In recent years, the primary locus of value for many corporations has been found in their intellectual property rights. By one informed estimate from the late 1990s, some three-quarters of the Fortune 100’s total market capitalization was represented by intangible assets, such as patents, copyrights and trademarks.1 In this environment, IP management cannot be left to technology managers or corporate legal staff alone. Given that the generation of returns from IP rights is a capital-intensive, long-term activity and that decisions affecting intellectual property are usually irreversible at low cost, IP management must be a matter of concern for functional and business-unit leaders as well as a corporation’s most senior officers.

Little of the writing on the subject of intellectual property rights, however, has been directed at top-level executives; instead it has frequently been done by specialists, for specialists. And senior managers, in order to effectively govern and exploit their often huge IP assets, need help to answer these specific questions:2 How can the company use intellectual property rights to gain and sustain competitive advantage? How do IP rights affect the industry’s structure? What options do IP rights offer vis-à-vis competitors? How can IP rights grant incumbency advantage and establish barriers to entry? How can IP rights help the company gain vertical power along the value chain? What organizational design accommodates an intellectual property strategy most effectively?

Enormous knowledge is hidden in the economics literature and in the heads of corporate IP managers about the way companies have developed answers to these questions.3 Making such information available to top-level management will help lead intellectual property rights out of their shadowy existence in patent and legal departments and enable companies to tap into their strategic value. (See “About the Research.”)

Creating and Sustaining Competitive Advantage

Intellectual property rights can help a company gain competitive advantage in various ways, but three are paramount: They can provide a temporary technological lead (incumbency), protect brand names and help form an industry standard. Combinations of patents and trademarks can help to sustain IP-based competitive advantages.

The use of patents to enjoy a short-term technological lead is the best-known way to create competitive advantage with IP rights, but it is fading in importance in many industries. The pharmaceutical industry is an exception.

Denmark-based healthcare company Novo Nordisk A/S, for example, built a dominant market position in Europe with diabetes drugs as the result of its