In 1999 Alan Greenspan, the former head of the US Federal Reserve, delivered a speech at Harvard University entitled “Transcending all else is being principled”. In it he said of reputation “In today’s world, where ideas are increasingly displacing the physical in the production of economic value, competition for reputation becomes a significant driving force, propelling our economy forward. Manufactured goods often can be evaluated before the completion of a transaction. Service providers, on the other hand, usually can offer only their reputations.”
So true. As BP responds to the oil leak crisis and its reverberations in the local economies, a company’s reputation has begun to matter more now than it has in decades. Companies and industries with reputation problems are more likely to incur the scrutiny of legislators, regulators, and the public. So how does that relate to Intellectual property? Traditionally reputation has never been associated with patent nor much with copyrights. Trademark practitioners, however, receive much more attention on how to contribute to a company brand reputation. In case of an emergency, spin doctors no longer lead the way out, action does. So what in fact is “reputation”? The term “corporate reputation” refers to the social status and the respect of others are perceived by its key stakeholders such as employees, customers, members of the media, investors, NGOs, suppliers and financial analysts.
70-80% of western companies’ market value is driven by intangible assets. These assets can be subject to patent challenges, an infringement case, core patents being invalidated, etc. A company can lose its valuable assets by losing its core patent(s). So it seems only logical to look into reputational damage that can be done to a company when its patents are being challenged. However, patent “risk” is seldom perceived as a risk factor in reputation management. Brand reputation is. Product marketing is costly as firms attempt to establish quality reputations for differentiated acts and products. Thus, industry profits are protected both by copyrights and trademarks .
Trademark or brand reputation is on the 8th place in a Marsh reputation management survey held in April 2010. The survey asked respondents to identify their companies’ top risks and whether there was a plan in place to manage each risk or if a review had been done of the risk in the last 12 months. Only 47 percent of respondents said they have a plan in place to manage their brand reputation risks.
Other areas where IP reputation plays a role is geographical indications of origin. A special category of reputation “sensitiveness” exists for food products, wines, and spirits when the good bears a reputation for quality that is essentially attributable to its geographical origin. Without protection for indications of origin, competitors may pass off their products even if made in other locations[1].
So is the patent position and the vulnerability of a company outside the scope of “reputation risk”? Reputation is often associated with a stock price. Glynn Lunney Jr. examines the reactions of firm stock prices to court decisions in patent cases. He found pharmaceutical companies experienced sharp drops in market value after key patents were held non-infringed or invalid. In one case, Eli Lilly lost nearly 30% of its stock market value. The evidence of such reactions for firms in other industries was much weaker.
Economists [2] argue that patents have a positive effect on stock price: strong patent portfolios are able to increase the stock price. They note that if companies consider patents valuable when they are able to increase the return on investment, then they try to use patents to increase the stock price. It therefore becomes important for patent portfolio managers to be able to assess whether the stock price of their company is undervalued or overvalued because of the quality of their patent portfolio.
Reputation and IP are connected. It seems that we might want to think more about reputation management and IP assets in the future. Hope this helps to get the discussion going.
[1] Keith Maskus: “The Economics Of Intellectual Property Rights And Globalization: Dancing The Dual Distortion”.
[2] Ludmila Striukova , “Patents and corporate value creation: theoretical approach”, University College London, Management Studies Centre, p.8., Alexander I. Poltorak, Paul J. Lerner, “Essentials of intellectual property”, John Wiley & Sons, p. 103, 188.