Posted in Economy

The Intangible Economy - By L. Burke Files

President of Financial Examinations & Evaluations, Inc.

 

This is the era of the Intangible Economy. This is the Intangible Age.

 

• The Industrial Age - began in Britain in the 18th and 19th Centuries

• The Information Age - is roughly from the 1980's to 1992.

• The Knowledge Economy - started in 1992 and continued to 2002

•The Intangible Economy - started in 2002.

 

So what is this about, simple...the world economy is now about as much about ideas as it is manufacturing and consumerism.

 

What Is Intellectual Property?

 

Intellectual Property is any intangible asset that consists of knowledge or know how.  A tangible asset is physical, it has form, it has a creation date, and its location can be described.  Tangible assets are created from intangible assets.  While this description is as accurate as it can be in its brevity, it also can describe Critical Information.  So, to be more specific, let's refine our definition.

 

Intellectual Property is a concept that includes copyrights, trademarks, service marks, patents, trade secrets, and other related rights.  Intellectual property is an abstraction recognized by law.  The holder of these abstract “properties" has certain exclusive rights to their creation (work, symbol, or invention) that is covered by law.  These rights are specific to the jurisdiction in which they are registered or are covered by international treaties that accept registration in third country jurisdictions.  If a legal authority somewhere does not recognize the IP, the holder has no rights.  Thus, if your IP finds its way to jurisdictions where it is not protected, this will pose a problem.

 

What Is Critical Information?

 

Critical Information is specific information about your intentions, capabilities, and activities, which in the hands of your adversaries would allow them to plan and act effectively against your best interests.  It is information about your company that your competitors could use to make you non-competitive, or hammer you into bankruptcy.  The identification of your company's Critical Information should be construed in the broadest of terms and include items such as customers lists, employee handbooks, formulas, shipping and receiving records, travel of key personal, presentations made at conferences, etcetera.

 

IPCI is a Key Asset

 

IPCI (Intellectual Property and Critical Information) is at the very heart of the modern corporation's vitality.  Researching several studies on business acquisitions and mergers, I find that on average 75% of the purchase price of a company represents intangible assets and goodwill.  Analyzing these mergers I found a further breakdown of the intangibles to be approximately 25% "proprietary technology", and 50% goodwill.  These numbers show, in dramatic fashion, that buyers and sellers clearly assign significant value to intangible assets.  This awareness explains why there is global attention by management to protect their IPCI.  Or so it would seem.  

 

Why Is IPCI So Important?

 

IPCI is today's modern economy and the future economy.  A crucial point about legal protection of intellectual property is that it turns intangible assets into exclusive property rights -- for a period of time.  It enables your company to exclusively exploit intangible assets to their maximum potential.  IPCI protection makes intangible assets a bit more tangible, by turning them into exclusive assets that can be, if so desired, traded in the marketplace.

 

If IPCI rights do not legally protect the ideas, designs, and brands of your company, then these will be freely used by any other enterprise without limitation, especially your competitors. Your rights have to be claimed, documented, and enforced. If not, you will have little or no recourse.

 

However, when rights do protect IPCI, the intangible assets acquire concrete value for your enterprise and become property rights, which cannot be used commercially by others without your authorization.   While protected assets cannot be used overtly, that doesn't mean that they can't be used secretly.  The IPCI still needs to be protected against both inadvertent disclosure and infringement.

 

OPSEC (Operational Security) Impairment Or Enhancement

 

At this point I have covered some basic information on the valuation of IPCI.  From here a look at impairments to value is required.  Impairments include some factors that have not yet been mentioned and are not a part of traditional thinking.  For comparison sake, an impairment of value on a pick up truck would be a bad engine. An impairment of value for IPCI is when it is no longer exclusive -- it is diffuse.

 

The consequences of an IPCI theft are not the actual loss of the asset.  Since the assets are intangible, you don't possess them, you control them.  What is lost in an IPCI theft is the exclusive use of the asset.

 

Once IPCI use
becomes diffuse
It's of little use.

 

IPCI theft, or compromise, is an event that creates instant obsolescence.

 

OPSEC is the most effective tool a company can use to protect its IPCI.  OPSEC is the identification, valuation, and protection of Intellectual Property and Critical Information from competitive intelligence, economic espionage, casual dissemination, and theft.

 

• OPSEC is a management function.

• OPSEC is threat-based (not rule-based)

• OPSEC is a process

• OPSEC crosses divisions and disciplines

• OPSEC allows us to reduce vulnerabilities to – and therefore derived risk from – competitive intelligence, economic espionage, disclosure and theft of information. 

 

Companies must protect their IPCI, and the logical model for this internal control is OPSEC.  This is the accepted standard process for identifying, valuing, and protecting information that would give adversaries an advantage.  It serves the very same purpose in the private sector - it identifies, values and protects your IPCI.

 

OPSEC addresses five critical questions:

 

• Who wants your information, and what are they willing to do to get it?

• What information do they want, versus what is important to you?

• Where are the vulnerabilities that would allow competitors to get information?

• What happens if they do get the information?

• What can you do to prevent this from happening?

 

OPSEC is conceptually simple and initially looks like traditional risk management, but there is a critical difference.  OPSEC is a threat-based iterative management process that crosses divisions and disciplines, not a rule-based system relegated to one department and certainly not security.  When properly approached by an experienced practitioner, OPSEC is highly cost-effective to implement and maintain, and provides a high return on investment from reduction of losses and decreased liability costs.

 

OPSEC is a process whereby the owner of IPCI designates what is important, what competitors may want, and devises methods to secure and limit access to the information.  Further, there are enhancements to OPSEC that can often track stolen IPCI when it leaves an enterprise all the way to its destination.  So how do you know when you have lost IPCI?

 

Impairment Has A “Tell” 

 

Poker players call it a "tell."  Some players have mannerisms that signal the quality of their hand.  Some people's voice gets higher when they are bluffing, others tap the table when they have a good hand and are impatient to wager.  The loss of IPCI has its own "tells."

 

• A competing company is producing goods identical to yours. 

• You find that your market share is shrinking. 

• Other companies can suddenly match your price points. 

• A sudden, and knowledgeable, market pressure on prices.

 

As I discussed, Intellectual Property does not exist unless it is covered by a legal registration or declaration.  Thus, if your IP lands in a country where IP is not covered – it is not protected.  If you have a copyrighted book, but that copyright is not registered in Russia or China -- then it is not protected in Russia or China.  Further, if you patent an item in the U.S. and the E.U. and decide not to patent it in China, it's tough cookies (a legal term of art), businesses in China are not bound by your patents filed in the U.S. and E.U., and an enterprising rival may even file your patent in China and claim it to be their own!

 

My Rant

 

I am addressing this complex issue in a short blog as a point of awareness.  So many companies, so many run by decent individuals have lost their IPCI through renegade employees, idiot landlords, disclosure from a key supplier or customers, or even out right espionage that I need to say something - yet again.   The most important asset you posses is your knowledge on how to make items or perform a process better and faster than others. 

 

So please be IPCI aware and be OPSEC savvy and keep what is rightly yours - yours!

 

Note:  80% of the assets of companies listed in the S&P 500 - are intangible assets!

 

Mr. Files is a published author of five books, in particular "Due Diligence for the Financial Professional, 2nd edition 2010" and "Money and Budgets" other writing and material can be found at .https://www.feeinc.com/media.php.  Mr. Files is an international speaker on these topics. 

 

FE&E, Inc. is an international investigative firm specializing in, fraud prevention, asset recovery, due diligence, anti money laundering and intellectual property. 

 

As a financial industry insider for over 30 years he is keenly aware of the type, and accuracy of the information required to make decisions. Mr. Files has been the case manager on fraud investigations ranging from tens of thousands of dollars to over 3 billion.   As an international expert on due diligence and Intellectual Property and Critical Information (IPCI) he is regularly sought for those cases that bedevil the desktop practitioners. 

 

This article is courtesy of the Top 1% Club and the Top 1% Club Mentor Gail Kasper. For additional information on Gail Kasper, her television appearances and speaking engagements, please visit gailkasper.com.