Tuesday, 02 September 2014
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Bank on your IP

A government-backed report released by the UK Intellectual Property Office (UKIPO) has concluded that banks are out of step in the way they value intellectual property (IP). Traditional lending criteria urgently needs updating to support innovation in the UK economy by ensuring that IP is recognised as a valuable business asset.

The report has highlighted that the vast majority of businesses still turn to banks when seeking finance, and yet this is often one of the most difficult routes. This is due to lenders having a ‘lack of familiarity’ with the business models of IP-rich companies.

SMEs applying for asset-based lending are likely to come up against a similar problem. Organisations providing this kind of finance are more likely to take note of intangible assets, such as patents, trade marks and registered design rights. As they are more used to lending against software, for example, they are more open to assets which are considered to be of higher risk. However, if given the choice of lending to one company or another, they would be likely to lend to those with tangible assets.

Traditional lenders have tightened their lending criteria, but there is now a risk that this approach could end up holding back growth. Their lack of understanding about the value of some IP assets could also put this group of lenders at a significant disadvantage as economic recovery gets underway.

Many lenders do not realise that it is possible to take out security against certain intellectual property assets, such as patents, trade marks and registered design rights. Such securities can be registered at the UKIPO in the same way that the IP itself was registered.

There is a significant knowledge gap among traditional lenders that needs to change now if we are going to give maximum support to SMEs.

As a source of equity-based finance, crowdfunding is a fairly new option, which has become increasingly open to business propositions of a high tech or scientific nature. The report cites examples where IP issues have been addressed as part of a decision to invest by funds such as Crowdcube and Seedrs.

The very nature of crowdfunding, which is an internet-based funding platform, means that there are more people to raise questions about the business proposition, which means IP issues are more likely to crop up. When comparing crowdfunding with some other, more traditional sources of finance, it may therefore be helping to spread IP awareness and understanding.

A report published by the European Patent Office (EPO) and the Office for Harmonisation in the Internal Market (OHIM) has recently confirmed for the first time the massive contribution that IP-led businesses make to the European economy - a total of 39 per cent of the European Union’s total economic activity (GDP), worth €4.7 trillion each year. This data confirms how important it is that those offering finance to SMEs are able to assess the value of IP assets.

Research among business leaders, noted in Chapter 5 of ‘Banking on IP’, reveals that most SMEs (93 per cent) have not tried to assess what their IP is worth. In addition, only six per cent of them valued their IP at more than ten per cent of their overall business’s worth and 84 per cent believed it to be worth nothing at all.

It’s not just lenders, businesses themselves have a very low awareness of the value of IP and this could limit their growth potential. Progress is being made, thanks to government support in real incentives like Patent Box, but more is needed. The reality for many businesses is that their intangible assets are likely to be worth four times as much as traditional tangible assets.

Karl Barnfather is chairman at patent and trade mark attorneys Withers & Rogers


Readers' comments (3)

  • Regular readers of this blog will already be aware of my views on IP and those that peddle their contribution? as vital: this time they are invoking the need to keep lenders on side as another route for their income.
    Isn't it amazing: For much of our careers, we were told that our banks were paragons of virtue and the essential route to economic success. We as engineers/technologists (as have the rest of the population, who now join us in paying to correct their gross misconduct) knew all along what they were. Folk who might (if you were lucky) understand buildings, land...but had not the slightest clue about the real world of productive assets.

    And now some other bunch of patent word-smiths wants us to use them even more to convince a bunch of barrow-boys (Banks) to lend us money to exploit our ideas and advances.

    Did I miss something here? It seems we are going around yet another 'loop' of lunacy! Let the record of innovation and technical advance be recorded/stored/placed where it belongs: in the appropriate professional Institution, Royal Society, Royal Academy (how about its new President making this her outstanding contribution during her term of office). If the IP peddlers still insist on playing a part-then, as I have suggested so often, let them provide their essential? input for free and take a share of any eventual profits...some hopes? Then to 98% of patent effort and costs that presently goes to waste as far as technology and manufacture are concerned, might be converted into something useful.

    There is more!
    Best
    Mike B

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  • Surely the intangibles within any organisation used to be called 'goodwill!'
    And it kept a lot of accountants in work deciding just how much of this could be slid into the books to balance them!

    I do recall the son of my very first employer -I was a student apprentice at Woods of Colchester (fans) who had a small linked firm called Air-Woods which made heat exchangers. After every order he used to say "we didn't make any money out of that one, BUT we learnt a lot" Goodwill?
    Likewise during a later life, I used to own a textile trade publication, indeed at one point, two. I was amazed that the two editors believed that it was necessary for them to travel together all over the country attending Press events, at my expense.
    "Its generating such good will"..was their assertion. "OK, let me pay a percentage of your salary in some of this goodwill...was my reply. Amazingly, they never seemed to want this?

    Do not get me wrong: the promotion and publicity of an organisation, the creation of good-will is important, but NOT so important that it takes over! I am reminded of Henry Ford "I know that 50% of my promotion and marketing spend is wasted: the trouble is that I do not know which 50%"
    Collapse of stout party.

    best
    Mike B

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  • Fellow bloggers may enjoy a recent letter to the Times:
    Andrew Clark, The Times: 20/12/2013
    Greetings, Nice piece about the Royale -McDonalds Quarter-pounder, in France!

    You might enjoy the attached comment. Your colleague Ian King (business editor) is aware of my past life as a textile consultant.

    One of my clients for many years was Gentex Corp, of Carbondale, Pa, USA: who amongst many other very-high tech textiles, often for military purposes, made the parachutes which slow/slowed up atomic bombs before they explode(d) and asbestos replacement carbon based fabrics. Lunch with Gentex staff was often taken in a mom & pop diner, in Carbondale, called McDonals.
    Proudly displayed around the walls are a series of letters.
    The first is from McDonald's lawyers, probably called Sue, Grabbit, and Runne. It points out that it has been noted that McDonals are trading with a name very similar to..., and that they have the temerity to call their burgers “quarter-pounders.” It threatens all manner of penalties, writs, fines, forced sale...Court Injunctions....at so on, if McDonals do not cease and desist immediately.

    The next letter is brief and to the point, from Mr Mcdonal. In effect it says...
    “Go stuff yourselves, we were here first.”

    The exchanges continue, portrayed around the diner wall, getting nastier and nastier until the last.
    This is from the CEO of McDonalds.
    “Dear Mr Mcdonal,
    In recognition of your kind permission for us to continue to use the name 'quarter-pounder' to describe our burgers -which we acknowledge you registered with the proper authorities in Pennsylvania, long before we did- and to compensate you for the distress you have been caused by our lawyers, we are happy to confirm that we are making a $ 7 figure payment to the Shriner's charity
    Thank you.”

    Might is not always right?
    Best
    Mike Blamey

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