IP in the Boardroom: As Company IP Value Increases, So Do Related Risks

February 26, 2018

Although one might occasionally come across an article touching on intellectual property (IP) concerns in the corporate boardroom, not enough has been said on this topic. This is the first in a series of articles that are designed to help board members satisfy their duties of care regarding the various risks that IP often carries. It will also be useful to those C-suite executives responsible for keeping a board informed of IP safeguarding techniques.

Within many companies, IP assets have been growing in quantity and in value - and this growth trend itself is accelerating. But, as value increases so can risk - indeed, a company's IP-related risk profile can change merely in a matter of weeks or months. To manage these trends, corporate boards must continuously assess IP risks, and expressly define directors' obligations for addressing those risks.

To ensure that IP reviews will be performed consistently, a board should consider establishing IP-related protocols. Since every corporate board is unique in how it functions, we suggest utilization of certain common guidelines to help develop your own protocols. Here are some categories and related questions that can assist with developing these protocols:

Corporate Governance
If you have corporate governance guidelines (required for all NYSE companies), ask yourself: under whose responsibility or what committee does IP fall? Guidelines from Alphabet include passages such as: "Additionally, the board has responsibility for risk oversight, with reviews of certain areas being conducted by the relevant board committees. The Board is responsible for oversight of strategic, financial and execution risks and exposures [...]. Directors are expected to invest the time and effort necessary to understand Alphabet's business and financial strategies and challenges." The General Electric Governance Principles state: "The board has established the following committees to assist the board in discharging its responsibilities: (i) audit; (ii) finance and capital allocation; (iii) governance and public affairs; (iv) management development and compensation; and (v) technology and industrial risk."

Operational Risk
Is IP currently being considered when managing operational risk? IP risk must be considered from many angles, as risk can be generated from competitors, independent third parties, NPEs, governments, illegal entities, or from within the organization itself. Who is responsible for managing IP-related operational risks? What steps are they taking?

Executive Qualifications
Will your company's officers and board advisors recognize when an IP issue rises to the level of board concern and notify the board? When selecting a CEO, will the candidate understand the organization's IP ecosystem and appoint managers that can deal effectively with IP issues? Are your board advisors capable of understanding IP issues and properly assessing risk?

Corporate Strategy
How is IP considered when reviewing and determining corporate strategy? Not just your own IP, but that of your competitors and strategic partners? Has the CEO considered IP when formulating strategies? Has the general counsel?

Shareholder Knowledge
What do your shareholders know about your IP? Are they properly informed? Do shareholders need to be educated first, so that they aren't just informed, but understand?

Many intellectual property issues are complex, and some can seem impenetrable. It's important for board members to not get "lost in the weeds". By asking oneself these guiding questions and seeking expert opinion as needed, board members will help ensure they are fulfilling their responsibilities.

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