Standards Needed For IP Value To Be Recognised By Banks, IP Offices Say

Valuation of intellectual property is of growing importance to small and medium-sized enterprises in getting loans from financial institutions, IP office representatives said at a side event to the World Intellectual Property Organisation General Assembly this month.

A panel entitled, “Valuing IP: addressing the global challenges” was organised on 7 October by the United Kingdom Intellectual Property Office (UKIPO), the Danish Patent and Trademark Office, the Intellectual Property Corporation of Malaysia, and the Intellectual Property Office of Singapore.

IP valuation is in need of global standards, the speakers said, as financial institutions usually have poor knowledge of IP assets and do not consider them as valuable collaterals for loans.

The speakers presented their countries’ initiatives to develop IP valuation and raise the awareness of banks.

Pippa Hall, UKIPO chief economist, said intangible assets continue to grow in importance and are crucial to capture IP properly. IP markets are global and there is a need to have a global standard for IP valuation to allow for comparison, she said.

Banks need to be convinced that they are able to value IP, she added. According to Hall, there are different ways to valuate IP, and no one size fits all. Valuation can be based on cost or on market value, and it is not easy to choose the appropriate method of valuation.

The UKIPO has developed an IP finance toolkit, she said. The toolkit aims at encouraging and guiding businesses to document their IP assets ahead of any application for finance, at helping them to develop more effective IP management and commercialisation strategies, and at raising awareness of finance options for “IP-rich businesses,” according to the toolkit [pdf].

Questions remain on how to achieve low-cost, transparent and well-understood IP valuation, as well as how to compare IP valuations globally, said Hall.

Shamsiah Kamaruddin, director general, Intellectual Property Corporation of Malaysia, said the IP office is currently conducting an initiative on IP valuation, and has started training local valuators since March 2013.

It is difficult for small and medium-sized enterprises (SMEs) to get loans from financial institutions because they do not have assets, said Kamaruddin, “What they have is IP,” she said.

There is a need to grow local capacities in IP valuation, she said, as IP valuation is currently very expensive since it is done by outside valuators.

An IP valuation training module was developed by the IP office. According to an April 2014 bulletin issued by the office, “The need for IP valuation is not only for the purpose of obtaining fund from financial institutions but also to allow the owners to trade their IP at the IP Marketplace.”

“Financial institutions do not know what IP is,” Kamaruddin said, adding that the IP office is working with bank associations for them to be able to accept IP as a collateral.

Karen Worm Markussen, head of department, Policy and Development, Danish Patent and Trademark Office, said the economic value of IP is a new frontier. In 2007, the office established an IP marketplace where companies could trade their IP rights.

According to the IP marketplace website, it allows users to put patents, patent applications, utility models, design and trademarks up for sale or out-licensing. The marketplace can also be used to search for IP rights to buy or in-licence, or if users are looking for partners for innovation projects “that build on patentable knowledge.”

Daren Tang, deputy chief executive, Intellectual Property Office of Singapore, said IP is just not for attorneys and registries but has become businesses’ central strategy.

One issue relating to IP valuation is that it is not clearly defined, it is not fully standardised, with different valuation approaches for different areas, such as electronics versus movies. Another issue is the quality, consistency and transparency of IP valuation, he said.

In 2014, the IP office launched the IP Financing Scheme, he said. According to the IP Financing Scheme website, companies can use the scheme “to access to loan facilities by using their granted patents as collateral.” “The Singapore government will partially underwrite the loans granted by Participating Financial Institutions,” the website explains.

The scheme is a private sector-led initiative, Tang said, and IP valuation is a critical component to assess the value of patent collaterals.

“IP is a relative new economic asset in the field of finance, and banks generally do not have credit assessment systems that incorporate IP assessments,” he said.

Consistent IP valuation approaches need to be developed with partners, he said, and there is a need to increase confidence of the markets in the quality of valuations being performed.

 

Image Credits: Flickr – Simon Cunningham