Over the last decades there have been , industry and business have undergone extensive and fundamental changes. Today, the value and income of companies are increasingly based on intellectual property,innovations and other intangible assets. But what is this new reality and what significance could it have for Iceland?

A year-on-year 18.2 billion increase in intellectual property revenue

The value of intellectual property is often discussed, but recent statistics from Statistics Iceland clearly show the enormous importance of intellectual property intensive industries and intellectual property rights protection for value creation in Iceland. 2019 was not an easy year for the Icelandic tourism industry, which in recent years has contributed a significant proportion of the nation’s GDP and foreign currency income. The effects of the bankruptcy of WOW Air and the reduction in tourism last year were apparent in the downturn for tourism companies and the reduction in export revenue for travel (-2%) and transport (-17%).

However, figures from Statistics Iceland show that the value of service exports increased by ISK 10 billion in the last quarter of 2019. This increase can be attributed the income from fees for the use of intellectual property, which increased by ISK 18.2 billion, or 176.2% at the exchange rate of each year. For 2019 as a whole, the increase was just under ISK 8 billion. These revenues have never been higher, having more than tripled since 2012.

Source: Statistics Iceland 2020

report by international consultancy firm McKinsey & Company on the Icelandic economy, published in 2012, identified the necessity of diversifying the economy and increasing competitiveness by focusing more on IPR-intensive export industries – the so-called international sector. Is this a sign of increased momentum and value creation in the Icelandic intellectual property sector?

Global development

This trend can bee seen all over the world.According to figures from the World Trade Organisation (WTO), income from fees for the use of intellectual property increased by 10% in 2017 globally and has increased by 7% on average each year over the last decade.

Traditionally, the United States have been the main exporter of intellectual property (assessed by revenue from the use of intellectual property), but in recent years, the share of Europe and other parts of the world has been increasing. But what is interesting to note is that increase in export revenue for intellectual property use goes hand in hand with increased innovation, success and quality in life in the countries in question.In short: innovation and the development of IPR-intensive industries are closely linked to the development of states and economies.

But these figures only include the revenue that companies can receive from fees for the use of intellectual property,which is only a portion of the total value of intellectual properties and innovation. For example, this does not include intellectual property-related industries in Iceland that have achieved success through innovation and marketing. The fishing industry is one example of an industry that has generated significant value creation through innovation, ingenuity and intellectual property.

The nature of intangible assets

In a broader context, the discussion often revolves around intangible assets, which have become the main assets of many companies. The main assets of modern companies are not tangible, i.e.housing, machinery and equipment, as innovation, intellectual property,knowledge and information are becoming increasingly important. Intangible assets extend to various valuables created in the course of modern business,marketing, industry and innovation. Their common characteristic is that they cannot be protected by traditional means, i.e. by putting them under lock and chain, as you would do with traditional valuables. They can include business relationships, expertise, processes, design, technology and various kinds of information. Intellectual property is often referred to as the most tangible of intangible assets, as they are the only intangible assets that can be protected to any degree. Intellectual property rights are  in fact the only legal remedy to protect intangible assets and is therefore a key component of modern business, innovation and research and development.

In recent decades, the share of companies’assets that are intangible has continued to increase. A look at companies that are part of the US S&P500 stock market index shows that in 1975, 83% of their assets were tangible and 17% were intangible. The opposite was true in 2018, when 84% of their assets were intangible and only 16% were tangible.

Source: 2019 Intangible Assets Financial Statement Impact Comparison Report

The numbers also show that the last few decades have seen an enormous increase in investment in intangible assets, as companies increasingly invest in ideas, innovation, knowledge, design, software and trademarks. In developed economies, investment in intangible assets has now surpassed investment in tangible assets.

In their 2018 book, Capitalism without Capital, economists Jonathan Haskel and Stian Westlake provide an overview of the enormous growth in intangible investment and businesses over the last few decades. Intangible assets are, by nature, very different from tangible assets and therefore require a radically different approach by businesses and authorities in order to protect them and maximise their potential. First,intangible assets are scalable, i.e. it is easier to increase operations, business and income without undertaking significant investments.Investments in intangible assets are more frequently characterised by sunkenness,i.e. it can be more difficult to recover an unsuccessful investment or utilise it elsewhere. However, intellectual property is to some extent an exception to this, as registered intellectual property, such as the trademarks or patents of bankrupt companies, can often be of great value. Intangible assets are also characterised by spillover, whereby it is easier for others to take advantage of the same technology, thus generating real profits for the whole industry. Finally, there are synergies, whereby different ideas can work together in unpredictable ways to create even more value.

This new reality entails many threats but also great opportunities for value creation, especially with the efficient use of intellectual property rights and the synergies of a dynamic innovation environment.

The road ahead

It is clear that much can be achieved if businesses and authorities put their priorities in the right order. Companies, entrepreneurs and other innovators must identify their valuables and know howto protect them. It is also important for them to know what avenues are available to maximize their value and use them as business tools.

Icelandic authorities have emphasised these factors. The recent innovation policy for Iceland emphasises the importance of innovation and the need for “absolute protection of the proprietary rights of businesses and entrepreneurs over their intellectual property and trade secrets”. It is also noted that it is necessary for researchers and developers to have clearly defined proprietary rights over intellectual property "with the aim of using them to create economic value."

A good measure of the success in the field of innovation and other focus points in the innovation policy is the increased number of Icelandic patent applications and intellectual property registrations. The role of the ISIPO in a world where ingenuity and knowledge are increasingly valuable is clear: To support innovators in creating value from their ideas.

This article first appeared in the ISIPO Annual Report 2019.

Jón Gunnarsson

Jón Gunnarsson

Communication Manager