As the business value of intellectual property (IP) continues to grow, the need to manage IP as a strategic asset is greater than ever. As of 2018, intangible assets accounted for 84% of market capitalization for S&P 500 companies, compared to just 12% four decades ago. While 95% of senior corporate decision makers believe these intangible assets predict future strength, many organizations still fall short in their strategic IP management.
IP is undervalued
A 2022 Aon/Ponemon Institute report found that many businesses undervalue intangible assets relative to tangible assets despite the fact that intangible asset values are increasing faster than those of tangible assets.
While innovation is increasingly driving business growth, innovation performance is lagging in many organizations. In a survey of 215 corporate leaders in roles relating to innovation and R&D, only 6% of CEOs were satisfied with their innovation performance. Only 11% of survey respondents considered their organization to be at a stage of innovation maturity, with well-integrated business practices.
New standards and rules
A key issue in the valuation of IP has been the lack of standard accounting practices for valuing patents. Research suggests that traditional approaches used in Property, Plant and Equipment (PPE) accounting (cost-based, revenue-based and replacement value) are insufficient for measuring the contribution of intellectual property to a business. Since adopting IAS 38 Intangible Assets in 2001, the International Accounting Standards Board has made several revisions to reflect the growing importance of these assets. Recent reforms include new accounting standards for IP assets and new rules designed to increase transparency. Amendments to International Financial Reporting Standards (IFRS) issued in 2018 and 2020 for measuring and reporting on goodwill place increased emphasis on IP as an asset class to be measured.
Recent judicial decisions are also impacting IP management. In DuPont v. Medtronic Vascular, the court found that corporate officers have an affirmative duty to monetize their corporation’s intellectual property. In Miron v. Microsoft Corp., the court determined that directors have a fiduciary duty to license IP at fair market value. This highlights the importance of increased transparency in the way corporations manage their IP.
Given this reality, financial management of IP is rapidly becoming mission critical. In today’s global marketplace, with the proliferation of patents and trademarks held in jurisdictions worldwide, the fees for applications, local agents and renewals associated with maintaining a large IP portfolio constitute a major corporate cost center that requires careful budget management.
Take control of your IP budget
That puts corporate IP leaders in the hot seat. Exceeding your IP budget could impact the company’s bottom line. Under-spending your budget creates its own potential problems in organizations with a ‘use it or lose it’ approach to budgeting. To hit those budget numbers consistently, IP departments need reliable budget forecasting. They need the ability to ‘see around corners’, accurately anticipating their future IP spend and tracking actuals against forecasts to ensure they are on track.
Now, Clarivate™ is helping IP departments rise to the challenge of IP budget management with our next generation Forecast solution. Forecast gives you powerful budget forecasting capabilities, seamlessly integrated with Clarivate IP management systems (IPMS). Predictive analysis powered by artificial intelligence (AI) improves budget planning, helping IP leaders make better financial decisions, stay ahead of changing conditions and avoid under- and over-spending. That means less pressure—and more time focused on managing and protecting your IP assets.
Look out for more information on this exciting, new solution soon. Can’t wait? Contact us to learn more.
