How does loss of IPCI manifest itself?
If someone hijacks a truckload of a product you made, the product is gone. You will be aware that it is gone, and will be able to make a bookkeeping entry to account for its loss. You will have lost all the cost invested in its manufacture, and will have to re-spend that money to recover or re- manufacture it. In addition, the revenue from the sale of the stolen product goes into someone else’s pocket, not yours. In a limited market there may be less demand for the newly manufactured product, because some of the demand has been satisfied by the stolen product.
If someone steals your intellectual property and critical information, however, you still have it. What you have lost is the exclusive use of the IPCI, and the benefit that comes from that. But if you still have it, what have you really lost? IPCI is, after all, pretty intangible. What you lose depends in part on whether the IPCI goes to competitors or adversaries. In this article we will only concern ourselves with competitors.
With competitors, when you lose intellectual property, what you have lost is market share, which translates to bookable revenues. Let us walk through this. You come up with an idea for a product line, and spend money to develop the idea. For the sake of round figures, let us say that you spend five million dollars developing a product. You spend another ten million marketing and advertising it, and estimate that you will have revenues of $150 million during the product’s lifecycle.
Your competitor spends $80,000 – essentially zero – to buy your development information from a disgruntled employee after hearing inadvertent hints of its development in the public press. They arrive in the marketplace either at roughly the same time as you do, or a little earlier if you are unlucky, and also spend ten million on advertising, their only real outlay. You end up with revenues of $60 million.
When you lose critical information what happens is less direct. We have discussed in the past cases where small companies have disclosed, for marketing reasons, the names of their key developers, where the developers are then hired away. The company then either closes or suffers major setbacks. In other cases the names and sales of salespersons has been disclosed when companies have been offered for sale, allowing potential buyers to cherry-pick the best sales people either before or after the sale. In other cases bids have been disclosed, allowing competitors to adjust their bids accordingly. And the list goes on.
In all cases loss of IPCI is generally preventable at low cost, and the implementation of appropriate internal controls to protect IPCI yields a significantly higher return in base revenues than any other prophylactic measure of which we are aware. By failing to protect your IPCI you are making a deliberate choice to have revenues below what should be booked.