IP finance ... where money issues meet intellectual property rights: German Standards Institute DIN - General Principles of Proper Patent Valuation
Voting ends tomorrow (2nd May) at ISO on whether to create a new project committee for Patent Valuation. In the initial round of comments to the ISO Technical Management Board 25 replies were received. 16 member bodies voted in favour of the starting work on the proposal whilst 8 rejected the idea. One abstained.
Countries rejecting the standard included Japan, Canada, Finland, Netherlands, Spain, South Africa, the UK and the US.
The Netherlands provided the most detailed arguments on their position, essentially maintaining that the idea of a standard was not feasible and that it is difficult to understand how the complexities of the subject matter can be mastered sufficiently to develop any useful standard.
The UK commented that the work on the standard on brand valuation should be completed before starting work on patent valuation.
ANSI in the US considered that a standards development committee was not an appropriate forum for doing the kind of the work needed to develop and evaluate new patent valuation methodologies.
Clearly ISO and its member organisations are divided on the subject. It is difficult to tell whether ISO will take on this project or not. However, one of the most interesting points to emerge from the comments made from the national standards organsiations was the concern of overlap in work with the International Accounting Standards Board. Clearly ISO will need to liaise with this other organisations active in the IP and finance fields if the standard is to be accepted.
Wednesday, April 30, 2008
Licensing Executives Society - International Chicago
Rob's been a little bit quiet lately - he's been helping two clients on diligence reviews!
If any readers are going to be in Chicago next week at the annual LESI conference, then feel free to look him up. You can also use the power networking tool to schedule a meeting!
If any readers are going to be in Chicago next week at the annual LESI conference, then feel free to look him up. You can also use the power networking tool to schedule a meeting!
"Spurious precision" and the IP Finance Group
When the informal IP Finance Group had its first, very informal, meeting back in January, we agreed that if possible we'd have another meeting in May.
Oliver Rivers has agreed to give us a short talk on Tuesday 27 May at 5pm at the London office of Olswang, solicitors (who have kindly agreed to provide a room and some light refreshment). The talk is entitled "Spurious precision" -- a concept that will be familiar to anyone who has been involved in the debate between the need to place IP rights within a range of values and the requirement that it have one ascertainable value at the point at which something happens to it.
We have the room till 6.30pm: the talk will last around 20 minutes, following which there will be a chance for some light networking, information-exchange and generally thinking about where we go from here. As before, everyone is welcome. If you'd like to attend, email me here.
For the record, the launch of this weblog was one of the fruits of the first meeting of the IP Finance Group in January. Despite its niche subject-matter and relative infancy, this blog has posted 73 items since the last week in January, receiving 3,888 casual visits between now and today. It has notched up 60 email subscribers and over 80 RSS-feeders. It has a page rank of 4 -- which suggests that quite a few other sites are linking to it -- and is gradually growing in momentum. The basis of a bibliography has also been put together in the side bar.
The more information we can spread about the IP/money interface, the better-informed will be the debates over IP as an asset and the decision-making processes that govern it. If you value this weblog, please tell your friends about it and let them know that it's always available to them.
Oliver Rivers has agreed to give us a short talk on Tuesday 27 May at 5pm at the London office of Olswang, solicitors (who have kindly agreed to provide a room and some light refreshment). The talk is entitled "Spurious precision" -- a concept that will be familiar to anyone who has been involved in the debate between the need to place IP rights within a range of values and the requirement that it have one ascertainable value at the point at which something happens to it.
We have the room till 6.30pm: the talk will last around 20 minutes, following which there will be a chance for some light networking, information-exchange and generally thinking about where we go from here. As before, everyone is welcome. If you'd like to attend, email me here.
For the record, the launch of this weblog was one of the fruits of the first meeting of the IP Finance Group in January. Despite its niche subject-matter and relative infancy, this blog has posted 73 items since the last week in January, receiving 3,888 casual visits between now and today. It has notched up 60 email subscribers and over 80 RSS-feeders. It has a page rank of 4 -- which suggests that quite a few other sites are linking to it -- and is gradually growing in momentum. The basis of a bibliography has also been put together in the side bar.
The more information we can spread about the IP/money interface, the better-informed will be the debates over IP as an asset and the decision-making processes that govern it. If you value this weblog, please tell your friends about it and let them know that it's always available to them.
Monday, April 28, 2008
Napier deal approved by shareholders
Last week the shareholders of Napier Environmental Technologies Inc ("Napier") approved the sale of its intellectual property outside of North America to Freeworld Coatings Global ("Freeworld") and the option grant to Freeworld to acquire the North American sales, marketing and manufacturing operations of Napier, including existing customers outside of North America, for $5.25 million in cash. See postings on Afro-IP here and here.
The "oil of the 21st century": Intellectual Property
For our German readers: the German Federal Centre of Political Education, the "Bundeszentrale für politische Bildung" (BPB) which inter alia aims to foster an understanding of political factual issues features an interesting and informative site on copyright law.The site lauds IP as the "oil of the 21st century" and poses some interesting questions regarding the quantification of its value, in particular in the light of the recent German copyright law revision.
More information can be found here.
Posted by Jeremy on behalf of Eva Lehnert.
Sunday, April 27, 2008
Leveraging IP to finance early-stage technology: Second Part
What are possible choices from a public policy point of view?
Governments need to set an adequate regulatory framework for IP strateges at the micro- and macroeconomic level. The administration can either provide direct funds to entrepreneurs or offer tax incentives to market participants operating in the field of early stage technology. Singapore, Malaysia, Thailand or Indonesia are very active in this area and can look back to a successful track record in promoting early stage technology and an IP culture. After only a year of intensive examination several Thai banks such as the Thai SME bank have started to consider IP as collateral. This probably significantly decreased the cost of capital for entrepreneurs. Firms and research centers may be able to take loans on the basis of their IP assets rather than refering to expensive mezzanine finance that require 20-30% of returns. Indonesia has launched several programs of privately managed public venture capital funds that seek to promote early stage IP. Also, research centers like the Technology Institute of Bandung in Indonesia are very active in licensing IP and forming strategic alliances and partnerships. A recent initiative of the Institute includes a partnership with young entrepreneurs in Indonesia that seek to add value to their business model. Success stories include a small agro-business that started using an invention of the institute and doubled its revenues.
Governments and intergovernmental development agencies can also take advantage of their role in promoting private sector initiatives. The public hand can act as an intermediary, can offer insurance services, provide information, offer a platform for networks and communicate trust to the market. All these activities linked to IP promote an IP conscious investment culture and help raise awareness of the value of IP assets among investors and borrowers.
In many developing countries early stage technology companies know little about how to audit, value or commercialize IP assets. As a consequence investors are not able to grasp the value deriving from the borrower’s IP assets. Public initiatives explaining to borrowers and investors the value of IP assets can help. Training classes for borrowers and investors on the nature of IP assets and their potential for value creation can be an important first step. There might also be scope for the education of IP assets professionals that know how to value IP assets. China, for example, can look back at a certain history in IP assets valuation after taking this type initiative.
A possible reform of accounting standards might allow companies to put the value of internally generated IP assets on the balance sheets. Taking Germany as an example recent modifications of US GAAP standards (US accounting standards) have brought the IP assets perspective on the agenda of CEO’s of major multinational companies operating in the country. Companies listed at the New York Stock Exchange, but doing business in Germany are under SFAS 141 and 142 of US GAAP allowed to put intangible assets (including trade names and trade dresses) on the balance sheet. This is optional.
This novelty has provoked a major shift in the country. It appears that as from 2004 the biggest firms in Germany have been accounting their intangible assets according to US standards. Even though the guidelines in SFAS 141 and 142 are quite vague and far from sufficient to allow for adequate accounting of intangible assets, this has provoked a considerable shift in the market.
Also, the institutional framework for obtaining IP protection needs to function. Obtaining IP protection must be affordable, uncomplicated and reliable. This calls for the strengthening of the role of IP offices. In many developing countries patent search is not conducted at the global level before a patent is granted, obtaining a patent can be very expensive and time consuming (sometimes up to 10 years). As a consequence the borrower’s options to access finance on the basis of IP are limited.
Equally financial regulations need to guarantee investors their rights in the IP assets. At the national and international level several initiatives are currently under way. To cite the most prominent one’s UNCITRAL is currently elaborating a draft convention on financing on the basis of IP assets, equally BASEL II defines collateral as tangible and intangible assets. The Thai and Indian governments have taken steps towards similar reforms.
IP is a key driver of a firm’s value. It can be valued using various credible and established techniques. The biggest obstacle in using IP in financial transactions seems to be the myth that intangible assets can not be valued or accounted and henceforth not be considered as a useful financial tool.
However, these are perceptions and views that do not reflect the intrinsic characteristics of an IP asset. Investors AND entrepreneurs often know very little about IP and how it relates to the value of a company. Also, it is not sufficiently associated with technology and many governments and intergovernmental development agencies have not yet profited from the full advantage the IP perspective offers.
Further problems arise from inadequate communication. Lev (Lev 2000) has proven that the price of a technology stock is positively correlated with the firm’s efforts to announce licensing agreements, royalty revenues, patenting activities and viable technological developments. The valuation of IP remains a forecast, remains a view on potential future income streams, but within this framework it is as feasible and reliable as the valuation of tangible assets.
At the macroeconomic level countries cannot afford to ignore IP assets. Ownership and use of IP is a major driver of economic, social and cultural welfare. At the microeconomic level investors and entrepreneurs cannot afford to ignore IP either. Investors need to understand the drivers of a business. Although IP is a main driver of value, it often goes unnoticed. From an investor’s point of view the ignorance about value creating assets leads to inadequate investment decisions. Nor is it advisable for the enterprise to ignore IP. IP asset management must be an integral part of the strategy of any firm in knowledge based industries. Competing at the edge, be it at the firm, national or international level means picking up the IP assets perspective.
Bibliography
Arrow K.J. Economic Welfare and the Allocation of Resources for Invention. In: Nelson R.R. (ed.) The Rate and Discretion of Innovative Activity: Economic and Social Factors. Princeton University Press. Princeton 1962
Anton J/Yao D. Expropriation and Inventions – Approbiable Rents in the Absence of Property Rights. American Economic Review Nr. 84/1 1994, pp.191-209
Baygan G. Country Reports on Venture Capital Markets in OECD countries. OECD. Paris 1999-2003
European Intelligence Unit (EIU). Country Reports. The Economist. London on-going.
Freeman C. The Economics of Industrial Innovation. Printer. London 1982
Holmstrom B. Agency Costs and Innovation. Journal of Economic Behavior and Organization Nr.12/2 1989, pp. 305-327
Idris K. Intellectual Property. A Powertool for Economic Growth. WIPO. Geneva 2003
Kamien M.I./Schwartz N.L. Market Structure and Innovation. Cambridge University Press. Cambridge 19982
Lev B. Communicating Knowledge Capabilities. Stern School of Business. New York 2000
Rogers M. Firm Performance and Investment in R&D and Intellectual Property. Melbourne Institute Working Paper Nr.15/2. Melbourne 2002
Schumpeter J. Theorie der Wirtschaftlichen Entwicklung: Eine Untersuchung über Unternehmensgewinn, Kapital, Kredit, Zins und Konjunkturzyklus. Duncker und Humblot. Berlin (1934) 1964
Schumpeter J. Konjunkturzyklen: eine Theoretische, Historische und Statistische Analyse des Kapitalistischen Prozesses. Vandenhoeck und Ruprecht. Göttingen 1939
Schumpeter J. Capitalism, Socialism and Democracy. Harper and Brothers. New York 1942
Teece D.J. Capturing Value from Knowledge Assets: The New Economy. Markets for Know-How and Intangible Assets. California Management Review Nr. 40/3 1998, pp. 55-79
by Roya Ghafele[1]
Ghafele@haas.berkeley.edu
[1] This paper was presented at the OECD conference on Financing University Technology Transfer. St.Petersburg State University/ OECD. St. Petersburg December 14-15, 2004 http://oecdmoscow.9.com1.ru/rusweb/rusfeder/5/3/FinancingIPST.Petersbg1.ppt
Governments need to set an adequate regulatory framework for IP strateges at the micro- and macroeconomic level. The administration can either provide direct funds to entrepreneurs or offer tax incentives to market participants operating in the field of early stage technology. Singapore, Malaysia, Thailand or Indonesia are very active in this area and can look back to a successful track record in promoting early stage technology and an IP culture. After only a year of intensive examination several Thai banks such as the Thai SME bank have started to consider IP as collateral. This probably significantly decreased the cost of capital for entrepreneurs. Firms and research centers may be able to take loans on the basis of their IP assets rather than refering to expensive mezzanine finance that require 20-30% of returns. Indonesia has launched several programs of privately managed public venture capital funds that seek to promote early stage IP. Also, research centers like the Technology Institute of Bandung in Indonesia are very active in licensing IP and forming strategic alliances and partnerships. A recent initiative of the Institute includes a partnership with young entrepreneurs in Indonesia that seek to add value to their business model. Success stories include a small agro-business that started using an invention of the institute and doubled its revenues.
Governments and intergovernmental development agencies can also take advantage of their role in promoting private sector initiatives. The public hand can act as an intermediary, can offer insurance services, provide information, offer a platform for networks and communicate trust to the market. All these activities linked to IP promote an IP conscious investment culture and help raise awareness of the value of IP assets among investors and borrowers.
In many developing countries early stage technology companies know little about how to audit, value or commercialize IP assets. As a consequence investors are not able to grasp the value deriving from the borrower’s IP assets. Public initiatives explaining to borrowers and investors the value of IP assets can help. Training classes for borrowers and investors on the nature of IP assets and their potential for value creation can be an important first step. There might also be scope for the education of IP assets professionals that know how to value IP assets. China, for example, can look back at a certain history in IP assets valuation after taking this type initiative.
A possible reform of accounting standards might allow companies to put the value of internally generated IP assets on the balance sheets. Taking Germany as an example recent modifications of US GAAP standards (US accounting standards) have brought the IP assets perspective on the agenda of CEO’s of major multinational companies operating in the country. Companies listed at the New York Stock Exchange, but doing business in Germany are under SFAS 141 and 142 of US GAAP allowed to put intangible assets (including trade names and trade dresses) on the balance sheet. This is optional.
This novelty has provoked a major shift in the country. It appears that as from 2004 the biggest firms in Germany have been accounting their intangible assets according to US standards. Even though the guidelines in SFAS 141 and 142 are quite vague and far from sufficient to allow for adequate accounting of intangible assets, this has provoked a considerable shift in the market.
Also, the institutional framework for obtaining IP protection needs to function. Obtaining IP protection must be affordable, uncomplicated and reliable. This calls for the strengthening of the role of IP offices. In many developing countries patent search is not conducted at the global level before a patent is granted, obtaining a patent can be very expensive and time consuming (sometimes up to 10 years). As a consequence the borrower’s options to access finance on the basis of IP are limited.
Equally financial regulations need to guarantee investors their rights in the IP assets. At the national and international level several initiatives are currently under way. To cite the most prominent one’s UNCITRAL is currently elaborating a draft convention on financing on the basis of IP assets, equally BASEL II defines collateral as tangible and intangible assets. The Thai and Indian governments have taken steps towards similar reforms.
IP is a key driver of a firm’s value. It can be valued using various credible and established techniques. The biggest obstacle in using IP in financial transactions seems to be the myth that intangible assets can not be valued or accounted and henceforth not be considered as a useful financial tool.
However, these are perceptions and views that do not reflect the intrinsic characteristics of an IP asset. Investors AND entrepreneurs often know very little about IP and how it relates to the value of a company. Also, it is not sufficiently associated with technology and many governments and intergovernmental development agencies have not yet profited from the full advantage the IP perspective offers.
Further problems arise from inadequate communication. Lev (Lev 2000) has proven that the price of a technology stock is positively correlated with the firm’s efforts to announce licensing agreements, royalty revenues, patenting activities and viable technological developments. The valuation of IP remains a forecast, remains a view on potential future income streams, but within this framework it is as feasible and reliable as the valuation of tangible assets.
At the macroeconomic level countries cannot afford to ignore IP assets. Ownership and use of IP is a major driver of economic, social and cultural welfare. At the microeconomic level investors and entrepreneurs cannot afford to ignore IP either. Investors need to understand the drivers of a business. Although IP is a main driver of value, it often goes unnoticed. From an investor’s point of view the ignorance about value creating assets leads to inadequate investment decisions. Nor is it advisable for the enterprise to ignore IP. IP asset management must be an integral part of the strategy of any firm in knowledge based industries. Competing at the edge, be it at the firm, national or international level means picking up the IP assets perspective.
Bibliography
Arrow K.J. Economic Welfare and the Allocation of Resources for Invention. In: Nelson R.R. (ed.) The Rate and Discretion of Innovative Activity: Economic and Social Factors. Princeton University Press. Princeton 1962
Anton J/Yao D. Expropriation and Inventions – Approbiable Rents in the Absence of Property Rights. American Economic Review Nr. 84/1 1994, pp.191-209
Baygan G. Country Reports on Venture Capital Markets in OECD countries. OECD. Paris 1999-2003
European Intelligence Unit (EIU). Country Reports. The Economist. London on-going.
Freeman C. The Economics of Industrial Innovation. Printer. London 1982
Holmstrom B. Agency Costs and Innovation. Journal of Economic Behavior and Organization Nr.12/2 1989, pp. 305-327
Idris K. Intellectual Property. A Powertool for Economic Growth. WIPO. Geneva 2003
Kamien M.I./Schwartz N.L. Market Structure and Innovation. Cambridge University Press. Cambridge 19982
Lev B. Communicating Knowledge Capabilities. Stern School of Business. New York 2000
Rogers M. Firm Performance and Investment in R&D and Intellectual Property. Melbourne Institute Working Paper Nr.15/2. Melbourne 2002
Schumpeter J. Theorie der Wirtschaftlichen Entwicklung: Eine Untersuchung über Unternehmensgewinn, Kapital, Kredit, Zins und Konjunkturzyklus. Duncker und Humblot. Berlin (1934) 1964
Schumpeter J. Konjunkturzyklen: eine Theoretische, Historische und Statistische Analyse des Kapitalistischen Prozesses. Vandenhoeck und Ruprecht. Göttingen 1939
Schumpeter J. Capitalism, Socialism and Democracy. Harper and Brothers. New York 1942
Teece D.J. Capturing Value from Knowledge Assets: The New Economy. Markets for Know-How and Intangible Assets. California Management Review Nr. 40/3 1998, pp. 55-79
by Roya Ghafele[1]
Ghafele@haas.berkeley.edu
[1] This paper was presented at the OECD conference on Financing University Technology Transfer. St.Petersburg State University/ OECD. St. Petersburg December 14-15, 2004 http://oecdmoscow.9.com1.ru/rusweb/rusfeder/5/3/FinancingIPST.Petersbg1.ppt
Money to spend on innovation?
UK-IPO e-zine IP Insight reports that, over the next three years, the Technology Strategy Board (TSB) in the UK will have £1bn to spend on accelerating business innovation. The TSB is an executive non-departmental public body, established in 2007 and sponsored by the Department for Innovation, Universities and Skills (DIUS). I think this is what used to be called a quango. Can someone please advise?Anyway, in this article the TSB Director of strategy Allyson Reed discusses how high-growth enterprises and intellectual property fit into her plans. She explains that the TSB "lies at the juncture of government, public research, corporations and enterprises". Significantly, any projects that fall within its brief "will be run on a collaborative basis with the TSB matching any funding from its partners in government, research and commerce". The article concludes:
"In helping to make growth projects happen, the TSB is not looking to take any IP itself. ‘The consortium owns it. How they develop it is up to them. We are investing where we can make a difference and where there is a return for the UK’".A billion pounds over three years sounds great, particularly from a backer that doesn't seek any IP rights in return. But there are at least a couple of things to think about:
* How easy will it be for potential applicants for funding and support to fill in the forms and satisfy the formal criteria? If at the end of three years much of the sum set aside remains unallocated, we may have an answer to those questions.
* Are there any hidden issues of EU competition law? The Commission is not notably fond of state subsidies in supposedly open commercial sectors?
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