Protecting Your Intellectual Capital

Many people, who have achieved success and wealth through their business, have done so with their intellectual capital. What exactly is intellectual capital? This is the sum of the business’ hidden assets, such as its human resources, knowledge, intellectual property, and all of the client and stakeholder relationships that bring immeasurable value to the company. In essence it is your “secret sauce,” which gives your business its competitive edge. When the recipe is lost or stolen, your business can lose most, if not all of its value.

In simple legal terms, intellectual capital is comprised of the trademarks, licenses, brand names, and patents that are accumulated in a business. However, as commerce advances into the digital age, more and more intellectual capital is fueled by knowledge and relationships. Business today thrives on networks and partnerships, and it is often a key person or partner who holds this knowledge; keep in mind, this means that key people may leave a business and partners can turn into competitors. To give you an idea of just how valuable intellectual capital is, consider the bankruptcy liquidation of telecom giant, Nortel. Its hard assets – capital equipment, properties, towers, and subsidiaries – went for $2.5 billion, while its patents brought more than $4.5 billion.

A big mistake a lot of entrepreneurs and business owners make is that they don’t patent their creations, or, if they do, they patent the wrong things. For instance, if a business creates a revolutionary manufacturing process and patents it, the “secret” becomes accessible to your competitors, and trade secrets should remain secret. However, if the new process is meant to be marketed to the public, then it needs to be patented.

If your success and, ultimately, your wealth are inextricably tied to a trade secret, a patent, a brand, or trademark, you should protect it as if you were guarding a vault of gold; because it is likely that it is worth far more than gold. It’s strongly recommended that you hire an attorney who specializes in intellectual capital.

Intellectual Property Insurance

Most general liability policies do not provide coverage for intellectual property. Without intellectual property insurance coverage, your company is, in essence, self-insuring against the risk of loss or damage. Patent insurance is a specialized form of intellectual property insurance that can indemnify your company from loss due to patent litigation. One type of coverage, referred to as “offensive coverage,” protects you, as the patent holder, and “defensive coverage” provides protection in the event your company is accused of patent infringement.

Obtaining intellectual property insurance may be more involved than obtaining a patent, but the effort is well worth it. The application and underwriting process is fairly extensive, requiring an in-depth patent search, legal opinions, and a customized proposal from the insurer stating the terms under which your intellectual property will be covered. Should you have a claim, either defensive or offensive, the insurer will investigate the claim, and, if need be, they will manage the lawsuit and possible negotiated settlements.

Insuring intellectual property is a complex issue that should only be addressed with the help of an insurance broker who specializes in this particular area.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.