What Is Intellectual Capital?
Friday, March 16, 2018
By Bill Elkington, President & Chair of the Board, LES (U.S.A. and Canada)
I used the term "intellectual capital" in a short speech at the annual meeting last October, and I called all of us in LES "intellectual capital management professionals." But I wasn't clear about what the term might mean (or what I might mean in my usage of the term), and I wasn't clear why I was using the locution "intellectual capital" (IC) rather than "intellectual property" (IP).
Please allow me to explain.
Some people are quite specific when they use the term "IP." These people refer only to intellectual matters that are protected or protectable under the four bodies of IP law: patents, trademarks, copyrights, and trade secrets. Others think that the term "IP" refers or can refer to a much larger universe, to include proprietary information, software, know-how, business policies and processes, relationships with customers and suppliers, brands, unique skills and knowledge, etc., as well as the intellectual matters that are protected by the four bodies of IP law.
My personal experience is that in the context of license agreements, people often want to define "IP" in the broader rather than the narrower sense because there is a whole lot of "i-stuff"¹ that has significant value but that may or may not be protectable under the four bodies of IP law. In other words, what pushes people toward the broader understanding of what IP may be is its perceived value and the similar seemingly ephemeral nature of all "i-stuff"—ephemeral in terms of its ontology. (Now that I've uttered the o-word, perhaps you are wondering if this little essay is big enough to handle a philosophical discussion of intellectual capital and intellectual property. Let me assure you, we will only edge our way around the philosophical issues here.)
This intuition that there is a great deal of "i-stuff" that may instantiate a great deal of value and may not be protectable under IP law inspires the use of a broader term so that we may all be clear. Yes, intellectual matters protectable by IP law can be extraordinarily valuable, but try basing a major operating company and its future success on this "i-stuff" alone. Good luck.
No, much more "i-stuff" is needed for this purpose, and to represent the full basket of goods, so to say, I suggest the term "intellectual capital."
I like the term for one reason. It seems to admit that the essential nature of all the "i-stuff" of interest is in its capital-like nature—its nature as an asset created by investment. This is a departure from the emphasis given "i-stuff" by the term "intellectual property," which emphasizes the private property nature and legal status of the items in question.
Yes, some "i-stuff" does have the characteristic of being private property and legally protectable under certain bodies of law but, in business, its value is of paramount interest, not the legal theory of its existence.
This distinction motivates me to observe that many people in many industries today think that "-i-stuff" is the unique purview and provenance of lawyers. Perhaps this is so because of the emphasis on the four bodies of IP law as the locus of value in a company's "i-stuff" store. This notion of the unique lawyers' role may also come about because many people may often have little visibility into the dollar value of their "i-stuff." Finally, without an academic discipline in the management of "i-stuff," it may be difficult to imagine what managing it well may look like and what a non-lawyer might do to manage it well.
This all suggests to me that the broader sense of what we are interested in here—"i-stuff"—may be better referred to as intellectual capital.
This broader term may perhaps provoke business people into thinking differently about their "i-stuff," and that could be a good thing.
Instead of thinking principally about the legal issues, when it comes to the management of our "i-stuff," perhaps if we referred to a company's intellectual capital, we would think of the company—of everyone in the company, not only the lawyers—as being about the business of managing and optimizing the value all of its assets: tangible, intangible (made up mostly of intellectual capital), and the company's human capital—its human assets.
"Human capital?" Now there's an interesting concept. Perhaps there is an analogy here that we might usefully explore in our next conversation about intellectual capital management.
Please let me know your thoughts.
Thanks for your help.
The views and opinions expressed in this article are those of the author and do not reflect the policy or position of Rockwell Collins, Inc.