Value of IP

One of the most commonly asked questions here is “what is the value of our IP?” This question is hugely relevant to an increasing number of businesses. In a clicks not bricks economy it is reckoned that around 80% of the value of leading companies these days can be attributed to their IP. You only have to look at leading names such as IBM, Google, Apple, and Coca Cola, to see that their technology / design and / or brand contribute massively to their profits. If you don’t believe me then have a quick look at Forbes “World’s most valuable brands” website http://www.forbes.com/powerful-brands/list  Even more surprising is how that list has changed over the last 20 years. Few of the brands listed on Forbes would have been in the top 100, let alone the top 10 on that website. Indeed even the internet was in its infancy then.

These days however, IP is the primary asset and collateral in most businesses, even SMEs. Astonishing therefore that even key brands such as Gucci and Tommy Hilfiger have recently lost significant trade marks in the UK. These brand owners wouldn’t have left the shop unlocked, but they’ve now effectively left the door open for others to exploit their brands.

The Scoping Exercise.

It is vital to identify and optimise the value of any businesses ideas and IP. The reason that smaller businesses don’t maximise or value their IP is because few of them realise what amounts to IP within the business. For many businesses the start point for looking at these assets is an IP audit. The audit will flush out opportunities and weaknesses within the business structure and provide a resume of options for the business to tackle. Normally when undertaking this exercise we “rank” the next steps in order of commercial priority for implementing. Once that exercise has been completed a value of the IP can start.

Valuation

Valuing IP is something of a dark art. The key issue as far as we IP lawyers are concerned is to “landscape” the IP and put it in context. By way of example, if a patent only has 2 years left before the monopoly expires, it often has less value. However, if the business owner has effectively patented around the product, and those process patents last another 10 years, the value of the patent will increase. It is similar for brands. If a brand is well known but is not widely licensed and generates little in terms of income streams for licensing then its value is diminished. A well known and widely used brand with lots of licensing income will be more highly valued.

In recent years we’ve done some legal work on lending by pension companies against intangible assets – normally trade marks and the goodwill of the company’s brands. Virtuoso Legal http://www.virtuosolegal.com was also been involved in large securitization over major trade mark portfolios earlier this year. However, the start point for all of these transactions has been to value IP in the first instance. One of the gurus of IP valuations is Kelvin King and his colleagues at Valuation Consulting see www.valuationconsulting.com Some of the big accounting firms are also involved in this line of work. Valuing IP is often considered expensive but if you shop around the costs can be far lower than you’d expect.

The real problem here for businesses is that banks and other institutions generally dislike lending against intangibles. Kelvin and his colleagues have recently done some work for the Government on this and for sake of UK plc and its inhabitants, I hope that the banks resolve to change this attitude sooner rather than later. It is only when funders really grasp the fundamentals of IP, that businesses can start to obtain funding against their best assets.

Liz Ward Principal Virtuoso Legal

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One Response to Value of IP

  1. Great article Liz. Fully agree that there is a need for SMEs to understand what intangible assets they have and how to fully exploit such – we’ve been helping SMEs on this too. One of the problems for SMEs in particular is the cost of traditional IP valuations. Whilst there will always be a need for these, Martin Brassell, CEO of Inngot Ltd and co-author with Kelvin of the abovementioned government report “Banking on IP” http://www.ipo.gov.uk/ipresearch-bankingip-sum.pdf , is at the forefront of helping SMEs obtain a cost-effective, indicative valuation of their IP, to help them profile, manage and fully exploit their IP. See http://www.inngot.com for more details.

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