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The Intellectual Property Information Gap


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There exists an increasingly important IP information gap in financial disclosures in South Africa that is severely hampering business growth, cultural preservation and opportunity. The IP information gap exists across the business spectrum; large, medium and small businesses are affected. Whilst this is a global challenge, it is particularly acute in South Africa especially in the area of patents. South Africa's patent economy is woeful and stands in stark contrast to its capacity to innovate. It is extremely important to address this gap which starts with a concerted drive on IP education, self audits and the cultivation of an economy that understands the benefit of investing in IP to stimulate growth and further innovation, and also how to draft, use and interrogate an IP narrative in financial accounts effectively.

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The Intellectual Property Information Gap

  1. 1. THE INTELLECTUAL PROPERTY INFORMATION GAP A DISCUSSION Darren Olivier Adv. Annamarie van der Merwe Moderatered by Ronelle Kleyn
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  5. 5. COMPONENTS OF MARKET VALUE S&P 500 5 Integrated Reporting concepts under King IV® require transparent and open reporting on intangibles. 2009 2005 1995 1985 1975 PHYSICAL & FINANCIAL ASSETS (TANGIBLE) 19 % 20 % 32 % 68 % 83 % 68 % 32 % 17 % 81 % 80 % OTHER ASSETS (INTANGIBLE) 2
  6. 6. Sowhatiscorporategovernance? “Corporate governance, for the purposes of King IV, is defined as the exercise of ethical and effective leadership by the governing body that results in the achievement of the following governance outcomes:  an ethical culture;  performance and value creation;  effective control; and  legitimacy.” 6
  7. 7. Intellectualpropertyandcorporategovernance There are a number of touch points, such as: The role of the board (governing body) Process of developing the strategy Risks and opportunities Reporting and disclosures 7
  8. 8. TheroleoftheboardasperKingIV……..  Steering the organisation and setting its strategic direction  Approving policy and planning that give effect to the direction provided  Overseeing and monitoring of implementation and execution by management  Ensuring accountability for organisational performance by means of, amongst others, reporting and disclosure 8
  9. 9. 9 King IV, Principle 4: The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.
  10. 10. SowheredoesIPGovernancefitintoallofthis…..  Questions the board should be asking as the “custodians” of good governance:  Do we know what the intellectual property of the organisation is?  What is the value of our intellectual property?  What is our strategy around intellectual property as part of the broader business strategy?  Is our intellectual property adequately protected?  What are the risks in respect of intellectual property – ownership, protection, reputational, etc?  What are the opportunities in respect of intellectual property?  How do we report on and disclose information relating to our intellectual property?  Acquisitions: Does the due diligence process include intellectual property? 10
  11. 11. Exampleofacompanythatunderstandstheimportanceofits intellectualproperty…… As one of the most recognized products in the world, “Coca-Cola" has been a part of the national and global culture for well over a century. The success of the Coca-Cola brand is largely dependant on an intricate integration of legal protections including patents, copyrights and trade secrets. However, nothing the company owns is more zealously protected than the Coca-Cola trademark itself, which is estimated to have a value of over seventy billion dollars. As a result, Coke trademark history is extensive as the company aggressively guards this critical asset. 11
  12. 12. Andaboardmemberthatunderstandsaswell…… 12 “I define my role as president of the Coca-Cola Company very simply: It is to protect and enhance the trademarks of the company.” Don Keough Past President, Coca-Cola
  13. 13. INTANGIBLE ASSETS• Social and Relationship Capital • Human Capital • Intellectual Capital • Natural Capital Intellectual property preserves intangible assets across the 6 capitals of integrated reporting TANGIBLE ASSETS  Machinery  Buildings  Capital Assets  Infrastructure 3
  14. 14. 14 TRADE MARKS FLIPPING THE ‘BERG INTELLECTUAL PROPERTY INCLUDES: DESIGNS Internally generated IP is not disclosed on company balance sheets, significantly undervaluing companies or providing a very limited scope on potential value. PATENTS KNOWHOW COPYRIGHT
  15. 15. COMPONENTS OF MARKET VALUE S&P 500 15 KING SAID “The relevant value of intangible assets over tangibles has increased signifianctly over the last 40 years.” WHAT THE 2009 2005 1995 1985 1975 PHYSICAL & FINANCIAL ASSETS (TANGIBLE) 19 % 20 % 32 % 68 % 83 % 68 % 32 % 17 % 81 % 80 % OTHER ASSETS (INTANGIBLE) 2
  16. 16. 16 “IP assets have a thorny impact on diverse disciplines such as corporate finance, accounting and company law and corporate governance.” Intellectual Property, Finance and Corporate Governance by Janice Denoncourt (Routledge) 2018 “The difficulty lies not so much in developing new ideas as in escaping from old ones” John Maynard Keynes (Economist) many years ago
  17. 17. SouthAfrica’s DROP OUT 17
  18. 18. PATENT FILINGS source: WIPO
  19. 19. PATENT FILINGS source: WIPO
  20. 20. PATENT FILINGS source: WIPO
  21. 21. PATENT FILINGS source: WIPO
  22. 22. TRADE MARK FILINGS source: WIPO
  23. 23. TRADE MARK FILINGS source: WIPO
  24. 24. TRADE MARK FILINGS source: WIPO
  25. 25. TRADE MARK FILINGS source: WIPO
  26. 26. ADDRESSING THE IP INFORMATION GAP 26 ”The best time to plant a tree was twenty years ago. The second best time is now.“ Chinese Proverb, apparently many years ago
  27. 27. Education 27 Knowing what is IP Understanding your intellectual property mix
  28. 28. 28 • Identify and record IP assets from the date of incorporation where possible: • This involves an IP audit (IP HealthCheck™) • Create an IP register • Distinguish between IP owned and licensed to the organisation • Distinguish between background and foreground IP • Create an IP gap analysis following alignment with business strategy • Make someone important the champion with the organisation to execute on the gap analysis, monitor and report • Develop an IP narrative and continually educate internally • Consider making voluntary annual disclosures of IP asset and strategy information in annual returns to enhance access to finance • Annually leads to reliability and trust • Explain how IP assets deliver value beyond the balance sheet ADDRESSING THE IP INFORMATION GAP
  29. 29. 29 • The IP Value Story – the business model as the context for the disclosure • The IP Portfolio – the IP register documenting existing relevant IP • The IP Strategy – addressing the gap analysis • IPR management – governance, stewardship and leadership • IP licensing agreements – within the context of the business • Cost to commercialise – finance requirements and objectives • IP life of key IP – duration of monopoly advantage • Risks and uncertainties associated with key IP – financier and investor info • Financial status of IP asset – e.g. any debt security • Annual comparison of key IP asset performance indicators – track performance over time (adapted from the Essential, Desirable and Optional Patent Information and Strategy Disclosure Model for UK innovating SMEs) Example of IP Disclosures
  30. 30. Thank you: Darren Olivier (0716065544) Adv. Annamarie van der Merwe (0832640328) “Intellectual Property is the unicorn of corporate governance” Ronelle Kleyn, 2019