In 1975, tangible assets made up over 80% of the market value of the S&P 500 companies. 40 years later and that has totally flipped, with intangible assets now dominating the value of America’s largest companies. This demonstrates the importance of Intellectual Property – what makes a company valuable today are its patents, trademarks and brand.
A brand represents a business in the public eye; a trademark legally protects those parts of the brand that is exceptional and particular to the organisation it represents. Brands are an important part of a functioning market place, they distinguish between different providers of goods or services, allowing consumers to make informed decisions. The trademark helps to prohibit competitors from stealing the brand image or creating substantially similar products to confuse potential customers. Over time, brands become a mark of trust between a business and a consumer – a guarantee of quality. This trust in the market is part of what enables businesses to compete for business based on quality and not just price.
So, brands need to be protected, to encourage companies to invest in quality products and give consumers confidence in the products they buy. But they are under threat. Perhaps the most obvious threat is from counterfeiters seeking to misappropriate the trust that legitimate brands have earned. However, we should also be wary of the threat that emerges from regulators seeking to restrict the rights of companies to use their brands legally.
One controversial example of the latter issue is plain packaging for tobacco. Governments around the world are reaching for this option in an attempt to reduce smoking rates – a noble goal, though is restricting branding the way to go? Is it even working? The policy has been in place in Australia for 5 years now and – for the first time in two decades – there has been no statistically significant decline in smoking. At the same time, the trade in illicit cigarettes has grown – from 182 tons in 2014 to 381 tons in 2017. Often these illicit cigarettes are less safe for the consumer, but the lack of branding makes counterfeiting that much easier. So rather than reducing smoking rates, plain packaging may be helping those who wish to push a more dangerous product. Other countries, including Singapore, who are looking at introducing these rules should look carefully at what lessons can be learned from the experience in Australia.
Another less obvious threat to intellectual property is when competitors seek to blur the lines between one brand and another. For example, in 2017, three domestic shoemakers in China were charged $1.5 million in damages and legal costs for violating the slanting signature “N” logo of New Balance, an American sportswear company. The three defendants made shoes under the brand name New Boom and had lured consumers away from New Balance, who thought they were buying the well-established brand. That caused drastic damage to the business reputation of New Balance. This abuse of brand was designed to confuse the consumer and prevent them from making the best choice.
Big established brands often have the resources to defend themselves against these threats, but its important that SMEs take steps to defend themselves too. Most new SMEs use trademarks and ought to think about securing them as central part of their business strategy.
Intellectual property rights are invaluable and are increasingly among the important possessions for your business, big or small. Your brand and your ideas set your business apart from competitors and enable you to build a lasting relationship with your customer. Without the protection of ideas, organisations and people would not receive the full rewards of their innovations and that would leave us all worse off.
This article is written by Meyshna Ravindran, a Junior Associate at the Institute for Democracy and Economic Affairs (IDEAS) and the article is first published in The Malaysian Reserve, 22 May 2018.