What Every Export Orientated CEO Should Know About Intangible Assets

29.08.2018 Paul Adams

Building an export business is full of challenges: exchange rates, import regulations, foreign cultures, remote staff and, of course, offshore competitors. Those competitors are typically better resourced, enjoy a home field advantage and generally won’t hesitate to copy your latest product improvement the moment it hits the tradeshow stand. Too often we see Australian exporters develop great new products only to watch them mercilessly copied, often with apparent impunity, by offshore competitors. It’s not just heart breaking, it’s extraordinarily corrosive to your competitive edge and financially crippling. To survive, let alone thrive, Australian exporters need to rethink their approach to maintaining their competitive edge. Enter intangible assets.

Intangible assets include items such as data, industrial know how, product and engineering designs, confidential information, regulatory approvals, brands and trademarks, content, confidential information, relationships and patents to name just a few…it’s your secret sauce.

Intangible assets now account for over 87% of the value of all companies – they are the most important assets a company owns and the primary source of competitive edge. If these items are continually stolen – if your brand is faked, designs copied, industrial knowhow is siphoned away - your company will inevitably face rising competition and decreasing margins.

Unfortunately most CEO’s know very little about intangible assets. They are typically off-balance sheet and are literally intangible, which means they are often overlook or seen as a legal issue. Professional advice around intangible assets has tended to be theoretical, legally orientated and expensive rather than the practical, common sense, commercial approach businesses actually need to help them understand how make money or more money from these assets.

This needs to change: to thrive in international markets it is critical to understand your intangible assets. We give all exporters a simple message: “they will only pay for what they cannot steal”. If you can’t stop competitors from stealing your valuable intangible assets then in the mid-to-long run you won’t have an offshore business, and could find you have a new home competitor.

To help exporters understand intangible assets we have prepared a list of the “Top 5 Myths Every Australian Export Orientated CEO Should Know About Intangible Assets”. A kind of ‘go to’ resource that does not give you every answer, but helps you ask the right questions and avoid some common pitfalls.

Myth 1: ‘I don’t have any intangible assets’

Many Australian companies incorrectly believe they don’t have any intangible assets. This is unlikely: most companies have many intangible assets – they just don’t recognise them. As stated above, today more than 87% of most companies’ value is actually intangible assets. If you don’t believe they are important try this simple experiment. Try not using any intangible assets for a day – don’t use your brand, software, product designs etc. – it very quickly becomes apparent this is where the value is. The first step in leveraging your intangible assets is to understand that you have them. From there you can identify the kinds of intangible assets you have, what the best options are to protect them, make money from them and value them.

Myth 2: ‘Intangible assets aren’t important’

Some managers believe intangible assets are not important because they are ‘impossible’ to enforce and the only solution is to “run as fast as you can”. Being first to the punch can be a good strategy, but in the long run a strategy of constant, rapid product iteration to offset a lack of intangible assets is simply unsustainable. This approach requires substantial, continuous injections of resource just to stay ahead. In a global economy, new competitors continually spring up and you simply cannot outrun everyone. Further, running fast does not help when a large competitor shuts you out of the market using their intangible assets or duplicates your product at half the price. Intangible assets can be useful in many different ways and can open-up new opportunities – but you need to understand how to use them.

Myth 3: ‘Intangible assets can wait for later’

Intangible assets are seldom a burning issue and are all too easy to put off. They only get to the top of the agenda for most senior management teams when something goes wrong: for example, discovering a distributor, not you, owns your brand or your latest breakthrough technology actually broke through 10 years ago and you are now infringing someone else’s rights. The problem is amplified by the fact that intangible asset issues are extraordinarily expensive to fix up if things go wrong – especially when you are operating an export focus business that spans multiple markets. Intangible assets are a key business area where you want to be building fences at the top of the cliff, not picking up pieces at the bottom. It is important to note that boards and management teams can be directly liable to shareholders for failing to manage their intangible assets and risk effectively.

Myth 4: ‘Intangible assets = patents’

Many people erroneously believe intangible assets equal patents and trademarks. This is not the case: there are many different kinds of intangible assets. Interestingly, for most companies the overwhelming volume and value of their intangible assets is not in harder (registered and not free) patent and trademark rights, but in softer intangible assets such as confidential information, unregistered trademarks, copyright and regulatory approval rights. That is important because: a) these softer rights are free and b) the intangible asset strategy used for them is completely different from the approach used for the harder rights.

Myth 5: “I filed a patent or trademark – they can’t copy me so I’m safe”

Many companies wrongly believe that having their own patent or trademark means they are ‘safe’. This is incorrect. First, about half the companies we see have major brand issues: they either have inadequate brand protection (often they have a device mark not a word mark, e.g.: with a brand like McDonalds they protect the visual look (device mark) of the golden arches, but not the word “McDonalds” (word mark)) or their trademark does not cover what they are doing (very common) or worse that third parties actually have superior rights. We frequently see unscrupulous distributors file trademarks over Australian companies’ brands and when the divorce inevitably occurs, the exporter is unable to use their own brand because someone else owns it.

Secondly, many companies incorrectly believe if they have a patent they cannot be sued for patent infringement. A useful analogy: a patent is a sword not a shield. To use your patent (your sword) you have to enforce it (hit someone with it). Simply having a patent (sword) in your drawer has zero effect – you can still be sued by someone for patent infringement even if you have your own patent. The patent functions as sword (to attack) not a shield (to defend).

The key to success

To summarise, intangible assets are a key success factor for exporting businesses. They are not a legal issue – they are key business assets that are essential for competitive edge. To protect and get the most value from intangible assets, the strategy around them needs to be seen as a core business function that is driven by the board, CEO and senior management team. To achieve this, focus on getting good, clear, common sense advice around your intangible assets that will drive commercial value for your business.