Recent economic developments are challenging companies worldwide. In difficult times, money is tight, and R&D and legal budgets are often cut. This means less money to spend on the protection and enforcement of IP rights. However, a business should keep a sharp eye on IP assets. This is all the more true in times of crisis.
Firstly, it’s important to maintain a strong position towards competitors. In times of crisis, many companies tend to scrimp on innovative activities, preferring to profit from the ideas of others. That means they are more likely to infringe IP rights. An innovative business should consider taking action against infringements and making sure that its rights are respected at all times. Along the same lines, it’s imperative that agreements deal comprehensively with IP, especially in times where trading conditions are tighter. Any omission or oversight in this respect could give rise to disputes regarding inter alia the ownership of IP rights at a later stage.
Furthermore, there is often very little time to seek protection for a particular idea or innovation. In the case of patents, for instance, if the innovation is disclosed to the public in any way before a patent application is filed, the opportunity to obtain protection is lost.
Finally, while intangible assets such as IP rights may not have the same obvious value as material assets, they often prove to be even more valuable and critical to a company’s long-term success. In fact, companies tend to forget that IP rights are real assets which may for instance be licensed, thereby generating royalties, or used for financing purposes.
Scrimping on or delaying investment in innovation and IP protection is hence a trap no company should fall into. That said, businesses can still decide how to best spend even a limited budget in order to obtain maximum protection for their IP assets.
IP management and valuation
If managed properly, a business can turn its IP assets from a sunk cost to a profit. To do so, it must first identify these assets by conducting an IP inventory or audit. Once this has been done, the role and importance of each individual asset should be determined. The management and valuation of IP rights are in fact closely connected. There are several methods to effectively value IP assets, each of which has its pros and cons. Ideally, a business should be able to link its IP assets to the goods and/or services it provides. Otherwise, it should try to come up with new ways to generate additional value based on these assets or to capitalize them, as they have no inherent added value to the business as such. This will be the case, for instance, with a trademark or patent in respect of a product that the company no longer makes.
A review of IP assets owned, used or acquired will not only reveal underused IP but also enable management to strategically advance the company’s market position by optimising the available budget and getting as much out of these assets as possible.
The licensing of IP rights can generate additional income with little up-front investment and a relatively short incubation period. In order to avoid the underreporting of licensing fees and the misinterpretation of contract terms, any licensing programme should, however, be carefully outlined and meticulously monitored.
As an alternative to licensing, a company can consider selling its non-core IP rights. This decision will be all the more important if the company is involved in a transfer of assets, merger or acquisition. In short, non-core IP assets do not increase the company’s value, meaning they will be passed on to the acquirer without any kind of compensation. Selling them separately to a third party could thus constitute an additional source of income. Apart from a private sale at arms’ length, a business could also consider participating in IP auctions. Initially, such auctions were organised following bankruptcy or winding-up, but they are no longer limited to these circumstances.
Another (highly debated) means of valorising assets, in particular patents, is to pool them. A patent pool is an arrangement between several companies to share their patents or to license a portfolio of patents to third parties, making them available to the party that most needs them.
Finally, IP assets may be used as leverage in financing transactions. One way of doing so is through securitisation, which is mainly an option for companies with important intellectual assets and substantial IP revenue. In this case, the securities issued in the securitization deal are based on receivables from, for example, the licensing of IP rights, such as royalties.
A fairly new financing approach is the collateralisation of IP rights. While lenders usually grant credit based on the borrower’s tangible assets, in the case of IP collateralisation, the lender extends credit based on intangible assets (IP) which are pledged as collateral in the event the borrower defaults. One advantage of the collateralisation of IP rights is that the assets are not transferred to the lender and remain with the borrower.