(thanks Richard Boulton)
Phew. What a long long week. In fact October end to end has been hard work every step of the way. I’m not by any means saying that I’m pleased to see the back of it, but it’s been full of lots of ups and quite a few downs. I suppose though that I’ve learned through the years that in trying out something new the magic is to look for the upward trend, whilst treating the little downs as correction points to warn against getting ahead of yourself or becoming arrogant.
This week was full on closing out an investment round for one of our clients. We went from carrying out a relatively easy piece of diligence to managing an ownership issue, correcting old documents that did not reflect the parties’ original intentions. And, as usual with ownership issues, what looked relatively simple to fix took a little life all of its own, and close on two full weeks of work.
I spent some time on Monday with David Jones of Exponent IP chewing over the development of the IP market and how boutique organizations that share the same ethos (quality, professionalism, can do mentality, longevity) can help to grow the market by working together. I like David and Ben as they share these principles and are easy people to work with. This catalysing has become a bit of a theme for us at ipVA, particularly as we know that there are so many pretenders out there who talk without having gone out and done it.
This must be one of the challenges of a growing market, picking out the good from the bad. So I’ll end this week’s post as a call to fellow pioneers and to raise a theme that David and I talked about as one of the key steps in developing this market. That is speaking with a common language. We think that without this, it becomes very hard to communicate and understand even each other. Never mind to communicate with the 95% of the market who don’t get IP.
I was explaining to David that, in our view, the IP world fixates itself on those imposters of value, patents. Just because they are publicly viewable and every second advisory firm has a way of rating them, is this really an indicator of corporate value? Is it heck! If one understands where patents typically come from or rather don’t come from, it is bizarre to badge them as any indication of a corporate worth or surefire predictor of value.
We see all the time that the smartest engineers devalue their own ideas, patenting things that should be better maintained as trade secrets, and retaining as know how little implementation nuggets that would be great patents. We see investor pressure to file greater patent numbers driving a behaviour of filing everything whether good or bad. We see large corporates binging (thank you Craig Opperman) on filing huge patent numbers to help cross licensing discussions, whilst some cultures (France is good at this) spurn the system as creating fraudulent indications of the worth of inventions. In short, one cannot rely on the vagaries of human experience and behaviour towards patenting as giving a reliable result. Sorry IV, you will no doubt capture huge amounts of license revenues, but will you really carry the true debate forward? Will you crack the IP value code and start to explain what drives value in the best companies?
As an alternative, to work out the true comparative worth of companies, we need to work hard at obtaining this common language. And, for us at ipVA, this means following the accountants’ language. Intangibles is the word. This message in a bottle is to those out there who follow that same principle. Ignore the imposters that are patents as nothing more than one way that inventions can be properly protected. Not irrelevant, but just because they’re easy to see does not make them any more important that any other part of the intangibles tree. The accountants have actually given us a pretty good guide in the categories of IP assets able to be valued in IFRS3. Examples of intangible assets to be separately recognised and categorised within the purchase cost are set out in the regulations and include:
Marketing related – intangible assets are typically those assets associated with the market or promotion of a company’s products or services (trademarks, brands, trade names, trade dress, internet domain names, newspaper mastheads, non-compete agreements).
Customer related – intangible assets are assets, which are utilised in the development, procurement, management and maintenance of a company’s customers (customer lists, order or production backlog, customer contracts and related relationships, non-contractual customer relationships).
Artistic related – intangible assets relate to artistic products or services which are protected by a contractual or legal right, such as copyrights (plays, operas, ballet, books, magazines, newspapers, musical works, pictures, photographs, videos, films, television programmes).
Contract based – intangible assets represent the value of rights which arise from contractual arrangements (licensing, royalty and standstill agreements, contracts for advertising, construction, management, service or supply, lease agreements, construction permits, franchise agreements, operating and broadcasting rights, use rights such as drilling, water, air, mineral, timber cutting and route authorities, servicing contracts, employment contracts).
Technology based – intangible assets represent the value of technological innovation or advancements, and can be protected through legal or contractual rights (patented technology, computer software, unpatented technology, databases, trade secrets).
As comprehensive as could be….don’t you think? Does anyone want to join in the debate?