Paul Adams reports on the increasing threat of intangible asset risk to Asia Pacific high growth companies.
The recent flowering of the technology scene in the Asia Pacific led by companies such as Atlassian, Xero, Garena and others is hiding a serious and growing risk to Asia Pacific investors - one they have not faced before: intangible asset risk.
Over the past 40 years the proportion of intangible assets making up company value has precipitously climbed from 17% in 1975 to 87% today. Intangible assets are everywhere: in data, software code, brands, content, regulatory approvals, Internet presence, design and new inventions.
These assets are not just the primary repository of value today – they are also the main driver of company growth and financial performance. Companies such as YouTube, Instagram and WhatsApp have consistently shown that fast growth is irrevocably linked to possession of highly scalable intangible assets.
With billions at stake it is no surprise that those who develop and own intangible asset are aggressively leveraging their Intangibles and attacking those who trespass on them. The past few years have seen an explosion in intangible asset and intellectual property related litigation in the US and Europe, led by high profile cases such as Apple v Samsung and Waymo vs Uber. Tens of thousands of intangible asset litigation cases are now filed annually. The rise of patent trolls (companies whose only purpose is to sue companies for infringement) has intensified the problem.
The implications for Asia Pacific technology companies and their investors are very serious. With more and more of companies selling technology-based products and services in the US and EU there is little doubt many of those companies are treading on some big toes. Below is just small sample of cases from the last few years:
- Promising technology company effectively forcibly acquired following patent litigation by much larger offshore competitor. Impact: approximately $100 million.
- Well known company sued three times in four weeks by US competitors following its acquisition by a US company. Impact: approximately $20 million.
- Mid cap technology company spent millions defending an infringement suit before settling and paying license fees. The company has never recovered. Impact: approximately $55 million.
- Major company sued 6 weeks out from major capital transaction and was forced into settlement. Impact: approximately $15 million.
Most of these cases were settled confidentially: the defendant generally does not want to make a scene. But the cost to investors either directly or in the destruction of shareholder value was in the hundreds of millions.
With a slew of new companies rushing to the stock exchange this problem is only likely to intensify. A quick analysis of a dozen or so technology orientated companies that have flagged their intentions to list reveal they are frequently selling products that compete with multi-national players who own extremely rich portfolios of intangible assets, including thousands or tens of thousands of patents. These local upstarts on the other hand typically have few resources to fight back with. It is as they say, only a matter of time.
What this means is that Asia Pacific senior management teams, boards and shareholders need to rapidly bring their game up to speed.
1. Ignorance is not a strategy. A “see no evil, hear no evil” approach to intangible asset risk is a major mistake. Intangible asset risk is relevant to any business with innovative products or an export orientation.
2. Intangible asset risk is not just about patents – you can infringe any form of Intangible Asset: copyright (software code, content), trademarks (brand), design rights (product designs), confidential information (processes, systems, know how, data and trade secrets).
3. If a company has its own patents that does not mean it is not infringing someone else’s intangible assets. Further, having your own patents is no defence against a patent troll.
4. Companies should not rely on the same firm which files its patents and trademarks to sign off an infringement risk – just as your auditor should not be your accountant. Advice around intangible asset risk must be independent and objective.
It’s worth noting that directors can be directly liable for failing to take intangible asset risk seriously. Intangible Assets are now the single most valuable asset and one of the largest risks most technology companies face. "She’ll be right” is no longer an option.
Paul Adams is CEO of EverEdge Global, a global advisory and transaction firm that assists companies and investors to unlock the value of intangible assets and reduce risk. Paul has been named one of the World’s top IP strategists the last five consecutive years and was the recipient of the Outstanding IP Leader Award 2012. www.everedgeglobal.com.