Précis - Intellectual property (IP) is a valuable asset for most businesses, but often this value is not recognised. Businesses should actively manage their IP to maximise its value and consider a number of common areas as part of such management process.
IP of all types is a key asset for many businesses. However, the true value of such IP is often not properly understood or fully realised.
For many businesses, IP rights are essential to develop and protect market share and existing profits as well as to prevent or restrict competition, but this is a passive role that does not directly generate measurable profit or value for a business. Consequently, much IP, particularly where generated internally, is not fully recognised on the balance sheet of a business and is not considered to be a profit centre for a business, even though it is essential to such business.
However, through a proper understanding of the value of IP and active management of such IP, this otherwise passive asset can be made to work harder, generating profits and other additional value while still performing its primary role. In this economic environment, using existing and valuable assets of a business to their fullest extent is essential, and IP assets are no different.
Set out below are a number of areas on which businesses could focus when seeking to maximise the value of their IP:
1. Clearly identify IP assets
Identifying the full value of IP to a business requires a detailed understanding of the nature and scope of the relevant IP rights and the protection available for such rights. Only with this information can an accurate value be attributed to such IP. Accurately valuing IP is vital to:
- demonstrate the full value of a business to a potential purchaser;
- attract investment or raise finance;
- focus strategic direction and appropriate allocation of resources.
2. Maximise tax incentives
Many jurisdictions have specific tax incentives targeted at IP and the development of IP, such as research and development tax credit systems and low tax regimes for IP generated profits (for example, profits derived from patents). This is a fast developing area, with new incentives being introduced and the benefits of existing incentives increasing as part of the international competition between jurisdictions seeking to attract high-tech and IP-reliant businesses.
Consequently, now more than ever, IP-related tax incentives can have real value, but this constant development also means businesses are often unaware of new incentives or do not fully maximise the benefits of available incentives. Businesses should ensure that they are making the most of any such available tax incentives.
3. Centralising IP ownership
Significant value can be generated for a business through centralising IP ownership. Since IP is an intangible and relatively transferrable asset, centralising IP ownership and management can be achieved without requiring significant business restructuring and has the potential to deliver real economies in terms of a single administrative and management structure, the ability to centralise ownership in a low cost jurisdiction and potential tax efficiencies.
Multinational businesses are particularly well placed to benefit from a centralised IP structure, with centralised management functions (in areas other than IP) being common and familiar to such businesses.
4. Pension deficit reduction using IP assets
It has become increasingly popular and accepted to reduce or eliminate outstanding deficits in corporate pension schemes through the contribution of valuable assets to such schemes. Typically, assets such as property and receivables are contributed, but any valuable income-producing asset can potentially be used. Recently, IP assets have begun to be used to reduce pension deficits, a high profile example being the use by TUI plc of the Thomson and First Choice brands to satisfy a £430m pension deficit.
IP is still a relatively under-utilised asset in this area but, given its potential value to many businesses, the use of otherwise passive IP in this manner presents a real opportunity to IP-rich businesses that may otherwise not have assets that could be utilised for asset-backed pension deficit reduction.
5. IP securitisation / IP-backed finance
IP assets can be used to raise finance, for example as collateral for loans (e.g. Michael Jackson’s use of Beatles publishing rights) or through securitisation of IP income streams (e.g. the Bowie Bonds of the 1990s). For IP-rich businesses that may lack the tangible assets typically used to secure finance, utilising otherwise passive IP for this purpose may open a vital new line of potential finance.
Most businesses will have IP of greater or lesser value. As they already do with other, more tangible, assets (such as property), businesses should ensure that they fully understand the value of their IP and continually monitor and look to maximise the value of such IP.