A guide to intellectual property and intangible assets

Transcription

1 A guide to intellectual property and intangible assets Identifying, protecting and valuing intellectual property within your business Corporate Finance PRECISE. PROVEN. PERFORMANCE.

2 A guide to intellectual property and intangible assets Intellectual property (IP) and intangible assets frequently account for 80% of corporate value. The importance of IP throws up a number of practical issues. How to identify IP, how to value it, how to protect it, and how to maximise its value over its useful life. IP rights allow the owner to protect against theft or copying, and allows those assets to be sold, transferred or licensed to third parties. What is IP and intangible assets Intangible assets are non-monetary assets which do not have physical substance. IP refers to a category of intangible assets where the creator or inventors ownership rights are protectable under law, though the terms are frequently used synonymously. IP includes the patents that protect products, the designs that define style and product image, the trademarks that are distinctive and unique in conveying brand values to consumers, and copyright that protects creative work. Intangible assets include trade secrets, customer relationships and business reputation. Collectively, IP and intangible assets are the core components of brands, retaining consumer loyalty and encouraging product trial and adoption. It is not surprising that IP and intangibles are frequently the most valuable assets that a business owns and represents a significant proportion of enterprise value. This is especially the case in brand-led or technology-led businesses. Period of protection The period of protection varies across the world. In the UK: trademark registration lasts 10 years and can be renewed indefinitely; patent protection lasts for 20 years but must be renewed annually four years after initial filing; design rights are protected for 25 years but must be renewed every five years. Copyright is automatically protected and there is no requirement for registration, though it may be advisable for the creator to record proof of the date of creation as protection in the event of future disputes. The length of copyright protection varies: written, dramatic, musical and artistic works 70 years after author s death; sound and music recordings 70 years from when it is first published. Intellectual property rights allow the owner to protect against theft or copying, and allows those assets to be sold, transferred or licensed to third parties.creators / inventors have to apply to register trademarks, designs and patents. The registration process allows third parties to challenge the validity of the application. Corporate Finance A guide to intellectual property and intangible assets 2

3 Types of intangible assets Intangible assets are changing and evolving as new industries emerge and new business models developed. They can, however, generally be categorised as: Technology-based patents, unregistered patents, unregistered proprietary technology, formulae, designs, software, processes and recipes. Artistic-based where copyright protects the ownership rights to royalty income from artistic works such as music, books, films, plays and TV broadcast formats. Marketing-based trademarks, trade names, registered designs, domain names and non-compete agreements. Customer or supplier-based service or supply agreements, licensing, franchising, or royalty agreements, order books and customer relationships. Contractually or regulatory-based TV and radio broadcast licenses, airport landing slots, mobile spectrum licenses, quotas and extraction rights. Key issues in managing IP Due diligence is critical. Businesses must know what IP they are buying or creating internally and ensure that the IP assets that drive value creation are protected or controlled in a manner that meets strategic objectives. Generally, businesses are seen as more valuable if they have patents that are approved or pending. Indeed, high-tech start-ups and small technology companies may have needed to file patents to secure development funding. Registering patents is essential, particularly for those products which have a long and costly development process or which require substantial research investment prior to commercial exploitation such as pharmaceuticals and telecoms. However, in the long term it may be better to exploit the IP as a trade secret and build a brand around it to ensure longevity rather than disclose details in a patent filing that can enable competitors to exploit or develop competitive products. Effective management of IP does not necessarily involve operating defensively by protecting all intellectual property and taking legal action against transgressors. The process of patent application involves time and expense and critically involves the disclosure of the inventive process. IP infringement is not normally a criminal offence, so enforcing IP rights through a civil action can be an expensive and risky process. Some businesses may find that it is in their best interests to release IP to the open market, to encourage market growth through the adoption of new technology whilst developing products and services to exploit new products and services which exploit increased demand. IP owners should consider transferring IP rights to a holding company to ensure it is protected against business failure within a subsidiary. The transfer of IP between international jurisdictions requires an understanding of the detailed tax regimes in each country and the regulatory environment for the protection and management of IP. IP owners must ensure transfer pricing structures are robust against challenges from tax authorities. The generally accepted principal is that transfer prices should be based on the arm s length principle, where prices reflect those that would prevail in an open market between separate and independent entities. 3 Corporate Finance A guide to intellectual property and intangible assets

4 How can intangible assets and IP get valued? There are three principle valuation approaches that can be applied to the valuation of intangible assets and intellectual property; Market approach where value is determined by reference to market transactions for similar assets. Income approach where value is determined by converting future cash flows generated by the asset to a present value typically using discounted cash flow (DCF) techniques. Cost approach where value is determined by reference to the replacement cost of a similar asset. This approach is primarily used for internally generated intangible assets that have no identifiable revenue streams. Valuing intellectual property and intangible assets is a complex process. Each company and the IP that it owns is unique. Future cash flows from the exploitation of IP are uncertain and will be effected by the company s competitive position and the growth prospects for the market in which it operates. Determining comparable transactions can be difficult. Related assets which are required to optimise IP value need to be identified. Furthermore, IP may be only partially developed at the date of valuation and may not generate cash flows until a future date. IP protection and brand value Brands are an amalgamation of interconnected assets. Brands are built around the intellectual property rights which allow the owners to protect against copying or theft by another party. Brand value is typically generated by the synergies arising from managing IP, intangibles and tangible assets together as a portfolio of assets and resources. Optimising brand value requires an understanding of the key related assets that drive customer demand or limit supply. Brand value does not reside solely in ownership of a trademark. Location Inventory list contracts Customer Supplier Real estate Skilled workforce Copyright Patents Trademarks Designs Domain names Imagery Trade secrets Music Recipes & processes Straplines Know how Databases Sounds Colours 4 Corporate Finance A guide to intellectual property and intangible assets

5 Our solutions How we can help Whether IP valuation is an art or science is debatable, but one thing is clear; IP valuation is not a simple numbers exercise. It requires the right combination of commercial insight, technical expertise, experience and professional judgement. Moore Stephens IP Valuation team works closely with clients to understand their needs and to develop bespoke solutions to complex valuation issues. We focus on understanding the business dynamics of the company, and identifying how IP drives value within the sector in which it is commercialised. Moore Stephens IP Valuation team has extensive experience in valuing IP assets across a broad range of industry sectors. Sectors Technology Culture, entertainment & media Sports & leisure Retail & wholesale Manufacturing & engineeriing Energy, mining & renewables Hotels & hospitality Professional practices Real estate & construction Your needs For business accounting and tax IFRS implementation. Purchase price allocation. Impairment of assets. Transfer pricing. Tax planning. For valuation for banks, private equity, venture capitalists and hedge funds M&A investment analysis. Securitisation. For strategic and operational management Raising finance. Corporate recovery and turnaround. IP acquisition and disposal. Corporate restructuring. Formation of joint ventures. Franchising & licensing. For dispute resolution Assessment of consumer behaviour for liability. Loss or damages quantification for IP rights infringements. Passing off actions. Valuation of IP assets in divorce proceedings. For personal tax Valuation of IP assets for tax planning. Valuation of IP assets for inheritance tax. Our services Valuation of IP rights trademarks, patents, copyright, and designs. Valuation of intangible assets including domain names and websites, databases, customer lists, legal and contractual rights. Assessment and valuation of connected assets. Brand valuation. Impairment reviews. IP audits. IP due diligence. Assessment of comparative transactions for IP acquisition / disposal. Assessment of comparable uncontrolled prices and transactions for international transfer pricing structures. Loss or damages quantification in respect in IP infringement disputes. Valuation of brand damage and reputational loss. Restructuring to protect IP assets. Royalty audits. Brand health analysis. Competitive analysis. License fee and royalty rate analysis. Valuation of IP at going concern and controlled disposal values for IP securtisation. Valuation of IP backed ABC Investments for annual certification to the pension protection fund. Corporate Finance A guide to intellectual property and intangible assets 5

6 About Moore Stephens Moore Stephens is a top ten accounting and advisory network, with offices throughout the UK and member firms across the globe. Our clients range from individuals and entrepreneurs, to large organisations and complex international businesses. We partner with them, support their aspirations and contribute to their success. In-depth understanding of our clients allows us to deliver focused accounting and advisory solutions, both locally and globally. Clients have access to bespoke services and solutions, including audit and assurance, business support and outsourcing, payroll and employers support, business and personal tax, governance and risk, corporate finance, forensic accounting, wealth management, IT consultancy, and restructuring and insolvency. Our success stems from our industry focus, which enables us to provide an innovative and personal service to our clients in a range of sectors. Moore Stephens globally Moore Stephens International is a top ten global accountancy and consulting network, headquartered in London. With fees of over US$2.66 billion and offices in 106 countries, Moore Stephens globally clients have access to the resources and Moore capabilities Stephens to meet International their global is needs. a top ten global accountancy and consulting network, headquartered By combining local in London. expertise With and fees experience of over US$2.66 with the breadth billion and of our offices UK in and 106 worldwide countries, clients networks, have clients access can to be the confident resources that, and capabilities whatever their to meet requirement, their global Moore needs. Stephens provides the right solution to their local, By national combining and international local expertise needs. and experience with the breadth of our UK and worldwide networks, clients can be confident that, whatever their requirement, Moore Stephens provides the right solution to their local, national and international needs. Contact information If you would like further information on any item within this brochure, or information on our services please contact: Phil Cowan Partner D +44 (0) phil.cowan@moorestephens.com John Illsley Director D +44 (0) john.illsley@moorestephens.com Andrew Cook Director D +44 (0) andrew.cook@moorestephens.com Kelly Dehner Associate Manager D +44 (0) kelly.dehner@moorestephens.com Moore Stephens LLP, 150 Aldersgate Street, London EC1A 4AB T +44 (0) We believe the information contained herein to be correct at the time of going to press, but we cannot accept any responsibility for any loss occasioned to any person as a result of action or refraining from action as a result of any item herein. Printed and published by Moore Stephens LLP, a member firm of Moore Stephens International Limited, a worldwide network of independent firms. Moore Stephens LLP is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Authorised and regulated by the Financial Conduct Authority for investment business. DPS33182 September 2016