1. Intellectual Property magazine 11www.intellectualpropertymagazine.com April 2014
IP valuation –
perception and reality
The European Commission appointed a panel of experts to review current intellectual property
valuation methods, one of the panel members Jackie Maguire reports on its main findings
T
he newly published Intellectual
Property Valuation report1
summarises the conclusions and
recommendations of the European
Commission (EC)-appointed
panel of European IP valuation experts drawn
from a range of disciplines, including those
involved with accounting, business valuation,
IP consulting, litigation and damage award
activities.
The panel’s task was to consider how
IP valuation plays a part in the policy for the
“innovation union” and the bottlenecks that
occur.
Specifically, the mandate was to:
• Review valuation methods for IP and their
use;
• Identify bottlenecks in the valuation
methods used for the purpose of a
company’s financial reporting, access to
finance and litigation;
• Identify good practices; and
• Recommend possible policy actions.
The findings of the report show that there
is a clear need to increase market actors’
confidence and certainty in IP valuation
methods as a way to stimulate IP transactions,
to support IP-based financing and to give
companies the tools to provide information
about their IP. This will allow investors to
better understand the business and the value
of the company itself and even to provide
decision makers with the required information
to decide whether to enforce or to license IP.
However, as IP is, by its nature, innovative and
therefore different, each case for valuation
requires investigation, rather than having an
automated approach to IP valuation.
Interestingly, the expert group has
demonstrated that the bottleneck for the
improvement of an IP market is not in the
lack of accepted methods or standards for
valuation, their content or consistency, but in
the limited understanding of their existence
and the little confidence in their results.
Numerous valuation standards have been
published during recent years concerning
different IP rights with different geographical
scope and different regulatory approaches.
They have different binding powers for
professionals, organisations and/or for certain
applications. It is important to note that these
standardsandguidelineshavenocontradictory
content. Also, from a content perspective they
are quite homogeneous.
So the tools are available to value IP and
with a drive for economic growth through
innovation, a solution is much needed to fund
the commercialisation of innovative ideas,
ideally with the value of the IP asset acting as
collateral. Overcoming the barriers to lending
against IP assets is therefore attractive at a
national and European Level.
Equity investors typically invest into
News analysis
“The bottleneck
for the improvement
of an IP market is
not in the lack of
accepted methods
or standards for
valuation, their content
or consistency,
but in the limited
understanding of their
existence and the
little confidence
in their results.”

2. 12 Intellectual Property magazine April 2014 www.intellectualpropertymagazine.com
companies, but not into IP assets as such.
The equity finance community considers the
importance of IP when financing companies,
however, the actual value of IP assets per se
is rarely considered important. In general, IP is
evaluated but generally not formally valued in
the regular banking, venture capital or private
equity sectors.
Too risky
The general consensus among those
interviewed is that IP is too risky to be used
as collateral for traditional loans. However, it
must be noted that cases of intangible asset
based lending (IABL) have occurred in certain
circumstances. For example, combined asset
based lending has been achieved whereby a
bank provides a loan to a pension fund against
tangible assets and the pension fund then
provides a sale and lease-back arrangement
against intangible assets. IABL from pension
funds (on a sale and lease back arrangement)
rather than banks provides a route for SMEs
to obtain loans that is gaining increasing
attention. One reason given for this uptake in
IABL between a company and director pension
funds is the growing number of SMEs who
have difficulties in securing bank loans.
In the accounting and reporting section,
the expert group recognises that there are
limitations on when and how it is possible
to place the value of IP assets on the balance
sheet of the company. The complexity of
IP from an accounting perspective leads to
problems in its reporting, which may result in
the vulnerability of firms, which base most of
their performance on IP. Nonetheless, it should
be possible to provide a written summary
of the intangible assets in the notes and/or
annual report and this is to be encouraged.
Recommendations
As a result of the in-depth analysis carried out
in all the mentioned areas, the expert group
recommends a number of policy actions that
could have a significant impact on reducing
“The general
consensus among
those interviewed is
that IP is too risky to
be used as collateral
for traditional loans.”
News analysis
Author
Jackie Maguire, CEO,
Coller IP, is a physicist
and chartered
engineer. She is a
globally recognised
IP strategist and
a founder of the
International
IP Strategists
Association (INTIPSA). Coller IP specialises
in helping organisations protect,
understand, value and commercialise
all aspects of intellectual property/
intangible assets.
Comments from leading IP valuer Kelvin King
Kelvin King is the
managing director of
Valuation Consulting
and co-author of
another report on IP
valuation Banking
on IP for the UK
Intellectual Property
Office (IPO) that was released last year.
While acknowledging that the report says
that intangible asset based lending (IABL)
has ”occurred in certain circumstances”, he
argues that IP lending has been happening
for many decades, it just hasn’t been
identified as IP lending. He adds, “People
think that IP is just new economy it’s not,
its old economy”, eg, the franchising
industry that relies on licensing brands, the
giant printing machine that can’t function
without software, and so on. More and
more traditional banks are identifying IP in
a transaction and applying a fixed charge.
He says that the margins on lending are so
small it doesn’t easily allow for a good IP due
diligence and valuation process, and that’s
where it would be nice to have government
support.
He adds accounting needs to be
more forward thinking; the head of the
International Valuation Standards Council
Sir David Tweedie is considering with
regulators putting IP on balance sheets
that are “organically grown”. And King
welcomes the report’s recommendation to
introduce an additional reporting section for
intangible assets and IP that would increase
the transparency of IP value within company
accounts.
He continues, through companies
establishing IP holding companies in low
corporation tax jurisdictions, tax authorities
have long understood that there are valuable
assets and when they are transferred into
these low cost jurisdictions they need to be
valued. Revenue authorities have had good
and solid models for IP valuation and royalty
rate settings since the 1980s.
Court processes have also good and
sound methodologies to calculate damages
in patent and trademark infringement cases.
Furthermore, through the introduction of
International Financial Reporting Standards
3 in 2001, “Auditors have been satisfied for
over a decade, we the valuers have good
enough methods for them to sign off on our
purchase price allocation to IP.”
the identified barriers in order to increase the
efficient use of IP valuation and to make such
valuation flexible, transparent and reliable to
respond to market requirements:
• Establishing a data source containing
information for use by valuation
professionals, as a way to enhance
credibility of valuations by improving
data and available information on IP
transactions.
• Creating an organisation to oversee IP
valuation practice as a way to increase
confidence in the quality of valuations
being performed and to ensure that
valuations are in line with generally
accepted principles and standards.
• Introducing a risk sharing scheme for
banks to facilitate IP secured lending to
innovative companies, especially SMEs.
• Introducing an additional reporting section
for intangible assets and IP that would
increase the transparency of IP value within
company accounts, providing important
information to lenders, investors and
stakeholders.
Raising finance is a necessary process for many
business organisations in order to function.
The availability and cost of financing will be
determined by the organisations’ ability to
convince financiers of the significance of their
operations, which increasingly is IP driven.
Members of the expert group are: Arne
Führer, Germany (Chair); Jackie Maguire, UK;
Ludo Pyis, Belgium; Stig Enevoldsen, Denmark;
Alexander J. Wurzer, Germany; Peter Kaldos,
Hungary; Stefano Zambon, Italy; Krystyna
Szczepanowska-Kozłowska, Poland; Dulce
Miranda, Portugal; Kristina Fahl, Sweden;
Daniel Ryan, UK; Roya Ghafele, UK.
Footnote
1. http://ec.europa.eu/research/innovation-union/
pdf/Expert_Group_Report_on_Intellectual_
Property_Valuation_IP_web_2.pdf