CFO - Managing Patents in the Finance
~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
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.
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.