European Financial Institutions ‘Don’t Appreciate Intellectual Property’

Europe’s financial institutions (FIs) lack trust and understanding in the valuation of intellectual property (IP), with potentially serious implications for the ability of businesses of all sizes to access funding and to innovate suggests a report.

Entitled ‘Intellectual Property Valuation’, the report summarises the conclusions and recommendations of a European Commission (EC) appointed panel of European IP valuation experts.

The authors state that IP and IP rights (IPRs) play an increasingly important role in corporate strategy. However, a lack of understanding of the value of IP still remains a major obstacle to their emergence as a tradable asset class.

This lack of trust in the accuracy of valuation of an organisation’s IP has a wide-ranging effect on all types of business activities, from not being able to use IP as collateral for loans, to inconsistent valuation of IP on the balance sheet of an organisation and in specific scenarios such as asset valuation in mergers and acquisitions (M&As) or insolvency.

The authors agree that bottlenecks related to the valuation of IP and IPRs are a barrier for engaging in IP transactions, but also suggest that the lack of commonly-accepted valuation methods per se is not the main barrier.

The increasing importance of IP in today’s economy highlights major hurdles for accounting and reporting as it is generally not well represented in companies’ financial reports. The report recommends improvements in IP valuation and reporting so that FIs can start to accept IP as collateral for loans. Among the other recommendations are the following:

  • Establishing a European facility to underwrite the risk to lenders for IP asset based lending.
  • Enhancing the credibility of IP valuations by improved valuation information especially by collecting information and data on actual IP transactions in a form suitable for use to support IP asset-based lending decisions.
  • Increasing confidence in the quality of valuations.
  • Investigating requirements and mechanisms for intangible asset reporting in annual accounts.

In addition to greater clarity on IP value and securing funding against IP assets, the authors call for reporting practices that allow such asset value to be transparently recorded. In addition, the ability to defend valuable assets and to claim damages also requires damage valuation to be transparent within the courts.

The full report can be accessed here.

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