Recently I met with a team of senior research scientists from a major US corporation. Known for its innovativeness, its products are used by most of us.
I thanked them for their creativity, perseverance, and hard work. Then I told them the bad news (which was actually why I’d been invited)…that other people had figured out how to reverse engineer all their hard work, and produce look-alike products being sold as “same as PRODUCT”, or “as good as PRODUCT”, or even as PRODUCT itself.
Innovation is hard work. It can take years of research, experimentation, testing, and development to bring a new product to market.
Because accounting works the way it does, these costs can be capitalized as an asset, then amortized over the economic life of the product. This asset is called intellectual property (IP), and it’s literally the coin of the realm in the Knowledge Economy.
In the United States, IP is protected by law as patents, trademarks, trade secrets, and copyrights. In fact, it’s so fundamental to our economy that it’s mentioned in the Constitution. In other countries, laws and enforcement vary widely.
What follows is an article I drafted five years ago, shortly after a client asked us to look into trading irregularities in their product. The situation has not changed significantly since then. The only substantive thing that needed revising is the estimated amount of economic damage from “brand piracy”…upward…a telling commentary on how pervasive and intractable this problem is.