Intangible assets cover a wide variety of assets, from know-how, trade secrets, confidential information, intellectual capital, data, patents, trade marks, reputation, and more. How companies uses their intangible assets for commercial gain may differ significantly, even for companies operating in the same space. However, what is constant is that the total value of intangible assets tends to be greater than the sum of their parts.
By viewing the value of a patent independent of the value its inventor brings to an organisation (or the role provided by an R&D program), you fail to understand the interconnectedness of intangible assets. Intangible assets dance together to provide value. Understanding how your intangible assets relate to one another provides a deep insight into the workings of your company and allows one to look at risk in a new light.
Listerine® is an excellent example of the intangible asset dance.
Joseph Lawrence developed Listerine® in 1879 as an experimental surgical disinfectant. Not gaining traction in the medical and dental community, Joseph sold the secret formula (i.e. a trade secret) to Jordan Lambert in 1881 in return for royalties on future sales. Listerine® only had moderate success until the 1920s when an effective marketing campaign focused on Listerine® treating “chronic halitosis” – a then-obscure medical term for bad breath – turned everything around. Revenue rose from then US$115,000 to US$8,000,000 in about five years. From then on, Listerine® became a household name.
Not to be outdone, competitors reversed engineered the secret formula, which was then published in 1931. By this time, however, the Listerine® name was so well known that Lambert could continue to enjoy the benefits of having a head start in the market. Access to the secret formula helped to build up a brand name, distribution network, and customer base, to such a point that it didn’t matter that the secret formula was lost because it was hard for competitors to break into the market.
In the case of Listerine®, trade secrets, marketing, trade marks, and distribution and supplier agreements all worked to provide a commercial advantage. Without the marketing campaign and trade marks for customer awareness, the value of the trade secret and distribution and supplier agreements would not have increased. But it was the trade secret that initially prevented competitors from selling similar products, which allowed the marketing campaign to take off. And without valued supplier and distribution agreements in place, it would have been difficult to scale as quickly as Listerine® did. The interconnectedness of all the intangible assets above meant that when the trade secret was lost, the strength of the other intangible assets provided continual value and commercial.
Much like innovation not happening in a vacuum, leveraging one type of intangible asset doesn’t happen without using another intangible asset. Perhaps this is why it can be difficult to identify the different intangible assets in the first place – their intertwined nature makes it difficult to isolate one intangible asset from another.
An important lesson from the Listerine® example is that a well-rounded intellectual property (IP) strategy must have regard for the intangible asset dance. Of course, some companies will emphasise particular types of assets to derive value but thinking a patent or trade mark alone will bring commercial success is short-sighted. In this way, a proper IP strategy should be considered an intangible asset strategy. Such an intangible asset strategy also means that risk associated with a specific intangible asset is diversified among the other intangible assets.
Side note: there was no sunset clause to “future sales” in the original sale agreement in 1881, with Jordans Lawrence’s heirs enjoying a significant enduring royalty stream. The contract to the secret formula was also only 144 words long. The Courts found in 1951 that Lambert needed to continue paying royalties even though the secret formula was no longer secret as the sale agreement related to the continuing sales of Listerine® and not the trade secret per se, no doubt leaving the heirs of Jordans Lawrence feeling fresh and well-minted.