Maximising IP value: A short guide for finance professionals
In a recent webinar organised by professional services company TPA Global, Novagraaf’s Monique Granneman and Franc Enghardt set out advice for finance professionals on maximising the value of IP. Here, we summarise the guidance and tools discussed.
How to improve the IP structure within a group of companies is a question that is often posed to the tax and IP, and valuation specialists at TPA Global, a professional services company headquartered in Amsterdam. To share best practice advice on this topic, TPA Global organised a webinar in September on maximising IP value with Novagraaf experts Monique Granneman and Franc Enghardt (watch the recording here).
IP and finance: A valuable connection
It is now well established that intangible assets, such as IP and goodwill, have replaced tangible assets (whether property, equipment or inventory) as the main drivers of business success, often representing more than 80% of corporate value, What isn’t as well known, perhaps, is how little time companies generally spend on creating value and monetising those assets: as little as 9.5% of IP portfolio management time in many instances.
As Monique Granneman explained in her presentation, “IP used to be mainly a subject for legal and marketing professionals, however the subject is increasingly a finance and value story.” This includes both budgeting considerations, in terms of outlay in investment, and value assessments, whether that’s through valuation exercises, licensing or sale/M&A.
But, whether you approach IP as a valuation exercise or you are assessing an IP transaction as part of an M&A exercise, a fundamental step that is often overlooked is one of the most basic: establishing that the rights are valid and in force. For example: Is the IP properly registered? Is it being used? Is the chain of title (ownership record) correct and up to date? Does it cover all markets and geographies of interest? Are there any trademarks impacted by legal challenge? Have trademarks been appropriately maintained and protected?
The risk of not asking these questions, of course, is that you may end up assuming that an asset has value when, in reality, that value has been compromised or lost.
Structure leads strategy
Those same questions that should arise during IP due diligence exercises apply as well to the very beginning of the trademark cycle, and should be used to help inform the decisions when registering their rights. “This enables you to develop a trademark strategy that supports your business,” said Monique, “informing IP portfolio creation as well the acquisition of trademark assets.”
There are four important elements to consider whether you are designing a trademark registration strategy or auditing a portfolio for accuracy or value. At Novagraaf, we call these the 4Ws:
- Who: In whose name is the right going to be registered? For example, should it be assigned to an IP rights holding company in the group, or should it be owned by the part of the business that is using the specific trademarks?
- What: Which type of right would best protect your brand? For example, should you register a word mark, a device mark, a combination mark, and how about protecting your other brand assets, such as slogans, multimedia, shapes or even smells/sounds?
- Where: In which countries/territories should you obtain registrations? For example, where do you use the mark, where do you produce the product that carries it, etc?
- What for: For which goods or services should the registration protect, now or in the future? Are there any gaps in your portfolio?
The choices or corrections made here will also inform the wider framework of strategic trademark management; for example, informing budgeting and prioritisation, as well as the approach taken to protection and enforcement, and exploitation or monetisation.
Raising the profile of IP
But, as Monique explained during the presentation, valuation should not be considered as a one-off activity. Instead, finance and IP professionals should be asking, as part of the IP management life cycle: “Does the company know the cost, benefits and return on investment [ROI] of its IP? Is it clear what actions need to be taken to increase ROI? Could the IP portfolio be augmented through IP acquisitions? Is the business regularly updated at board level on IP strategy, costs and benefits?”
IP is traditionally considered a cost centre, but while it may cost money to obtain, it can also generate income, whether through licensing, financing or asset sale. It also has value as an asset on the corporate balance sheet; for example, if assessed through the perspective of relief from royalty. In other words, if I were to license this brand into my business, what might I expect to pay and, therefore, how much have I saved? Although, as Franc Enghardt noted during the presentation, when it comes to assessing value, the question is more commonly: How much is the other party prepared to pay?
Nonetheless, finance and IP professionals need to work together to assess IP value if they are to defend or define the necessary budgets for registration, maintenance and enforcement. Such an exercise is also important for driving the right decisions around those core rights to safeguard and those of lesser value that could be left to lapse or reorganised. As Monique explained: “A disorganised portfolio is more likely to be expensive to manage/maintain. A budget/valuation exercise should be approached as an opportunity to cut ‘dead wood’ brands or territories, and consider repositioning under or unused brands, as opposed to launching completely new brands each time.”
How you have traditionally chosen to manage your IP data and strategy will also inform your approach. Ideally, a centralised approach to IP management should be taken in order to provide the easy access to your IP portfolio and data insight that you need to make the right decisions.
Common pitfalls and how to avoid them
If IP teams are under pressure to make cuts, it’s also important to watch out for a number of potential pitfalls, added Monique, including:
- Abandoning a mark which is currently licensed for third-party use;
- Not involving brand managers in the decision-making process, especially if related to abandonment;
- Allowing marks to lapse which are being relied on in an ongoing contentious action – any such action should be settled or finalised first;
- Abandoning portfolio items, which could be used to generate revenue through sale or as collateral for loans;
- Short-term thinking, i.e. making decisions based on the current budget, as opposed to long term strategy, which could impact attempts to protect and maintain rights in developing markets.
“The cost of trademark renewals, given that they occur every 10 years, should be relatively easy to predict,” emphasised Monique. Forecasting will give you the time you need to assess which rights to retain and which to cut, and thereby help to avoid knee-jerk reactions, especially at challenging times or during unforeseen events, such as the current pandemic.
Effective systems and tools
During the Q&A session at the end of the presentation, the attendees raised a number of interesting questions related to trademark best practice. Among them, the question of whether companies should avoid certain regions in their strategies, either due to difficulties in obtaining protection or prohibitive costs. Here, Franc emphasised the important role played by the international trademark system, which enables companies to register their valuable trademark rights in multiple international jurisdictions cost effectively via a single registration.
“If a company is active in a country, the cost of not obtaining trademark protection is likely to be much higher than the fee to register a right,” he said. “Ideally, the necessary registrations should be in place before you begin to sell, market or transport your goods.”
However, the cost-benefit picture is often slightly different when it comes to enforcement, he added. “Litigation, for example, can quickly become expensive, and your trademark attorney should work with you to explore more cost-effective options before deciding to go down this route.”
This includes putting the appropriate measures in place to identify infringement quickly, such as trademark watching, to ensure you are informed in time to take action during the opposition period for a new trademark application. Specifically, for online infringements, you should also consider the use of an automated service that connects monitoring results to recommended enforcement routes, and facilitates bulk enforcement activity to further reduce costs (find out more about Novagraaf’s Online Brand Protection service).
For further information on any of the topics discussed in the webinar, please get in touch below. We would like to thank Orlando Fijma and TPA Global for organising this event. You can watch the webinar in full on YouTube.