Intellectual Capital in the World of Information Economies

• Author: Angela Adrian
• Position: Lecturer in Law, Bournemouth University aadrian@bournemouth.ac.uk
• Pages: 242-246

Page 242

1. What is Intellectual Capital?

Intellectual capital has been defined by Thomas Stewart as: "The sum of everything that everybody in a company knows that gives it a competitive edge . . . the intellectual material . . . that can be put to use to create wealth."¹Intellectual capital could, thus, be described as information and knowledge within a company. Information is static; whereas, knowledge is dynamic. "Knowledge is information in action, information understood and put to use."² Knowledge is a companies' most important raw material. It is the most important source of added value as well as the most important output. If knowledge is not being managed properly, neither is the business. In 2000 alone, intellectual capital accounted for over 1/10th of the US GDP, or $1 trillion.³ The law and economic theory describe companies as bundles of assets. On the other hand, information age fact states that it is really a beehive of ideas.⁴

2. What exactly is Intellectual Capital and how do I put it to work?

The law does not protect knowledge or information in and of itself. Traditional intellectual property never intended to safeguard general know-how or expertise because it was never considered able to be susceptible to appropriation by individuals or commercialisation. Knowledgeable people merely became the leaders in their fields and were paid accordingly. There was no recognition of a companies' or individual's proprietary interest in the knowledge or information. Information still does not garner recognition as a form of property; although, certain classes of information have started to attract some protection.⁵ Thus, intellectual property needs to be turned into intellectual capital by creating value in it. The following discussion reviews the different types of intellectual capital typically found in a company and how to leverage its value.

A The Brand and Goodwill

The rationale for trade mark law lies in the economics of information. "The value of the modern trade mark lies in its selling power. . . this selling power depends for its psychological hold upon the public, not merely upon the merit of the goods upon which it is used, but equally upon its own uniqueness and singularity; . . . such uniqueness or singularity is vitiated or impaired by its use upon either related or non-related goods; and the degree of its protection depends in turn upon the extent to which, through the efforts or ingenuity of its owner, it is actually unique and different from other marks."⁶ The concept that the selling power of trade marks themselves should be entitled to protection was radical for its time because traditional trade mark jurisprudence was designed to protect the mark's specific goodwill with respect to a good or service, not because it had an inherent independent value.

Companies today face the decision of whether to invest in innovation or in goodwill. The goodwill of a company rests in the signs that the consumer associates with it. Only distinctive signs can be registered, and the monopoly is only for a certain class of goods. A working definition of goodwill was recited in ThePage 243 Commissioners of Inland Revenue v Muller & Co.'s Margarine Ltd.: "What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which begins in custom. It is the one thing which distinguishes an old-established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However it has power of attraction sufficient to bring customers home to the source from which it emanates."⁷

Goodwill can be acquired in goods that have not been formally registered as trade marks. For example, in 1994 after obtaining a search report, fashion designer Tommy Hilfiger adopted the name and symbol "Star Class" for a new line of menswear. However, the International Star Class Yacht Racing Association had already registered the name for its Star Class boats, and was using the name and symbol for hats, clothing, flags, decals, pins, and jewellery. The court ordered Tommy Hilfiger to stop using the marks but did not award damages because there was no bad faith.⁸ On the other hand, it is also possible to have a reputation and not have goodwill. The classic example of this is the Budweiser case. The Budweiser name for beer was well known in the United Kingdom but, in the absence of a trading presence here, the plaintiff could not establish the necessary goodwill to sustain the action in passing off.⁹ Another problem with poorly managed trade marks is that they can become the victim of their own success. They lose their distinctiveness and may be revoked as a registered trade mark for becoming generic.¹⁰

Branding and leveraging of goodwill can be very profitable. Goodwill does not always pertain to the product alone. It often spreads to the company as well. This, in turn, reduces transaction costs and increases the value of all products in the firm. So, trade marks actually have the potential to increase in value with the passage of time. Goodwill protection is also less susceptible to being undermined by new technologies as its protection never runs out. A good example of this is the character merchandising of Mickey Mouse. The copyright runs out 70 years after the death of the author, Walt Disney. However, the trades mark of Mickey Mouse lives on forever.

Another way to enhance goodwill is to develop an "umbrella" of related products. For example, Crest toothpaste is not merely a brand of fluoride toothpaste. "Crest identifies and differentiates the source of the promise that you will die with all of your own natural teeth. And if there is a new and improved way of delivering that promise, it should come from Crest. If Crest is just a brand of toothpaste, then we could not have Crest mouthwash. If Crest is the promise of healthy teeth, we can have Crest mouthwash and a Crest toothbrush."¹¹...