. Franchisees pay for a number of benefits, though by far the biggest reason is to be able to use the MacDonalds brand above their door. In this case the franchisee can immediately capitalise on the reputation and goodwill of MacDonalds to sell product, while MacDonalds receives licensing fees in exchange. It is a situation somewhat analogous to having employees prepared to pay you for employing them – no wonder that franchising and licensing is so popular. But wait, there’s more. The more franchisees there are, and the more successful these franchisees are, then the more valuable becomes the goodwill subsisting in the MacDonald’s brands. Which of course then means that that MacDonalds can command higher licensing fees. The goodwill effectively becomes an entity with self-perpetuating growth.

There is an important point however. Goodwill cannot exist on its own. Goodwill subsists in the brands and trademarks of a business, whatever their form. More important is the need to protect this goodwill through registration of the trade marks of the business. Failing to register the brands is like failing to record ownership of your business premises, or your house, or your car. This becomes a significant problem when someone else decides that they should have it.

Secondly, securing opportunities through licensing and franchising is really only effective when the brands are protected through registration. Anyone serious about securing their goodwill for the future needs to seriously consider identifying their brands, and taking the steps to register them. It will be your most valuable asset, so why leave it to chance. Next month we shall look more closely at trade marks, and how to use and protect them.

IPRIMA - Registered Patent & Trade Mark Attorneys