Tuesday, 15 April 2014
7 Points on Intellectual Property Valuation
These points are from the European Commission’s Final Report from the Expert Group on Intellectual Property Valuation. We have not focused on the details of the report, such as specific valuation methods. Instead the aim is to give a taste of the main issues and the conclusions.
1. The accurate evaluation of IP remains a major obstacle to its emergence as a tradable asset class. This is not due to a lack of valuation methods per se, but because valuation requires investigation (rather than an automated approach), and an evaluation is essentially an ‘opinion’ at a particular time.
2. A solution is needed to fund the commercialisation of innovative ideas where the value of IP can act as collateral for loans. Essentially small companies in the innovation sector rely on loans for raising finance. If IP assets could be used as collateral they would be in a better position to obtain low-cost loans.
3. However IP is seen as too risky for use as collateral. There is uncertainty regarding the value of IP value within company value. IP also has limited liquidity because the IP market is less formalised and so offers less certainty on realisable values.
4. The value of IP can change in a short amount of time and it has a limited shelf life. In addition the IP commercialisation process is uncertain.
5. The report proposes ways to improve the situation. One proposal is to improve the credibility of valuations by creating a database of anonymised IP transactions to assist valuation experts.
6. Another proposal is to create an EU-wide organisation to independently oversee IP valuation. This could be based on EU government bodies or a group of universities across the EU.
7. The report also proposes a scheme where the EU would underwrite the risk for banks which lend on the basis of IP as collateral.
The report is available from here.