The latest report from the UK’s Intellectual Property Office, ‘Banking on IP?’, will highlight the challenges that businesses face in developing, and protecting and borrowing against their intellectual property.
Structural Weaknesses in the UK IP Market
It identifies a number of structural weaknesses in the current UK system, which limit banks’ ability, in particular, to support investment in IP or to lend against IP assets:
- Unidentified IP – many assets are not even recognised, registered or copyrighted, which makes it difficult for companies to identify their IP and highlight its value to potential lenders; and
- Undervalued IP – those assets which have been identified are often undervalued, in part because their potential is under-recognised and in part because of the inherent difficulty in valuing intangibles;
- Ineffective Charges – lenders rely too much on floating charges over IP assets; these charges crystalise upon default, by which time key IP may have ‘leaked,’ especially if there is an element of know-how involved. Lenders should instead seek a fixed charge over a borrower’s IP, recorded at Companies House;
- Weak IP Markets – there are too few places where businesses can identify, licence and trade in copyright, designs, trademarks and patents.
The full report, to be published shortly, makes a number of recommendations that it believes would help businesses, particularly SMEs, to seek investment from banks to protect and invest in their IP.
Recognition of Intellectual Property in Lending Considerations
The report will recommend a series of steps to improve the use of IP in securing the finance for further growth, including:
- Identification – making it easier for businesses to show what IP they have when looking for funding;
- Toolkit – creating a toolkit to help SMEs, lenders and other financiers identify, understand, value and make more effective use of their IP;
- Cash Flows & Valuation – detailed IP diligence can be costly, so the report will recommend developing templates and providing advice to help banks and others understand the cash flow and business value of IP; and
- Transparent IP Market – supporting the development of a more accessible and effective IP marketplace.
Other IP Initiatives
This report is one of a series of government policies and initiatives to encourage and support the development and monetisation of IP within the UK. Other measures include the ‘Patent Box’, which enables companies to apply a lower rate of Corporation Tax to profits earned from its patented inventions.
The government is also supporting IP enforcement – it has recently announced the creation of a new £2.5 million City of London Police unit dedicated to tackling online piracy and other forms of IP crime such as counterfeit goods.
- Despite high levels of investment in IP, only certain finance channels such as venture debt or pension-led funding involve close scrutiny of both tangible and intangible assets.
- This report will recommend increasing the information available to businesses and lenders in order to create a more transparent market for IP and improve the availability of more traditional finance to drive growth.
- These recommendations must build on existing initiatives to boost lending to businesses and support IP investment.
- However, valuing IP independently of the business which is exploiting or monetising it remains extremely difficult.