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The two sides of IPCI loss

The two sides of IPCI loss

In preparing for our October Intellectual Property and Critical Information conference, it has become clear that there are two sides to IPCI loss, of which only one seems to be widely understood and dealt-with, independent of regulatory demands.

The side that your company pays some attention to is violation of copyright, trademark, and patent. This makes sense, since, according to S 1984 IS, “The World Customs Organization estimates that up to seven percent of global trade is in counterfeit goods.” While we couldn’t find this figure on the WCO Web site, we have no reason to disbelieve it.

Seven percent is a lot of goods, and is a response to people’s desire to get recognized goods – and the quality they represent – below market price. While in some cases there may be no substantial difference in quality – and sometimes no difference at all if the counterfeit is made after-hours in the same factory as the original, using the same parts – between the genuine article and the counterfeit, in other cases, such as counterfeit medicines, the counterfeit can leave you dead. (We are aware of one company using white lead to color fake medicine tablets.) In all cases it is theft, and money that should go into the pocket of the IP’s owner goes into someone else’s pocket.

While dealing with this difficult problem is not easy, it is straightforward in that you are talking about stuff, concrete objects. In this case, we can see and touch the property part of the intellectual property.

This not the case when it come to the second side, which is the intellectual part of intellectual property. If you sometimes need a technical expert to distinguish between the genuine article and the counterfeit, you can imagine how difficult it is to really say that someone else has made use of your idea in the manufacturing process. It is important to remember that intellectual property and critical information – IPCI – spans a wide possibility set, largely defined by the common factor that knowledge of the IPCI will give competitors and adversaries an advantage. This, of course, covers a wide spectrum indeed.

Some of the information is obviously of value. Thus, imagine you develop a new, more cost effective, way of doing something, and one of your competitors acquires that process. How is this of value? Well, the first way is that it saves them development costs, as well as all of the costs of going down the wrong developmental paths. So now they can price their product more competitively than they would otherwise be able to do.

How does this work? In the simplest case, imagine that you spent $50 million developing a process, and that your competitor acquires it. It doesn’t matter if they get the process legitimately because you deliberately (albeit negligently) disclose the process and their competitive intelligence group puts together the several pieces of information you made public to get what is needed. Their CI group’s consumed resources might have cost them $80,000 to get the information. Or if people were blackmailed or suborned to get the information, and that payoffs cost $80,000. However they acquire it, your competitor has $50 million to devote to marketing that you don’t have, because you spent it on R&D.

Alternatively, imagine that the revelation of critical information – the travel plans of the CEO of a company that does animal testing – makes it into the society page. And that because of this he is killed by an animal rights group. What is that likely to cost the company?

Simply because intangible assets are, by definition, not tangible, do not think that they are not worth actively protecting. As we have frequently mentioned, it is estimated that losses toU.S.companies from competitive intelligence, economic espionage, theft, and deliberate disclosure is in the $300 billion range. So do keep in mind the intangible can still be real.

And for a better understanding of the identification, valuation, and protection of IPCI, we would strongly urge you to attend our conference.

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