Commercialising intellectual property in difficult economic times

The intellectual property of a business is often overlooked, but according to Robert Pocknell, a portfolio of IP assets could be a potential source of revenue via sale or licensing.

In the current economic climate, all companies are looking carefully at their finances; many directors will be looking at re-structuring options, making decisions as to whether to continue to trade, and possibly looking for a potential buyer. In such times the intellectual property of a business is often overlooked, but a portfolio of IP assets could be a potential source of revenue through licensing,sale of the assets, or a combination of the two.

Intellectual property comprises a broad range of assets, and includes trade marks, patents, designs, copyright, and know-how. Many companies use a lot of know-how but do not realise that this is a form of intellectual property. It can often be hard to put a finger on what it is, but the know-how of a business may be its key asset. When a business is looking at restructuring or potential insolvency issues, at an early stage the directors should consider with their professional advisers what IP assets the company has and prepare a detailed list.

It should be simple to collate a schedule of patents, trade marks and designs. It may be more challenging to collate a schedule of know-how. Directors often say they do not have any IP as it is “it’s just the way we do things”, but it is worth spending some time to consider carefully what it might comprise and where it might be recorded. For example, it may be in a product specification, an operating manual, or in a business plan. It may be possible to unlock some of the value in the know-how and turn it into more tangible and better recognised intellectual property assets.

If no applications have been made to register any forms of intellectual property, the company should consider whether there would be any advantage in filing formal applications to register the IP. There are ways to do this at minimal cost, such as filing provisional patent applications. There are no fees for such a filing and this allows the company 12 months to file a formal claim. There are disadvantages in filing such applications and costs will still need to be incurred at a later date if patent claims are filed. But, in challenging economic times, the business will get the benefit of the priority date of the application at minimal cost, and will be issued with filing numbers for the provisional patent applications by the Patent Office.

For any IP that has been registered, or applied for, careful and early consideration should be given as to whether to pay filing fees or renewal fees. A company in financial difficulties may think that paying these fees is a discretionary spend. However, if the fees are not paid this can lead to the company losing its IP rights.

If the plan is to sell the business, whether before or after the appointment of an administrator, a buyer may be willing to pay more money if it sees that there are some tangible IP assets, even though the purchaser may only be buying the benefit of IP applications (as opposed to granted IP). A seller will be cautious about the scope of any warranties it provides concerning the applications, but a buyer may feel more comfortable buying a schedule of IP assets and applications, rather than just know-how. Furthermore, if the IP assets of a business are not carefully identified, they may be under-valued when sold.

Businesses should consider whether there are any opportunities to generate revenue from the IP assets. It might be possible to sell some of the IP which could realise a lump sum. If the assets are still needed by the business, then it is possible to license back the rights for the business, albeit this may have an impact on value. It is also possible to license IP assets to generate income, or to license some IP assets and sell the benefit of the license to a third party.

If any IP is going to be transferred or licensed to a related company or to a connected party, such as a director or shareholder, the tax consequences need to be considered. Care should also be taken to ensure that the IP is properly valued and that any transaction is not undervalued which would have a detrimental effect on creditors. If the IP is being used under license from a director or shareholder, then the terms of that license should be formally recorded.

The IP assets of a business can be managed in a broad variety of ways, and may have additional revenue potential; it should be considered as an asset that is important as debtors and stock.

Whatever the financial position of the business, it should create a written plan and strategy for dealing with its intellectual property and the intellectual property that it uses which belongs to third parties.