Intellectual property: the price of ideas

My business recently acquired a company that carried a portfolio of patents on various pharmaceuticals, and it quickly became apparent that I was going to have intellectual property (IP) added to my remit as a finance director – another sign of how much FDs are expected to be true business partners and be adaptable to challenging environments. This meant that I had to learn about IP quickly.

As a business, we invested a lot in buying the IP in the acquired company’s principal thermostability technologies. Through the due diligence process, we ensured that we understood the status of individual patents, in relation to key technologies, but we failed to appreciate the extent of the total portfolio we were taking on. Personally, I didn’t understand what rights a patent does or does not confer, or the cost of maintaining IP once granted. There is a general belief – one I used to share – that a patent gives you the exclusive right to use a technology. I know now that it merely prevents others from using it without your permission. It does not necessarily give you the right to use the technology as your patent may build on one or more previous patents owned by others. This means that, in order for us to exploit our new IP, we could be required to license (pay royalties to use) the other patents from their respective holders.

Taking on responsibility for IP, I had to appoint and take advice from appropriate professional advisers including patent lawyers. I also needed to consult with our tax advisers because, depending on the strategic objectives of the business, any decisions on how to manage IP may vary. Managing IP becomes a costly business – not least for SMEs, who may not be able to afford hiring all the external consultants they might like. Having gone through it, I would advise other FDs who find themselves managing this to select a company of patent lawyers based on their knowledge of your industry, understanding of the size and culture of your business – so they can gauge the level of support required – and reputation in the marketplace. Do not necessarily rely on your current representatives.

The portfolio review we undertook helped us assess the commercial merits of each item and the value of protecting those rights in certain geographic territories. I came away from the process having learned that it is worth considering having patents in markets that are either likely to manufacture or supply the products, or to be significant markets for the finished product.

In the first year of having the IP portfolio, about half the expenditure we incurred related to ensuring that the portfolio was properly assigned, that all the relevant countries understood that we now owned and were responsible for the patents, and that this was officially recorded. To make a mistake in that part of the process or to fail to do this in time could have a major impact on the validity and enforceability of the patents later on.

Owning IP is an expensive business. In the first 12 months following the acquisition, we incurred costs equivalent to 33 percent of the purchase price. Those costs were unavoidable if we were to protect the entire portfolio while we found the time to properly evaluate each patent or application. It came as a shock to me that the cost was so high, and this focused our minds on the review of the portfolio, in relation to the territories that were important to us, and the potential commercial value of the invention and the idea itself. We had to make it worth our while.

Managing the IP portfolio correctly is an important area of financial control and deserves the attention of senior management. My advice, if you find yourself in the same position, is to quickly get to grips with understanding what is contained within the IP portfolio – and carefully manage the not-inconsiderable costs.