Intellectual property and critical information (IPCI) have become essential assets for many companies, particularly in certain industries. Goodwill and intangible assets now account for an average of 85% of a company's value. However, companies are losing their IPCI at unprecedented rates due to theft, leaks, and accidental exposure. To help the company recognize the worth of its IPCI, this information must be identified and cataloged in an asset elements registry—a responsibility well suited to the treasury department. Once such a registry is established, protecting the IPCI becomes crucial. Operational security (OPSEC), a threat-based management approach, is the most effective tool for safeguarding IPCI. By implementing the asset elements registry and OPSEC, companies can significantly enhance their value and performance while reducing liabilities associated with asset, value, and disclosure risks.

Introduction

This paper argues that the rise of intellectual property and critical information (IPCI) as vital assets for modern corporations necessitates a strategic reallocation of responsibilities within the treasury department, especially in organizations that heavily rely on IPCI. Proper identification, valuation, and protection of IPCI are essential for maximizing its potential value and safeguarding it. However, in many organizations, the value of IPCI remains largely undefined, leading to a variety of potential solutions—some of which may be appealing but ultimately incorrect. For a firm to effectively protect its assets, a coordinated effort is required between the treasury and the operations, finance, legal, and technical departments to identify, inventory, assess, monitor, and protect IPCI.

As the treasury’s responsibilities have expanded to include forecasting, internal consulting, compliance, reporting, and financial risk management, it is well-positioned to lead in establishing and maintaining an IPCI asset elements registry. The treasury can mobilize resources and serve as the central hub for these efforts. A few fundamental principles for this process are outlined below.

IPCI is a core component of a modern corporation’s vitality. Studies on business mergers and acquisitions indicate that intangible assets and goodwill constitute, on average, 75% of a company’s valuation. Of this figure, approximately 25% represents proprietary technology, while 50% is attributed to goodwill. This highlights the substantial value assigned to intangible assets by both buyers and sellers, underscoring the efforts of firms worldwide to protect their IPCI—or so it would seem.

In reality, companies are losing IPCI at unprecedented rates due to theft, leaks, and accidental disclosure. Nevertheless, there has been surprisingly little effort to clearly define and protect IPCI beyond traditional forms such as patents and trademarks.

Why are companies losing IPCI? The recognition of IPCI within corporate structures is often short-sighted, and its protection, if acknowledged at all, is scattered across various departments without a clearly defined administrator or centralized repository. Currently, legal handles filings; operations manage licensing; manufacturing may disclose IPCI to third parties for outsourcing; marketing shares it with advertising agencies for competitive advantage; and sales might disclose it to customers to close deals.

This issue is recognized beyond individual cases; even the U.S. federal government has acknowledged the need to address IPCI theft. The Enforcement of Intellectual Property Rights Act of 2008, enacted in October 2008, introduced several measures to combat intellectual property theft:

• It authorizes the Attorney General to enforce civil copyright laws.
• It enhances civil and criminal intellectual property protections.
• It promotes coordination and strategic planning to counter counterfeiting and piracy.
• It allocates additional resources within the Department of Justice to address intellectual property theft.

As Senator Bayh noted, intellectual property contributes over $5 trillion to the U.S. economy, making its protection vital. IPCI theft has caused significant financial losses and job reductions, underscoring the urgency for modern corporations to restructure in order to counter these threats. While the law sent the right message, follow-through has been very poor.  Even after all of the laws passed in many countries, the IPCI asset holder is 99% on their own in defending their property rights.

In today’s corporate landscape, responsibilities are often divided by function, which makes establishing clear accountability for IPCI management challenging. Financial management is typically divided among the CFO, corporate finance, the comptroller, treasury, and risk management. The CFO manages strategic risks, while corporate finance focuses on asset deployment. The comptroller oversees accounting and reporting, corporate finance handles mergers and acquisitions, and treasury serves as the operational core where strategic plans and tactical decisions are implemented. Although risk management may fall within treasury, it frequently deals with both financial risks and compliance.

This organizational structure, which emerged in the late 1960s, has gradually evolved. However, IPCI has now become a tangible asset, akin to cash, that can be inventoried, banked, and strategically deployed.

What works for a construction company may not suit a manufacturing or high-tech firm when designing management systems. Just as “form follows function” in architecture, corporate financial structures must evolve to incorporate IPCI as a key asset. This shift demands organizational change to support creating and maintaining a robust IPCI asset elements registry.

The remainder of this paper will explore key areas to facilitate IPCI responsibility within enterprises and provide an overview of the critical information that must be managed. This discussion offers insights into assessing the extent of IPCI fragmentation within an organization and proposes a coordinated approach to address it. We begin with some general definitions.

What Is Intellectual Property?

Intellectual property (IP) encompasses any intangible asset that includes knowledge or expertise. Unlike tangible assets, which have a physical form, a creation date, and a specific location, intangible assets such as IP are abstract yet essential for creating tangible assets. While this definition applies to critical information, IP can be defined more specifically.

Intellectual property includes copyrights, trademarks, service marks, patents, trade secrets, and other related rights. It is a legal concept that grants exclusive rights to the creator of an invention, work, or symbol, as protected within the jurisdiction of registration or through international treaties. Without legal recognition in a specific jurisdiction, these rights are unenforceable, leaving the IP exposed if it enters regions without protection.

In summary, intellectual property possesses specific economic properties and attributes:

• It has a clear, recognizable description.
• It holds legal existence and protection.
• It can be owned and transferred.
• There is tangible evidence of its existence.
• It has a specific creation date or event.
• It can be destroyed on a specific date or event.

What Is Critical Information?

Critical information consists of sensitive details about a company’s intentions, capabilities, and activities that, if acquired by adversaries, could harm the company’s interests. Competitors could use this information to weaken the company’s position or drive it into bankruptcy. Critical information encompasses a wide range of items, including customer lists, employee handbooks, formulas, shipping records, travel details of key personnel, and conference presentations.

One example is the author’s research on the loss of an ASIC (Application Specific Integrated Circuits) design and manufacturing company’s employee directory. This company experienced a security breach when a guard faxed the entire employee directory to a competitor, misled by a caller posing as a company executive. Through swift action and an investigation, the company traced the information back to the source and confirmed the security guard's involvement in selling leads to other manufacturers. This case highlights the importance of restricting access to sensitive information and protecting critical data.

Examples of economic factors that qualify as critical information include:

• Protected market position
• Broad appeal
• Competitive advantage
• Customer lists
• Discount pricing
• Employee directories
• Unique heritage
• High profitability
• Lack of regulation
• Product lifecycle status
• Liquidity
• Market potential and share
• Marketing strategies
• Monopoly status
• Brand mystique
• Ownership and control
• Product uniqueness

Why Is IPCI So Important?

In today’s economy, IPCI represents both current and future economic value. Legal protection for IP transforms intangible assets into exclusive property rights for a limited duration, granting a company the sole authority to fully leverage these assets. This exclusivity allows companies to maximize the value of intangible assets and potentially trade them in the market, thereby adding tangibility to what would otherwise remain abstract.

Without IPCI rights, a company’s ideas, designs, and brands could be freely exploited by competitors. Therefore, claiming, documenting, and enforcing these rights is essential to ensure protection. With IPCI protection, intangible assets acquire tangible value as property rights, preventing third parties from using them commercially without authorization. Nevertheless, protected assets still need safeguarding against accidental disclosure and infringement to avoid unauthorized use.

Treasury's Role as Custodian of IPCI

Traditionally, companies have relied on the legal department to act as custodians of intellectual property and critical information (IPCI). However, this approach is limited and often inadequate. While legal plays a crucial role in documenting the origins and defending IPCI, it is not directly involved in creating or commercializing it. Additionally, the legal department does not report on the value changes or impairments of IPCI, nor does it typically manage the inventory of intangible assets, leaving it detached from the daily management of IPCI.

The CFO’s office, primarily responsible for strategy, focuses on policy and high-level planning rather than tactical or operational details; however, it would likely be the primary consumer of data from an IPCI asset registry. Similarly, the comptroller’s office oversees accounting, payroll, and financial reporting. While these functions somewhat align with IPCI management, the traditional role of a comptroller has either evolved or been absorbed into other financial roles, making it less suited for centralizing IPCI oversight. Corporate finance, which is outward- and future-focused, is also more a consumer of IPCI information than a custodian.

Treasury is ideally positioned to oversee IPCI because it already interfaces with all departments and manages value-oriented assets daily. By housing the IPCI asset elements registry within Treasury, the department can provide management with valuable data on IPCI for acquisitions, licensing, benchmarking, and risk management. As a central figure in IPCI management, Treasury's daily interactions with various departments equip it to coordinate IPCI-related tasks effectively.

Treasury’s existing responsibilities over major assets naturally extend to IPCI, as it is already accountable for managing the organization’s valuable assets, ensuring risk compliance, and reporting. Integrating IPCI oversight into the treasury’s workflow would require minimal adjustments because IPCI asset management parallels the treasury’s established protocols for tangible assets. Regular reports on IPCI status, revenue potential, and availability would be as integral to the treasury’s role as its current reporting on cash flow.

Additionally, the treasury’s involvement in loss prevention positions it to effectively address IPCI theft, leakage, or value impairment issues. Designating the treasury as the primary party responsible for IPCI security establishes a clear line of accountability, reinforces loss prevention measures, and signals to all departments that IPCI breaches will be promptly managed.

Just as unaccounted cash would be unacceptable in an organization, so too should unmonitored IPCI be, given that it can represent up to 75% of a company’s value. Allowing such a vital asset to remain unmanaged risks substantial losses. No other department can match the treasury’s capability to centralize and safeguard IPCI effectively, making it the perfect fit for this responsibility.

Cost Estimation

Estimating the cost of replacing IPCI's functionality involves considering the replacement process itself. This requires factoring in the current knowledge base and any recent advancements that could reduce inefficiencies, helping to avoid repeating past mistakes and their associated costs.
The familiar fair market value (FMV) calculation can be represented as follows:

FMV = t= 0∑N(1+i)tFVt

where:

• FMV represents the discounted value of future cash flows (FV),
• T  is any time period in years and
• I is the discount rate, applied to each time period up to N years.

However, a more typical approach to calculating FMV for IPCI emphasizes the cost of replacement rather than the discounted cash flows. This can be summarized as:

This approach considers IPCI’s unique nature, where its helpful life and exclusivity may span only a few years or even months before becoming obsolete. This method accurately reflects IPCI's value by accounting for depreciation and obsolescence, particularly when the lifecycle is short.
 

Income Assessment for IPCI

This assessment aims to estimate the present value of future economic benefits that IPCI could generate, either as a proprietary asset or through licensing. Traditional income valuation models, such as discounted cash flow (DCF), often assume perpetual income, but IPCI requires unique considerations due to its distinct characteristics and potential obsolescence.

Key Steps in Valuing IPCI

1. Valuation Preparation
   1. State Valuation Dates: Document the date of the valuation and report preparation.
   2. Define Purpose: Specify the reason for conducting the valuation.
   3. Standard of Value: Identify the valuation standard, e.g., fair market value.
   4. Choose Valuation Formulas: Consider formulas like CAPM, WACC, APT, Fama-French, or Gordon Growth Model.
   5. Apply Discount/Capitalization Rates: Tailor the rate to IPCI’s projected earnings and life cycle. 
2. Evaluation of Valuation Methods
   1. Review Common Valuation Methods: Analyze multiple approaches and reconcile their outputs.
   2. Include Assumptions and Limitations:
      1. Company Background: Context on the business.
      2. Economic Environment: Broader economic conditions.
      3.  Industry and Market Conditions: Sector-specific trends and competition.
      4. Protection of Exclusive Assets: Importance of security for intellectual and tangible assets.
   3. Comparative Analysis: Benchmark IPCI’s performance against industry standards.
   4.  Definition of ‘Earnings’: Clearly define and justify the measure of earnings used.
   5. Reconciliation and Selection: Choose the most defensible valuation based on reconciled values.
3. Report Transparency
   1. Disclose Sources and Assumptions: Be transparent about data sources and projections.
   2. Discuss Valuation Discounts and Premiums:
      1. Control Premium: Premium for majority ownership.
      2. Discount for Lack of Control: Applied to minority shares.
      3. Liquidity and Marketability Discounts: Reflecting transferability limits.
      4. Regulatory/Litigation Risk Discounts: Consider regulatory and legal impacts.
      5. Obsolescence and Volatility: Address market and technological changes.
      6. Other Fees: Registration or licensing costs.
4. Strategic Considerations in IPCI Valuation
   1. Competing Technologies: Many protected technologies are part of a saturated field with similar inventions, which can dilute IPCI’s unique value.
   2. Obsolescence Risk: Rapid advancements may lead to IPCI being superseded. For example, the shift from film cameras to digital cameras reduced demand for older technologies.
   3. Export Restrictions: Technology export laws in countries like the U.S. can affect IPCI’s transferability and may lead to tax implications.

These considerations provide a comprehensive framework for valuing IPCI, balancing potential income with the limitations and unique characteristics that affect its longevity and marketability.

Considerations and Security Measures in IPCI Management
Additional Considerations in IPCI Valuation

• Precipitation Upon Transfer: Companies managing IPCI often have legacy agreements and commitments, making it challenging to account for historical obligations fully. Events like bonuses, royalty accelerations, or fines can be triggered upon IPCI transfer, affecting value.
• Blocking Patents/IP: Some patents are acquired not for immediate economic value, but to block competitors or strengthen litigation positions.
• Foreign Protection: IP that lacks protection in major markets (e.g., not patented in the U.S. or China) risks lower enforceability and value.
• Manufactured Documents: Sellers may falsify financials or documentation, underscoring the need for thorough verification during IPCI transactions.
• Demand Curves: The value of IPCI assets can vary significantly based on product demand cycles, with some assets retaining value over decades (e.g., brand names) and others (e.g., memory devices) having shorter lifespans.
• Infringement: Frequent infringement of trademarks and service marks can erode value if the owner does not enforce them rigorously.
• License Drift: Licensees may use IPCI beyond their licensed scope, undermining potential future licensing opportunities and potentially exposing them to damages.
• M&A Instability: Uncertainty during mergers or acquisitions can lead employees to leave, risking inadvertent or intentional IPCI disclosure.
• Family-Owned Businesses: Family businesses often rely on personal loyalty, which may dissolve upon sale, potentially losing knowledge and cohesion.
• IPCI Insurance: IPCI with infringement insurance is more valuable, especially if the company has the resources to defend against infringement. Without a defense capability, claims are significantly weakened.

Operational Security (OPSEC) for IPCI Protection

Operational Security (OPSEC) is critical for safeguarding IPCI, serving as a comprehensive management tool against theft and unintended disclosure. Here are its core elements:

• OPSEC as Management Function: OPSEC is a strategic, managerial approach rather than a simple rule-based system.
• Threat-Based Approach: OPSEC focuses on specific threats, rather than generalized rules, to assess and mitigate risks.
• Cross-Functional Process: Like treasury, OPSEC spans divisions and disciplines within an organization, ensuring IPCI protection is integrated company-wide.
• Vulnerability Reduction: OPSEC reduces IPCI's exposure to competitive intelligence, economic espionage, and theft by proactively identifying and mitigating vulnerabilities.
• Case Study in OPSEC: An example highlights OPSEC’s importance—an employee unwittingly shared valuable IPCI at an information-gathering conference orchestrated by a competitor.

By implementing OPSEC, companies can proactively protect IPCI from threats, fostering a secure environment for these critical intangible assets.

To enhance the protection and value of IPCI, companies should consider implementing a robust OPSEC (Operational Security) program. Here’s a summary of key components and benefits of such a program, as well as the concept of IPCI impairment and its "tells":

OPSEC as a Value-Enhancement Tool for IPCI

• Purpose of OPSEC:
  • OPSEC is a structured, threat-based management process that identifies, values, and protects IPCI from competitive intelligence gathering, espionage, and casual dissemination.
  • Unlike traditional risk management, OPSEC crosses departmental boundaries, involving all parts of an organization to address the unique vulnerabilities associated with IPCI.
• OPSEC’s Key Questions:
  • Who wants the company’s IPCI, and how far are they willing to go to get it?
  • What specific IPCI is valuable to the company versus competitors?
  • Where are the vulnerabilities in IPCI protection?
  • What are the consequences if IPCI is compromised?
  • How can the company prevent unauthorized access or use of IPCI?
• OPSEC as a Proactive Measure:
  • OPSEC is a high-ROI process, cost-effective in preventing losses, reducing liability, and enhancing IPCI security.
  • It provides an alternative to legislative or judicial mandates on IPCI protection by allowing companies to take control of IPCI security.
• OPSEC Tools and Enhancements:
  • Competitive Monitoring: A program to track competitors’ activities for signs of IPCI misuse or unauthorized access.
  • Employment and Vendor Agreements: Clear contracts that define and protect IPCI, ensuring that all involved parties understand their responsibilities.
  • IPCI Tracking Software: Technology that detects IPCI loss indicators, or "tells."
  • Reward Program: A system for reporting IPCI compromises with incentives for employees or partners.
  • Employee Training: Education on the value and protection of IPCI, creating a culture of responsibility around intangible assets.

Identifying IPCI Impairment Through "Tells"

• Recognizing IPCI Loss: Similar to "tells" in poker, IPCI loss has subtle indicators:
  • Competitors begin producing identical products.
  • The company experiences a decline in market share.
  • Competitors start matching the company's price points more effectively.
  • Market pressure on prices arises, suggesting that competitors have access to similar technologies or processes.
• Consequences of IPCI Theft:
  • When IPCI is compromised, the company loses its exclusive right to use it, which can result in a significant value loss. Since IPCI is intangible, there is no easy way to inspect or verify exclusivity; hence, security measures like OPSEC are crucial for maintaining value.

Importance of Legal Protection and Impairment Tests

• Legal Registration:
  • IPCI must be legally registered (e.g., patented or copyrighted) in the relevant countries to ensure enforceable protection. For instance, IP not registered in major markets like the USA or China may have little value protection there.
• Impairment Tests (FAS 141 and 142):
  • These accounting standards require companies to conduct annual impairment tests for intangible assets to ensure accurate valuations. This shift towards transparency benefits both public and private companies by standardizing how IPCI value is assessed.
• Role of Corporate Leaders in IPCI Protection:
  • Corporate leaders, especially treasurers, are encouraged to champion IPCI protection. Without proactive measures, companies risk devaluation of their intangible assets, potential litigation, and regulatory consequences.

By implementing OPSEC, companies can safeguard IPCI against external threats, thereby enhancing its long-term value. OPSEC not only prevents potential impairment but also fosters a proactive corporate culture that recognizes the strategic importance of intangible assets.

The lack of an OPSEC (Operational Security) program in a company’s intellectual property and competitive intelligence (IPCI) protection strategy exposes the company to serious risks of value impairment. Without OPSEC, critical gaps arise in IPCI management, including:

• Lack of IPCI Inventory: Many companies fail to maintain an inventory of their IPCI, leading to gaps in protection and inability to account for losses accurately.
• Weak Employment Agreements: Employment contracts may lack specific clauses that address the protection and disclosure of IPCI, allowing employees to potentially leak sensitive information without clear repercussions.
• Inadequate Vendor Agreements: Vendor contracts may also be insufficient, failing to address IPCI confidentiality and security, leaving proprietary information vulnerable when shared with third parties.
• Poor Information Security: A lack of focus on IPCI within the company’s information security strategy can result in unintended disclosures or theft.
• Failure to Identify and Track IPCI Creation: Companies without structured IPCI identification and tracking programs risk losing control over new intellectual property as it’s developed.
• Inability to Monitor Competing Technologies: Without tools to track competitors’ technological advancements, companies may be blindsided by rivals using similar or identical IPCI, often the result of information leaks.

Why OPSEC is Crucial

The impact of IPCI theft and loss is severe and growing globally. According to the US Government, intellectual property theft, economic espionage, and competitive intelligence losses cost American businesses an estimated $300 billion annually, which translates to roughly 2.25% of the country's GDP and 750,000 jobs lost each year. Globally, countries like South Korea and Denmark report similar issues, with high-tech firms facing rampant IPCI leaks and espionage attacks.

Factors contributing to this epidemic include:

• High Dependence on Intangible Assets: Intangible assets now make up around 75% of a modern company's value, yet many companies have neither itemized their IPCI nor recognized the economic implications of losing these off-book assets.
• Increased Competitive Intelligence: More companies invest in competitive intelligence programs, making IPCI a valuable target.
• Shift to Economic Intelligence: Since the end of the Cold War, intelligence gathering has shifted from military to economic, with over 90% conducted legally. This increases the threats to IPCI from competitors.

Despite these risks, many companies fail to address IPCI losses, partly due to a lack of awareness or understanding in business, law, and criminal justice education. The reactive posture of law enforcement exacerbates the problem, as agencies focus more on solving crimes than preventing IPCI theft.

Risks of Today’s Workforce Mobility

The modern workforce further amplifies IPCI vulnerabilities. Millions of workers engage in extreme commuting or remote work, often using company laptops in unsecured locations such as coffee shops, trains, or public spaces. This widespread remote work culture increases the risk of IPCI loss due to:

• Physical Theft: Laptops containing IPCI can be easily stolen.
• Digital Security Threats: Wireless access and data transfer tools increase hacking risks.
• Accidental Disclosure: Employees might inadvertently expose IPCI while working in public settings.

In one case, a company's proprietary lotion formula was compromised by a supplier, enabling a competitor to replicate and market the product within days, demonstrating how quickly IPCI loss can impact a business.

Motivations Behind IPCI Theft

Much like Willie Sutton’s infamous reasoning for robbing banks ("because that's where the money is"), IPCI is an attractive target due to its value. The likelihood of facing legal consequences for IPCI theft is remarkably low, with a 1 in 250,000 chance of detection. Even when caught, penalties are generally mild, with few offenders facing substantial jail time. This creates a significant incentive for IPCI theft as a "crime that pays."

Role of Treasury in IPCI Protection

Treasury departments play a crucial role in IPCI protection. Treasurers, considered custodians of corporate value, are tasked with reducing uncertainty—a factor that directly impacts corporate finance. As modern treasury functions evolve into profit centers, they must prioritize IPCI protection as part of their value-preservation role.

However, many companies mistakenly rely solely on IT, security, or legal teams for IPCI protection, ignoring that most IPCI losses result from trusted individuals disclosing information off company property. This oversight creates vulnerabilities, as illustrated by a case where a landlord disclosed sales information of a store to a competitor, underscoring the importance of scrutinizing third-party agreements that involve IPCI access.

Protecting IPCI with Robust Agreements

For effective IPCI protection, companies should enforce stringent agreements with third parties, employees, and vendors that:

•    Clearly Define IPCI: Agreements must specify what constitutes IPCI and outline the consequences of unauthorized disclosure.
•    Include Minimum Damages: Penalties for IPCI breaches should be specified to discourage violations.
•    Have Legal Enforcement: Contracts need clear language that holds up in court and enforces accountability for IPCI security.

Conclusion

Without an OPSEC program, companies risk substantial value impairment through IPCI loss, competitive disadvantage, and costly breaches. Implementing OPSEC not only safeguards IPCI but also positions the treasury as a proactive leader in protecting corporate value, thereby enhancing the company’s strategic security and financial stability in the face of global IPCI threats.

The effectiveness of IPCI protection often hinges on selecting the proper domicile, or jurisdiction, for legal disputes. Certain jurisdictions lack the infrastructure to handle IPCI matters efficiently, causing delays and creating risks of prolonged litigation. In contrast, countries like the Netherlands have established dedicated intellectual property courts, offering expedited resolutions, sometimes within six weeks. This reinforces the importance of careful venue selection and consideration when drafting and reviewing IPCI-related contracts.

Insurance and IPCI Protection

While traditional insurance policies can cover litigation costs, they generally do not compensate for economic damages from IPCI theft. Consequently, companies might explore alternative options, like captive insurance, to self-insure against IPCI loss. However, firms must weigh the costs of transferring IPCI risks against those of actively managing and securing IPCI assets.

Consequences of Failing to Protect IPCI

Neglecting IPCI protection exposes corporate officers to liabilities, particularly in three areas:

• Sarbanes-Oxley (SOX) Non-compliance: IPCI protection falls under the internal controls required by SOX. Lack of IPCI safeguards may create both civil and criminal liabilities, and audits often fail to address or identify such issues.
• Challenges in Prosecution under the Economic Espionage Act: If a company fails to demonstrate adequate IPCI safeguards, such as through internal controls mandated by SOX, the IPCI might not qualify as a trade secret under the Economic Espionage Act or the Uniform Trade Secrets Act. This can prevent the successful prosecution of IPCI theft cases.
• Shareholder Lawsuits: Shareholders may file negligence suits if they believe management ignored a foreseeable IPCI threat. A company’s failure to protect IPCI, combined with SOX non-compliance, may also invalidate Directors & Officers (D&O) insurance coverage, leaving defense costs to be borne personally by executives.
• IAS 38 on intellectual property valuation, as directed by the Subtopic 350-60, and the consequences of any failure to protect IPCI are underdeveloped.

The growing scrutiny by investors and regulators on IPCI highlights the need for better IPCI valuation in financial reports. Financial reporting standards are increasingly emphasizing principles-based, rather than rules-based, valuation methods for intangible assets, demanding a proactive approach in protecting IPCI to safeguard its role in business valuation.

Implementing an IPCI Protection Function

To effectively protect IPCI, a dedicated department should oversee IPCI valuation and safeguard measures. This team would:

• Catalog IPCI: Compile all IPCI assets, including trademarks, patents, copyrights, and trade secrets, in a database. This should include creation dates, costs, infringement issues, and other relevant details.
• Develop a Critical Information Database: This database would identify and restrict information critical to different departments, particularly data sensitive to external exposure. By organizing IPCI information and disseminating it throughout the company, employees become more aware of IPCI's importance.
• Collaborate Across Departments: The IPCI registry should be shared with the CFO and corporate finance, involving the legal team, innovators, and corporate secretary. Together, they can identify possible IPCI leakage points, such as vendor relationships, inadvertent disclosures, and conference attendance, and amend agreements to address these risks.
• Enhance Agreements: Employee and vendor agreements should be updated to reinforce non-disclosure and IPCI security commitments.
• Involve in M&A Activities: The IPCI department should assess the IPCI holdings of potential acquisition targets, ensuring thorough IPCI valuation and protection after acquisitions.
• Conduct Regular OPSEC Audits: An OPSEC professional can help the company identify vulnerabilities and develop tailored procedures. They would also create a list of competitors likely to target the company’s IPCI.

The IPCI registry and OPSEC updates should be regularly shared with department heads and corporate finance to maintain visibility and promote strategic use of IPCI assets.

Conclusion

In response to escalating IPCI threats, developed countries' industries have prioritized innovating faster than IPCI leaks can occur. However, this reactive approach resembles bailing out a leaking boat instead of sealing the hole: if leakage outpaces innovation, the business faces decline.

Ultimately, protecting IPCI strengthens a company’s competitive position, secures its margins, and boosts its market value. For treasury departments, overseeing IPCI monitoring aligns with existing asset oversight roles. Establishing an IPCI asset registry parallels treasury's current responsibilities with tangible assets, making it well-positioned to effectively coordinate IPCI protection efforts.

This proactive IPCI strategy ensures that companies are not merely reacting to breaches, but are fostering long-term resilience and value protection.
 

About the author: L. Burke Files, CACM DDP, is an international financial investigator and due diligence expert who has managed cases in over 130 countries and visited more than 100, with amounts ranging from a few hundred thousand dollars to over 20 billion. Mr. Files has authored six books and numerous white papers and articles. He serves as the non-executive president of the American Anti-Corruption Institute, a founding professor and member of the board of advisors for Hayek Global College, and the editor of the Hayek Business Review.