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CFO - Managing Patents in the Finance Department

~Andy Gibbs, Excerpt Essentials of Patents (John Wiley)

Despite what may seem like an obscure connection between patents and the CFO, patent financial management is not only an important component to the enterprise PQM plan, but the CFO stands alone in being able to directly and immediately alter shareholder value based on how effectively he or she manages and reports patent value.

There was a time when the extent to which a financial manager's dealing with patents amounted to little more than authorizing payment of the patent attorney's bill. After all, the finance department manages bank accounts, accounts payable, taxes, and budgeting. Engineering and legal were the only departments charged with managing patents. Not anymore!

In the wake of the Enron collapse, CFO's join the top management echelon that are increasingly finding themselves under the microscope, being held accountable by shareholders, customers, and reporting agencies for their management practices and decisions. Profits and earnings per share (EPS) are now important metrics that should be incorporated into every PQM system.

Today, more than ever, the CFO is answerable for mishandling the company's purse strings. This has always


been the case to some degree, but the combined effect of the new Financial Accounting Standards Board (FASB) requirements to separately report intangible assets and the inordinately high ratio of intangible asset value to market value creates a higher standard of practice to which CFO's everywhere will be held.

If you are a CFO of a company on the order of magnitude of, let's say, Cisco Systems, ask yourself how much time you spend on managing cash and tangible assets, as compared to the time you spend managing intangible assets. If your management time is split 90 percent on cash and tangible assets and 10 percent on intangible assets, you (and your shareholders) may be surprised to learn that 90 percent of your time is being spent managing about 25 percent of the company's market value!

Even if you manage the finances of a $25 million company, the same rules still apply on a smaller scale. In fact, one way that the CFO can single-handedly grow the smaller company's earnings and asset base, along with its IP value, is to replace weak or nonexistent patent management systems with strong financial management policies that will fully exploit the financial contribution that patents can produce. It's now important to begin managing patents in addition to your more traditional CFO duties.