Understanding the Risks: Eight Elements of an Effective IP Protection Program
Passman, Pamela, Risk Management
Intellectual property is often the crown jewel of a company's assets. As much as 75% of most organizations' value and revenue source are derived from intellectual property, intangible assets and proprietary competitive advantages. As a result, the misappropriation of trade secrets, piracy, counterfeiting and the introduction of fake or inferior components into supply chains can have devastating consequences.
For instance, Ford Motor Co. suffered more than $50 million in losses after an engineer copied 4,000 company documents onto an external hard drive in 2006 and went to work for a competitor. In 2009, Mattel paid a $2.3 million fine and recalled more than 2 million toys after discovering that it was selling Barbie accessories, die-cast toy cars and other toys that were contaminated with lead. The problem was traced to a Chinese company that used false quality inspection documents to sell illegal lead-based paints to Matters manufacturing contractors in China.
Counterfeit products have caused explosions, fires, engine failures, network crashes and, in some cases, physical injury and death. A recent U.S. Senate committee report described 1,800 known cases of suspect counterfeit electronic parts in the defense supply chain, originating from more than 650 companies. The U.S. Federal Aviation Administration has estimated that more than 520,000 counterfeit parts are installed on planes each year. The pharmaceutical sector is victim to various forms of counterfeiting, ranging from false labeling to the addition of toxic or adulterated raw ingredients. And counterfeit and pirated software can expose IT systems and information--and the systems and information of customers--to malware, trade secret theft and other costly exploits.
Overall, intellectual property theft accounts for an estimated $500 billion to $600 billion in lost sales each year, while companies lose market share, suffer reputational damage and forfeit their competitive edge. And for consumers, IP theft can present serious threats to health and safety.
In the recent PwC State of Compliance 2013 Survey, manufacturing companies ranked intellectual property as one of their top three risks, along with bribery/ corruption and supply chain concerns. Meanwhile, last year, global research organization the Conference Board released the results of a survey conducted with general counsels, compliance officers and supply chain managers of global companies on the separate but related issues of corruption and intellectual property theft. Of those surveyed, 52% rated IP protection as very challenging to manage and considered trade secret theft the greatest IP risk.
There are a number of reasons that IP theft is an increasingly complicated and challenging issue. With advances in technology, the preponderance of proprietary assets--such as product formulas, customer lists, strategic plans and blueprints--are in a digital format. Unlike physical records of the past, digital information can be discreetly stolen in the absence of robust systems to protect it.
A second factor is that companies are working with suppliers and business partners who span the globe. …