Wednesday, 9 December 2015

IP due diligence: one problem, four perspectives

"IP Due Diligence -- Making a Difference" was the title of a roundtable discussion hosted by Aistemos last Thursday under the Chatham House Rule.  Input reflected the views of the financial services sector, business, the legal profession and IP analytics. By all accounts the discussion was a lively one, from which a number of themes emerged (on a non-attributable basis), to which this weblog has added some comments:
Finance: Participants from the world of finance indicated that investment banks rely on conventional financial metrics. While there is general recognition that intangibles account for 70% of enterprise value, there is a level of ignorance about IP as an asset class [the "70%" figure is a great starting point for discussion. While the figure may have some validity when spread across enterprises as a whole, it will differ radically as between different sectors and between different enterprises in the same sector. Those intangibles may be renewable or non-renewable registered rights, unregistered rights or amorphous rights like trade secrets. Worse, the IP rights may actually be owned by others and enjoyed only by way of a licence.  Given this reality, one can question whether the 70% figure is of any genuine use]; 
Corporate: From a corporate perspective it was recognised that IP is increasingly important in a broad range of corporate transactions, and it is essential to focus on what matters: this is rarely a question of valuing a single piece of IP, but rather is a matter of addressing its importance to the deal as a whole [the contextualising of IP rights within a corporate business plan or an ever-changing market cannot be underestimated: while IP rights were conceived at a time when the paradigm was one IP right per product or process, this is rarely the case today] 
Lawyers: The lawyers participating in the discussion pointed out that the contractual matrix (e.g. assignment, exclusive or non-exclusive licence or pooled rights) is an important part of the picture. Clients appreciate the external team’s ability to see the deal as a whole [where the remit of the external team includes non-IP issues such as tax-efficiency or possible antitrust and competition problems, clients may be asked to keep many different considerations in mind at the same time -- this can be a problem when time is pressing or when the external team struggle to appreciate the issues relating to each others' professional disciplines]. 
Analytics: Analytics experts observed that, while financial markets are familiar with S&P-style indexes to rate the general state of affairs, an appreciation of the function of IP rights within a business would benefit from better ways of communicating relevant risk- and value-drivers [but that people who are familiar with the traditional indexes and who have learned to operate successfully in reliance on them need some persuading that further data -- however well it is communicated to them -- will deliver that benefit].
A measure of consensus was also achieved across a range of topics. In particular:
* More attention is now being devoted to IP across a wider range of transactions than was previously the case;
* Sector-specific approaches to IP are fundamental (e.g. pharma/biotech has characteristics that are not found in other sectors);
* Since both time-scales and budgets for completing transactions are tight, trusted advisers are highly valued;
* There is still some way to go before IP issues will be recognised and taken into account as part of the deal-making process;
* The financial services sector can derive benefit from gaining a greater degree of familiarity with IP issues and trends.
Readers are invited to offer their thoughts on the points made above.  Have the participants got it right? Do let us know what you think.

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