Balancing investment risk and sustainability in Intellectual Property

All the same, charting a course through an ocean of IP is not without its difficulties; the waters are fraught with hidden perils, changeable currents and no shortage of marauders. Just as a captain relies on a local pilot's knowledge to guide a ship safely to and from harbor, those managing or investing in IP portfolios trust in the expertise of their advisors and service providers. Only this acumen can deliver business growth that is both economically and environmentally sustainable.

And that is the key. Favoring one aspect of sustainability to the detriment of the other, while perhaps expedient or populist, jeopardizes the long-term viability of an IP strategy. The challenge of keeping an even keel throughout a business's journey is to maintain a four-way balance of risks, returns, targets and feasibility.

Anchoring a brand with trademarks

A commercial venture is truly launched once the figurative champagne has been smashed. Simply put, to have a name is to have a brand, rudimentary or otherwise. Cultivating this brand identity is vital to ensure a business's goods and services are recognized for what they are and, hopefully, sought out on the back of that reputation.

Here, a solid portfolio of trademarks comes into play, protecting the names, logos, symbols, graphics and all other branding elements that identify products or services as coming from a particular enterprise. In safeguarding its distinctiveness, not only does a business have means to prevent imitators from "poaching" its customers via deception, but also the ideal mechanism for communicating with the consumer base on an emotional level. This is the difference between repeat custom and brand loyalty, making the creation and registration of trademarks a crucial part of any IP strategy.

It stands to reason, then, that "green" trademarks would be especially attractive assets for a company to register and for investors to screen for. And they are – but not without some caveats. Let us use the European Union Intellectual Property Office (EUIPO) as an illustration. The Office uses a database of some 900 "Harmonised Green Terms" to categorize trademarks as covering sustainable topics. Though the collection of labels is quite large, the EUIPO applies machine-learning technology and examiner training to weed out ineligible marks. The result is a stringent threshold and a high-quality catalog of registrations, both upheld by the European General Court. This, by and large, helps avoid dilettantism leaking into the registry and the dreaded "greenwashing" of portfolios.

However, receiving a green European Union trademark (EUTM) is not a certification or endorsement of sustainability by the EUIPO, only a notice that the mark satisfies eligibility criteria. While a green trademark enhances a product or service's public perception, going so far as to command a premium, it is not the be-all and end-all of IP management. An improper trademark registration is still liable to be invalidated or revoked, and the business's offerings will still have to speak for themselves.

Navigating the competitive tides: patent monitoring

If what a company delivers to clients involves a novel device or process, patenting is often the best way to protect the resources invested in its creation and the only way to receive exclusive rights. Having a time-limited monopoly on an invention's manufacture, distribution and sale helps a business recoup the expense of research and development and demonstrate its innovative capacity.

In this regard, patents make a more direct contribution to sustainability than trademarks, and it follows that green patents are a widely recognized class. The International Patent Classification (IPC), established by the Strasbourg Agreement of 1971, has compiled a Green Inventory to locate and earmark sustainable technologies across diverse fields. Patent applications that qualify as green can benefit from expedited examination procedures such as those offered by the Climate Change Mitigation Pilot Program (in the United States) and the Green Channel (in the United Kingdom), though local definitions may vary. Acceleration programs like these often involve no additional fees.

Sustainable technologies are becoming ever more incentivized, and soon, they will be obligatory in many quarters. For instance, the EU has banned the sale of new cars with internal combustion engines from 2035 to ensure the entire transport sector will be carbon neutral by 2050. Thus, green patents are a financially sound prospect for developers and investors alike. Simultaneously, these advantages up the stakes for infringement, and green patent owners must be especially vigilant of the competition and counterfeiters. Failing to notice a conflicting design or act against known violations threatens a patent's cost justification. The rights afforded by a patent also include the ability to seek legal remedy against offenders, so owners should not hesitate.

Hence, it is imperative for all stakeholders to establish a monitoring regime able to detect patent infringement wherever registrations are held. By observing patent office publications, IP administrators can spot encroaching applications early and closely monitor what rivals are doing. After all, a company's recent patenting activity can reveal something about its (intended) commercial trajectory.

This valuable intelligence could even avoid technology "collisions" ahead of time. Take the example of a startup that has just received a green patent for a method of harvesting electrical energy from a ship's hull moving through salt water. Thanks to its monitoring project, it observes that a much larger competitor is innovating in the same direction. Rather than risk direct conflict in the future, the smaller company could refocus its efforts down another line or approach its would-be rival on the possibility of a licensing deal or joint venture.

Calming the seas: sailing across jurisdictional waters

Whether a business is using its internal resources to create environmentally beneficial IP or a financier is providing capital to fund that same innovation, minimizing investment risk can be reframed as a harmonization process. Fortunately, the IP framework has been advancing on that front for some time, albeit gradually.

The European Patent system is a fine example. All countries party to the European Patent Convention (EPC) agree to validate a non-unitary patent granted by the European Patent Office (EPO) within their territory if this protection is requested. Thus, a single application to the EPO can result in a patent award that may apply to any selection of 39 states. Though specific translation requirements may still apply, it is a much more streamlined procedure than having to file separate applications in multiple jurisdictions.

Taking this system one step further, the Unitary Patent and Unified Patent Court have established means of delivering exclusive rights across most of the EU without the need for individual validation procedures. Both approaches have their pros and cons. Validating European Patents can be time-consuming and complicated but allows for a pick-and-choose strategy that extends beyond the EU. On the other hand, Unitary Patents are only available within the EU and, being centralized, are more vulnerable to cancellation actions.

Even something as innocuous as maintaining up-to-date IP recordals is a fundamental part of reducing risk, particularly in the course of mergers and acquisitions. If IP offices have not been informed of changes in ownership, a deal can be tied up in red tape until all rights holders can be identified and contacted. More troublingly, costly litigation for IP infringement or breach of contract can result when licensing agreements have not been properly recorded. For business agreements of any size, the question of whether or not to perform due diligence checks is never up for negotiation.

Plotting a course for long-term success

Sustainability will play a profound role in the future of business practice, and the creators, managers and backers of IP assets will all need to tailor their policies accordingly. We have touched upon many of the economic motivations already: positive consumer reception, higher monetary value and improved industrial applicability. In essence, handling an IP portfolio will progressively favor greenness as markets evolve to demand (and reward) it.

Additionally, government-mandated sustainability reports are already a reality. Again in the EU, the Corporate Sustainability Reporting Directive (CSRD) will require all but the smallest enterprises to detail their environmental impact, amelioration efforts and societal responsibilities from 2024. Yet all this presents investors with a dilemma: If everyone is encouraged to go green, how can you tell the countless shades apart? What is a risky investment, and what is a lucrative one?

As we mentioned at the outset, the solution lies within pragmatism and balanced expectations. A company that has gone to the effort of registering a collection of green trademarks is likely to mean business when it comes to sustainable practices. Similarly, a body of patents with accredited environmental benefits indicates a vigorous innovative spirit. But these are still only surface-level gauges, weighted toward established players.

But the size of a portfolio is just one metric, so consider the quality of choice assets. For instance, a patent of reasonable age that is cited by a large number of newer inventions is likely to be of greater relevance than one that has not been iterated or improved upon. In a similar vein, a startup with just a handful of trademarks but a well-received line of sustainable products is probably sincere in its ambitions and deserving of its healthy brand image.

Ultimately, a bespoke IP valuation project is one of the best ways to bring clarity to an investment prospect, at least in the immediate context. It can provide a dollars-and-cents figure of a target portfolio's worth, allowing potential investors to reflect on the measure of risk implied and weigh this against the possible contribution to a wider sustainable blueprint.

Whatever destination you have planned for your business, an IP specialist can map out the voyage. And when the waters become choppy, their practiced hand will help steer a safe passage, seeing you arrive whole and dry.