Everyone assumes that intellectual property has value, but how do you determine that value? Can you increase it, and can you damage it?

Corporate giants DuPont and Coca-Cola report the value of their intellectual property on Form 10-K filed with the Securities and Exchange Commission. In 2006 DuPont reported the value of its various trademarks as $219 million dollars and the value of the company-held patents as $95 million. Coke’s 2013 annual report listed the value of the company’s trademarks as $6.7 billion.

Both companies recognize the contributions of intellectual property to the bottom line. According to DuPont’s 10-K,

“The company believes that its patent and trademark estate provides it with an important competitive advantage. It has established a global network of attorneys, as well as branding, advertising and licensing professionals, to procure, maintain, protect, enhance and gain value from this estate.”

Simply put, the investment these companies have made in developing their intellectual property pays returns to stockholders. Both companies license their technology, police their trademarks, enforce their patents and continue to invest in new intellectual property.

Building value and goodwill through trademarks

One of the best ways to achieve success is to emulate those who have already achieved success. Coke and DuPont provide two excellent examples of how to manage an IP estate to create value for a company. While their IP estates dwarf those of small start-up companies, the same business practices are applicable. Let’s focus on trademarks. DuPont licenses its various trademarks to third parties to use in their advertising material. The DuPont licensing guidelines note that “Proper authorized use of the DuPont trademarks … can add significant value to your products and business. These trademarks give products the increased visibility generated by the investment DuPont has made in promoting the brands over the years.” The guidelines emphasize DuPont’s right to police its trademarks by noting that unauthorized use is an illegal business practice.

DuPont recognizes that trademark value results from the use and promotion of goods in commerce associated with proper trademark usage. As the public begins to associate the trademark with high quality goods, the value of the goodwill associated with the trademark begins to grow. Proper use of the trademark to denote source strengthens the owner’s rights in the trademark and helps to preclude the mark from becoming a generic term. Policing of the trademark is equally important as the failure to timely object to improper usage can lead to dilution of the mark and potential inability to preclude others from using similar marks.

When the public recognizes the mark as representing high value goods, trademarks can provide value to a company. Additionally, trademark licensing can produce significant income. However, failure to properly use and police trademarks can lead to devaluation or loss of rights. Companies such as Coke, DuPont, McDonalds and others with strong trademark estates energize their employees to be on alert for improper usage and to bring any potential infringing use to the attention of company attorneys. For small companies, an energized workforce can be the best tool for policing and enhancing corporate trademark value.

Protecting core technology through patents

Patents can be of significant value to companies of all sizes. DuPont has a large estate of patents covering a wide range of technologies, but a large patent estate is not necessarily a prerequisite to generating value for a company.

A focused effort to develop technology targeted to a select market and to protect that technology through patents can be equally valuable, particularly for small start-up companies. Consider, for example, the success of Nicholas Woodman, the founder of GoPro Inc. Since 2005 Woodman has received 16 U.S. patents, not an exceptionally large patent estate. However, nearly all of these patents relate to GoPro’s core business. Certainly these patents have contributed to the creation of a highly successful business and a new field of photography.

GoPro appears to provide an example of a focused approach to developing and protecting technology through patents. In contrast, for a start-up company, the failure to focus technology development and patent strategy on a core business will likely waste capital by pursuing patents only tangentially related to the company’s goals.

For start-ups, a properly managed IP estate will likely be the most valuable asset for attracting new sources of revenue necessary to reach the market and continue technology development. In particular, angel investors will want to know if one or more patents protect the core technology prior to investing in the company. Angel investors will also look for a sound IP management strategy that increases the value of company IP over time.

Protecting core technology through patents

To achieve maximum value for technological developments, companies of all sizes need to ensure that every employee has signed an employee agreement assigning any IP developed in the course of employment to the company. Additionally, all consultants and independent contractors should be bound by contracts which also require assignment of developments to the company. Taking these steps will help ensure clear ownership of technological developments by the company, a prerequisite to any merger, acquisition or public offering.

In summary, a company’s IP estate can clearly enhance the company’s bottom line through proper management of trademarks and a focused patent strategy. However, misuse or failure to police the trademarks can hurt the bottom line. Likewise, a poorly designed technology and patent strategy can squander limited capital on patents that do not enhance the company’s value to investors.