This article first appeared in Digital Edge, The Edge Malaysia Weekly on May 3, 2021 - May 9, 2021

While many Malaysian companies know how to register their intellectual property, they are still pretty clueless when it comes to the strategic value that IP can bring to their businesses, says Crowe Growth Consulting Sdn Bhd managing director Michael Lim Jr.

“If a company structures its IP correctly, just by the basis of the transaction and the worth of the IP alone, there is actually a lot of intangible valuation that can arise,” he points out.

Lim says this is especially relevant in this time of pandemic. “During the Covid-19 crisis, most of the tangible assets out there were pretty much in trouble. But somehow, IP assets remained valuable to people. If you have a certain technology, know-how or process to do certain things, it could be useful to other people.” 

This is something other companies would probably be willing to pay for, he adds.

To Lim, this goes beyond simply having an IP. “An IP is just an idea that you generate. However, the real issue is not about having an IP but commercialising it,” he says.

This feeds into one of the biggest issues in Malaysia as he sees it — coming up with IP that nobody wants. “If you have an IP that nobody wants, there is no way to use it for strategic purposes. But if you have something that others want, you can even use it as a negotiation tool when you go into joint ventures with other companies.”

Lim speaks from experience. “I have a client which pumped its IP rights into a company overseas and was able to get 30% equity interest in that company without putting in any money up front.” 

The second use of IP is as a shield or sword, he says. “How can we use a registered or properly documented IP for defensive purposes? When you register an IP for something and if someone else comes into your market and would like to do the same thing, they would have to pay you a royalty. This in itself spurs further innovation.

“Or in cases where two parties were doing something at the same time. If you are one of the parties and you can prove your trade secret in your own country, then the other guy cannot claim a licence right or royalty from you for the use of the IP.”

These uses of IP show how it can be used as an offensive or defensive strategy, says Lim. But there is a third potential value, especially for companies on the brink of closing down.

“I have found companies that have no value operationally using their IP to settle their debts or issues. So, other companies come in, look at the IP and, if they think there is potential value, place bets on it,” he says, adding that the money can be used by the company in question to settle its debts.

Lim likens this to a TV documentary in which people bid on storage facilities. The owners of the items in these facilities had failed to pay rent for a long time, so all the items in the facilities are up for auction.

“Without knowing what is in the storage facilities, people bid on the contents. Say, I pay US$100 for what is in a particular storage facility, there just needs to be one valuable thing in it for me to get my money back,” he explains.

Lim says there are professional IP appraisers who are able to determine the term and usage of the IP. “These valuers will be able to determine the commercial value of the IP, and the company that has acquired this IP may have a deal with other parties who could use it for their own purposes.

“So that in itself, from a strategic point of view, allows a company to even revive itself from the brink of bankruptcy or liquidation.”

Although these are the three primary ways for companies to gain value from their IP, the list is not exhaustive, says Lim. “Some people collaborate on the IP. For instance, I may have a core IP and collaborate with another party to co-create a new IP — a co-IP, so to speak. And we can use the co-IP to commercialise the IP further and do a dual commercialisation.”

Some people, such as fashion designers, attach the IP to their names. He says for most, this is a dangerous strategy because when they die, the IP dies with them. But some have been able to create a design concept that others identify with, so their personal brand lives on.

“In these cases, even if the founder is no longer there, people still believe in the IP. And the funny thing is that when an item designed by the original founder comes up for auction, the value goes up 10 times, which means it has become a piece of art,” Lim points out.

In contrast, when something does not have an IP or its own brand, it basically has less or no value. “And I think this is the problem with so many commercial products. They just sell the function of the products but not the value of the brand behind it,” he says.

This lack of focus on branding results in products that are at best “jaguh kampung” or village champions. “I’ve seen Malaysian products where no thought had been given to branding or aesthetics, from the name to the packaging. They have designed it to be sold in the kampung. But if they want to go out and appeal to a larger audience, they would need a cleaner, more modern, more refined look. And they would probably have to tinker with the name for a wider appeal,” says Lim.

The worst-case scenario for a company would be to make a product really well but put no thought into creating a good brand, he says. “You can see it even in some of the larger companies. They have good products, but their branding actually irks the eye.”

The problem with Malaysian companies is that they don’t place enough value on their IP assets, says Lim. “Often, they come up with really terrible IP, such as brand names that don’t sell well or documents that are not properly valued because they just don’t think it’s worth it. Or worse still, they stinge on protecting their IP.”

But his pet peeve is companies that spend money on things that cannot be commercialised. “I went for a presentation where the researchers presented a scoring method to deal with credit card fraud.”

Lim was part of the panel to either approve or reject research funding for the idea and he only had a few questions for the researchers. “First, have you even quantified the real problem? Have you even done studies in terms of where the fraud is coming from? And what are the technologies available to resolve it?

“Second, you say your technology is great. But from what I can see anyone with some knowledge of Excel could have done the same thing. So, what is the novelty of what you have compared with what the industry may have? If you had done your market research, you would not have come up with something like this.

“And finally, I asked, do you think somebody will pay for it?”

Lim was not willing to show any quarter because he felt these researchers were guilty of lazy or shoddy work. “They had not even quantified the problem and how much they could save the industry with their solution. If they were to say that fraud is worth a certain amount every year and they could save the industry, say, RM100 million, even if they were to charge only 5% of that RM100 million, people would not mind paying for it. They would see that they’re losing, say, RM1 billion to fraud every year and if they could save RM100 million, even if they had to pay RM5 million for this solution, it would still save them RM95 million a year — a win-win all around.”

He told the researchers to go back and rethink their idea. “After the meeting was done, I bumped into them at the lift and they begged me to just help approve their idea so they could get a research grant.

“Until now, I cannot fathom why they insisted on going down that path when I already showed that there’s no value in this IP.”

And this, he feels, is what is wrong with the whole system in Malaysia. “So many companies are wasting money on things that have no commercial value. Why sell something that nobody wants? Or something that is already available out there? It’s okay to innovate. But if you’re going to do that, know your market segment and understand what area of innovation you are going into. That is where you can get your IP asset to work for you.”

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