Senior executives have a fiduciary responsibility to their shareholders to maximize and protect the value of their companies' assets. Intangible assets drive nearly 70 percent of a company's market value, predominantly in the form of intellectual property. Today, intellectual property (IP) is defined as a collection of intangible assets ranging from patents, trademarks, copyrights, trade secrets and institutional knowledge that drives a company's competitive advantage, differentiation and unique value in the marketplace. There are documented cases in the life sciences, manufacturing and computer software industries in which losing intellectual property, either to a competitor or to the public domain, led to hundreds of millions of dollars in lost revenue, legal fees and damages, reduced market valuation and in some instances, class-action lawsuits.
Today, insurance companies do not adequately cover the risk of intellectual property loss and, because this risk is far too great for an organization to assume, senior executives must consider their fiduciary responsibilities to their shareholders and take immediate action to mitigate it. The best way to mitigate this risk is to ensure that the business records supporting IP ownership claims have legal weight, credibility and authenticity.
It is no secret that senior executives face enormous pressure to hit financial targets. Much of this pressure is transferred to their employees who must meet personal, departmental and corporate performance goals or risk losing their bonuses or worse, their jobs. Naturally, the temptation to succumb to unethical behavior to meet these objectives is omnipresent. An example of such behavior is the growing problem of data manipulation inside the enterprise. Because more than 90 percent of all corporate business records are electronic, record tampering to meet objectives or to maximize profits is quite easy to do.
The following are a few examples where this unethical behavior occurred:
· Mutual Fund Late Trading: Daniel Calughar and his former broker dealer, Security Brokerage Inc. (SBI), settled with the SEC for $150 million for electronically backdating financial transactions.
· Sales Contract Backdating: Prosecutors charged executives at Computer Associates (CA) with covering up the backdating of over $300 million of sales contracts in 1999 and 2000.
· Patent Interference: A global semiconductor company lost a core patent responsible for $200 million of system processor revenue because it could not prove the authenticity of vital research records that supported its ownership claims.
· Manipulated Research: Dr. Hwang Woo Suk, a South Korean scientist specializing in cloning and stem cell research, faced allegations of fraud for manipulating photo images of stem cells in his research.
The biggest problem raised by insider data manipulation is that it calls into question the authenticity of all electronic business records, regardless of whether a company acts ethically or not.
In the end, if a company is unable to defend the authenticity of electronic records supporting its IP claims, it is at significant risk of losing that IP. Truly innovative companies take IP protection seriously and integrate data-level security controls, such as third-party time-stamping, into their electronic record management processes. They understand that litigation-readiness is a critical part of the IP protection process and that having the power of proof is an essential safeguard in winning a future legal challenge.
-Tom Klaff is CEO of Surety, LLC a provider of electronic data integrity solutions and member of the Cyber Security Industry Alliance.
