JOURNAL OF THE INSTITUTE OF INTERNATIONAL LICENSING

PRACTITIONERS

ISSUE 21

Martin Brassell, CEO of Inngot & co-author of BANKING ON IP, gives us the inside scoop on both reports inside

IPO publishes action plan BANKING ON IP AN ACTIVE RESPONSE after commissioning BANKING ON IP

GETTING THE FORMULA RIGHT BETWEEN IP AND BANKING

PLUS WIP DAY 2014

Chairman Colin CramphornVice Chairman Nigel Howarth WorthTreasurer John AlliesSecretary Johnathan SilvermanEnquiries Colin Cramphornexploits magazine Nigel Howarth Worth

ISSUE 21

Pg. 1: What? When? Who? Nigel Howarth Worth IILP WIPO Day 2014

Pg. 2: Banking on IP An Active Response Nigel Howarth Worth IILP A look at the Government Response to IPO report Banking on IP

Pp. 3-4: Banking on IP An Active Response Excerpts #1 & #2

Pp. 5-7: High Time To Articulate The Value of IP Martin Brassell Inngot Co-author of Banking on IP shows how we can make IP make sense in the critical worldoffinance&funding

Pg. 8: An Eye on IP News from the world of IP

Pp. 9-10: Famous Inventors Spotlight on Henry Robinson Palmer, creator of corrugated iron

Pp. 11-12: Banking on IP: What Next? Martin Brassell Inngot Co-author of Banking on IP looks at the challenges ahead to bolster IP as an attractive&accessiblefinanceoption

Pp. 13-14: Technology Transfer Johnathan Silverman Silverman Sherliker LLP Commercialising IP in a safe legal way

EDITORIAL

WHAT? WHEN? WHO?Nigel Howarth Worth, Vice Chairman of the IILP,

on WIPO Day April 28th 2014

EXECUTIVE COMMITTEE

IN THIS ISSUE

Editor Nigel Howarth Worth nigel.worth1@btinternet.com 01254 236 025

Publisher Colin Cramphorn colin@inventionsuk.com 01296 728 136

CONTACT

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The IILP are delighted to have been invited to participate and share in sponsoring the London event for World IP Day for the third year running.

Arranged by The Intellectual Property Awareness Network (IPAN) to mark the celebration of World IP Day and give due weight and importance to the promotion of IP, this year’s event will take place on Mon-day 28th April 2014 at The Riverside Terrace, Palace of Westminster at 7.00 p.m.

This year’s London’s theme is Making the UK Attractive for IP Rich Industry. Peter Wishart M.P., Vice-Chair of the All Party Parliamentary IP Group, will again introduce the event and distinguished speakers from the WIPO, Gov-ernment and industry.

Keynote speakers will include:The Right Honourable Dr. •Vince Cable, Secretary of State for the De-partment of Busi-ness, Innovation and SkillsMr. Yo Takagi• , WIPO Assistant Director-Gen-eral for the Global Infra-structure SectorIan Callum• , Head of Design for Jaguar- Land Rover

Hayley Conboys• , Head of Enterprise at the CBIMichael Weatherley M.P.• , Special Adviser on IP to the PM, who we believe is coming over to deliver a personal message from the Prime Minister in support of the event and of IPAN and its objectives.

We are also informed that the speeches will close with a presentation from The Alli-ance for IP which is to make recommendations to Govern-ment in regard to priorities in expanding the uptake and innovation of IP.

The IILP will use the event as a golden opportunity to meet figures on the frontline of IP and UK business. A full report of the event will follow

in Issue 22 of Exploits due

late summer this year.

In late October 2013, a remark-able piece of research was published under the auspices of the IPO entitled Banking on IP which addressed in some detail and with great rigour the most pressing concerns for the use of IP assets for financial security.

A lengthy report of over 200 pages, Banking on IP analysed all aspects of the industry and its treatment of such assets, through all levels of funder from the High Street Bank to the most niche VC, from Crowd Funding to Family Resources.

Banking on IP drew many per-ceptive conclusions in helping to define a path to encourage respect and receptivity for IP assets in funding start ups and established business of all scales. The IILP applauded this

major step along the path and commend its consideration in some detail for a deep under-standing of the task that Gov-ernment is presented with.

Accordingly we were delighted to see the Government’s re-sponse to this document which came out in March entitled Banking on IP An Active Re-sponse and in 26 pages appears to have absorbed and taken up many of the recommendations, some providing deeply creative solutions to the elements of risk endemic in the use of IP as a means of security.

We have featured 2 key ex-cerpts of the Government’s Response in this issue to help readers in their grasp of the many thoughts and ideas that have been considered by the co-authors. Indeed we are delighted to be able to feature two pieces by Martin Brassell, CEO of Inngot, who is one of those authors.

The IILP very much hopes that the actions proposed by

Government will be followed through swiftly and further work done in bringing funders within the circle. To discuss and hopefully collaborate in refining their own methods to resolve the absence of funding amongst our innumerable IP-Rich start-ups and chronically under-expanded SMEs.

We do sincerely believe that the report will become a mile-stone in the future exploitation of our national resource of IP and encourage new global companies to consider the UK a safe home for their business, where all the signs are propi-tious, for growth and support.

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A milestone in the future exploitation of our national resource of IP

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NIGEL HOWARTH-WORTH

Deeply creative solutions to the risk endemic in the use of IP as financial security

IILP VICE-CHAIRMAN

COMMENT: BANKING ON IP AN ACTIVE RESPONSE Banking on IP An Active Response is an IPO report written in response to recommendations made in Banking on IP. Banking on IP is a report commissioned by the IPO in 2013. It was co-authored by Martin Brassell, CEO of Inngot, who writes two articles in this edition on the key issues behind both reports, pp. 5-7, 11-12.

www.ipo.gov.uk/ ipresearch-bankingip-2014.pdf

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EXCERPT #1: BANKING ON IP AN ACTIVE RESPONSE

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EXCERPT #2: BANKING ON IP AN ACTIVE RESPONSE

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In the first of two articles in this edition, Martin Brassell, CEO of Inngot, & co-author of Banking on IP,

takes a look at the link between IP & finance.

Brassell argues that the secret of getting more businesses to take IP seriously is to put a number on it. Figures from the UK Government confirm that businesses now invest around 30% more in intangible assets than in tangible fixed ones. It’s estimated that more than half of this investment – about £65 bil-lion – is protectable under intellec-tual property law (copyright, trade marks, patents and design registra-tion). Analysis of quoted companies also reveals that the majority of the value markets place on them is no longer underpinned by tangible assets, as it was in the 1970s and 1980s. Nowadays, it’s not unusual to find that 75-80% of the overall value attributed to firms is, by impli-cation, in their intangibles.

In most cases, you won’t find those assets or their value on a company’s balance sheet. Where intangibles are shown, they almost invariably relate toresearch and development expenditure, where this is permitted (and as we know, cost is seldom a good predictor of value).

The main exception is when post-acquisition accounting under IFRS 3 prompts an assessment of iden-tifiable intangible assets. However, such standards are normally only applied by listed companies.

The Funding Challenge The central issue our report for the Intellectual Property Office was asked to investigate was a funding conundrum. There are long-stand-ing, well-established mechanisms for businesses to fund the acquisi-tion of fixed assets, and to leverage the value in assets that are already owned.

Similar mechanisms just do not exist for intangible assets like IP, despite their undoubted value. Interviews with banks confirm that standard policy on any balance sheet intangibles has traditionally been to draw a red line through them. The reasons for this are not difficult to understand: all these intangibles really show is that the company in question is good at spending money! By contrast, fixed assets represent value paid for some kind of ‘thing’ that might be linked to cash generation, and could potentially have some value in its own right.

This view is starting to change.

Lenders themselves increasingly recognise that the know-how com-panies bring to bear on a market opportunity is typically what sets them apart, and therefore an important contributor to cash. Be-cause these assets are unique, not commodities, they are harder for competitors to replicate - provided that they are converted into assets that the business can own and use, not simply knowledge in people’s heads.

Tangible assets, particularly com-mercial property, have proved hard to shift since the start of the recession, but it is the falling cost of technology and increasing af-fordability of outsourced solutions that cause many business’s bal-ance sheets to lack the underpin-ning they would have had in the past. Put simply: given that the way businesses generate cash has changed, it’s not surprising to find

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businesses now invest around 30% more in intangible assets than in tangible fixed assets

www.ipo.gov.uk/ ipresearch-bankingip.pdf

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that the assets that matter most to them have changed too. So, whilst there are reasons for lenders to be concerned about how easily value can be realised from IP and intan-gibles independently of a company, there are plenty of reasons why they should be taking more of an interest in them – both to spot the good businesses, and to improve their chances of recovery in dis-tress. Now, we have to put the tools in place to help them do it.

Information Asymmetry? One of the terms frequently used in Government reports describing the challenges in lending to small businesses is “information asym-metry’”– namely, the fact that the borrower knows more about their business than the lender, and doesn’t communicate it. Lenders have to compensate for these un-certainties, and apart from saying “no”, one of the ways in which they

do so is to seek collateral, either from within the business or outside it, by way of personal guarantees.

Leaving the issue of collateral to one side: the problem with using intangibles to explain what makes a business “tick” is that both the lender and the company may be equally in the dark about what the assets are and the value they contribute.

This isn’t just a problem for debt finance; many of the equity inves-tors interviewed for the report also described the level of IP awareness amongst businesses as being poor (though not all were quite as polite as “poor” implies). Most company owners would not tolerate a situ-ation where their employees were not looking after the fixed assets of a business and ensuring they were used as productively as pos-sible. So why are the intangibles neglected?

The answer, surely, is simply that the assets are comparatively dif-ficult to spot, both physically and financially. If a company owns patents and trade marks, it will probably know about them (al-though this is not the same thing

as making sure the assets are properly enforced or protected everywhere they should be). But these registered rights are just the tip of the iceberg. In creating value, registered IP tends to be reliant on a host of other intangibles such as customer insights, specialist technical know-how, proprietary processes, unique service formats, trade secrets and a host of other assets. IFRS 3 defines about 50 different types, many of which are protectable under IP or contract law – provided the company knows that it owns them.

Working on the basis that the prob-lem is so large that only an afford-able and highly scalable solution can possibly tackle it, we founded Inngot to help companies self-diagnose, manage and value their intangibles.

Analysis of usage conducted for our IPO report shows that three-quarters of companies using the tool find at least five types of asset they probably never knew they had – and over one-third find more than ten asset types.

Most recently a new tool has been added to interrogate these “pro-files” and produce an action plan to

50 different IP intangible asset classes according to accountancy standard IFR3

www.ipo.gov.uk/ ipresearch-bankingip.pdf

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help companies identify key risks and opportunities hidden within the assets they have found.

Microsoft, for one, is supporting the adoption of this new tool, amongst its small business community.

Determining A Value Clearly, the starting point for any work on IP and intangibles must be to figure out what you’ve got. How-ever, it has to be said that there is nothing quite like the ‘£’ sign to focus the mind and help organisa-tions prioritise their activities. One of the keys to competitiveness is for businesses to understand that their investment in intangible as-sets is valuable and worth protect-ing.

The problem here is that IP valua-tion has traditionally been regarded as something of a “dark art”, typically only performed when a transaction is about to happen (or has already happened). Because it is specialist, it is also not cheap – generally viewed as too expen-sive for most businesses to con-template doing purely for strategic insight.

Whilst wholly supportive of the work done by IP valuation experts (and accepting the fact that the ultimate test of IP value will always be what someone is prepared to pay for it), we felt businesses need-ed a consistent indicator that could be used in everyday negotiation. Accordingly, in 2010, we created the first version of an online valua-tion tool, with specialist input from a leading multinational firm of ac-countants, providing a risk-adjusted relief from royalty approach. This has subsequently been updated

and internationalised.

Valuations conducted using this online system in 2012 identified an average of £630,000 in total IP and intangible asset value across a wide range of trading businesses, the majority of whom fell into the SME category. The purposes of the valuations (though not disclosed in all cases) confirm the many differ-ent ways in which companies can realise value from IP and intangi-bles when encouraged to do so.

About one-third of businesses that approach Inngot are interested in raising money, which might be debt, equity, or from one of the growing number of sources of al-ternative finance, such as pension-led funding. Many are looking to identify what they can license and to understand how much value they might be able to realise by do-ing so. In others, a collaboration or partnership is being contemplated, and one or both parties want to un-derstand the value of their respec-tive contribution(s).

There may be a transfer of owner-ship under consideration between individuals, companies or territo-ries. It may be that the company is growing fast and realises that its business valuation is being sup-pressed (a bit of a problem if it is trying to set up an EMI scheme, for example) and it wants to gain visibility of its “missing” value. Or, it may simply be that a company has realised that it doesn’t know what its assets are or how much value is tied up in them, and wishes to manage them better.

Our priority was to create a valua-tion tool capable of being powered by information that a reasonably well-run business could provide without extensive (and therefore costly) additional research.

It also had to be good at dealing with uncertainty, because where

forecast data is involved, the only thing that can be guaranteed is that the projections will be inex-act. That said, we have seen clear evidence that the involvement of an experienced accountant in preparing such forecasts can make a significant contribution to their accuracy and credibility.

This “conversation starter” on value is, in our view, the essential step on the road to moving IP and intangibles away from the realm of the esoteric and get them recog-nised for what they are: a primary generator of business value. With-out it, the vast majority of knowl-edge-based businesses (on whom economic recovery depends) will continue to have no idea what their most valuable assets are worth – and therefore fail to appreciate the importance of ensuring that they are properly and professionally protected.

PAGES 11-12: READ MORE BY MARTIN BRASSELL ON BANKING ON IP AN ACTIVE RESPONSE

3 out of 4 companies found at least 5 asset types they didn’t know they had

Preparing to Board! THE DECISIONA most recent decision by the Court of Justice of the European Union suggests that the days of unfettered in-fringement of web Copyright by pirates may be coming to a close, but not quite summar-ily.

The Court was asked to inter-pret an earlier directive re-quiring Internet Service Pro-viders (ISPs) to block access to a copyright-infringing website provided those steps were reasonable. Convention-ally such action is taken by way of injunction and its use was the subject of this re-cent reference. Such injunction will make it harder or im-possible to ac-cess infringing information if the ISP is bound to restrict ac-cess . The Court found that the ISP is the preferred resort for this measure of control, but the denial must not unnecessarily curtail the infringer’s right to access publicly available information.

Following the Pirate Bay case here in the UK, it had been established that ISPs and rights holders affected could reach private deals to re-strict access without regard to reasonableness. Now the Court expressed the view that where this is desired judicial oversight is required.

ARTICLENEWS

Preparing to Board! THE CASEIn this reference, an ISP, UPC Tel-ekabel, raised a challenge to the blanket restriction of access then operating, claiming that it should not be classed as an intermedi-ary for the purpose of injunctive relief under Directive 2001/29, be-cause it had no business relation-ship with the infringers who posted an infringing website through its service or that it could be proved that persons had accessed the site.

In both these respects the Court disagreed, indicating that a busi-ness relationship was not neces-sary for relief by way of injunc-

tion against it and to prove, that others had accessed the infringing material.

However, the Court did stress that there is conflict between the right to copyright and the conduct of a business, in this case, of provid-ing a service for web users.

In that respect the denial of serv-ice requirement in the claim for injunctive relief cannot operate automatically and the ISP in this case allowed freedom to decide how best to implement the requirement to restrict access with this bal-ance in mind. To have taken reason-able steps here would be enough to avoid damages for non-compliance.

Care must be taken in providing a continued service and accommodating the needs of the aggrieved.

A Diploma in Licensing PracticeThe IILP was delighted to be invited to deliver a short series of pilot lec-tures at Brunel University’s School of Law during the second academic term this year.

As part of its drive to see the intro-duction of a diploma course to edu-cate and attract student members, we are pleased that the topics chosen were well received and look forward to developments in regard to, at first, a Certificate course (Cert.L.P.), which may give entry to probationary membership and Associate Member-ship after the usual period of prac-tice and subsequently a Diploma.

Members will be kept advised of de-velopments but an exciting prospect with the possibility that this may expand into a stand-alone Diploma and maybe into an LLM, in the years to come.

A copy of the Syllabus and lecture outlines are available through the Secretary should members desire to see what is on offer.

World IP Day The IILP is again delighted to be invited to attend this major event in the IPO calendar for the third successive year. The topic in London this year is Making the UK attractive for IP rich business.

The WIP International theme this year is Movies: A Global Passion.

A full note of the UK event in Lon-don will follow in our next issue.

anKeeping

EYEipon

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seems that every rusting barn or shed, warehouse

or pavilion offers at least a trace of roof well past its prime as homage to the flexibility of this remarkable material, but per-haps few would know it is now almost two centuries since its introduction and yet it is vernac-ular, even today.

Though manifold coatings and forms of it have come and largely stayed around, corrugated iron is as clearly recognisable now as when the first basic covering was hazarded well before the Victo-rians did their best to give force to industrialisation in the early 19th century. What a remarkable material it is that has remained faithful to its original concept over such a time.

As an example of conditions that are auspicious for innovation and for the entry of this product to market they are a paragon of innovation philosophy, all com-ing together to make this visually uninspiring product a long-stay success.

As with established thinking on the reasons why some do and don’t succeed in entering the invention hall of fame, there are

several clearly identifiable condi-tions that promised well for the reforming of plate iron into roof-ing and cladding material with such diverse applications.

Changes in the Efficiency of Production Whilst the late 18th century knew iron as a fine structural material and saw its uptake in machines, vessels, factories and more, it was expensive to produce and required abundant raw materi-als to smelt out, form and forge. At that time the entrepreneurial risks in production were many as volumes were not guaranteed

and hardwoods, grown here in abundance, were still serviceable for most uses.

The deep pockets that were needed to support the risks of production first started to fill during the adventurous days of the Elizabethan merchants, bring-ing wealth through the trade in new world commodities and progressively expanding the docks required to receive them safely. Such riches over generations, provided an ideal buffer to risk, financial commitment being rela-tively modest in the context of the huge sums required to build infrastructure.

FAMOUS INVENTORS

henry robinson-palmercreator of corrugated iron

1833 monorail design by robinson-palmer

IT

FAMOUS INVENTORS

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modern corrugated iron roof tile

FAMOUS INVENTORS

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Improvements in Materials HandlingThe development of smelting ore that led to the production of wrought iron offered no pros-pect of an end material that was suitable for corrugation, it being inherently brittle and unsuited to rolling-out. It took another contributor one Henry Cort to develop the process of puddling, the material that reduced costs and enabled sheets to be rolled ever thinner. Though useful as plating when secured by rivets the material was liable to deform in spans of more than a few feet, taking our esteemed inventor a little time to add strength by forming the even corrugations we know today.

Special Skills and ContactsAs a favourite of leading engi-neers of the time, including the distinguished Thomas Telford, Palmer soon came to prominence as a thought-leader in the con-struction industry, coming later to found the Institute of Civil En-gineers. The concept was merely one of a flood of his creative ideas that included the mono-rail and embossing stamp but the one of obviously greatest facility.

But as ever this idea might have been all to nought if he had not attracted and had the contacts and respect to be taken seriously

as in this case, by a certain James Jones with his complementary skills in mechanical engineering and by a certain Richard Walker, who had the business acumen to promote the material. Both of whom worked with him on the development of London Docks.

It was fortunate indeed that the promotion of heightened profes-sional skills in the earliest days of accreditation and education came just at the right time to take advantage of the established businessman with his aspirations and appetite for risk.

Market DemandIn its first use this new mate-rial was understandably given prominence in the construction of the London Docks where flat spans were ideal for convenience in storage and at low cost. Ware-housing demand was the driver that led to future applications but made the product economic to produce from its early days, no recognisable commercial or do-mestic use emerging until much later.

Reliable Sources of MachineryQuite by good fortune, it was discovered that no special ap-paratus was required to produce the product as the existing instal-lation of a Boulton & Watt steam engine was on site at the Docks

and had adequate power to drive the rollers that formed the cor-rugations. By simple alterations to the output rollers the machine could draw and form the pattern and at a continuous pace. In-deed, the rollers themselves had only recently been developed for flattening and by turning of the shafts like stair rods, could easily be used to impress the metal.

Latent DemandAttempts to create iron roof-ing from tiles of wrought iron had been tried and failed due to weight and cost. The corrugating process solved these shortcom-ings at a stroke and with wider promulgation in application dur-ing the 19th century this latent demand was realised and exploit-ed to great advantage in domestic and commercial uses for roofing, cladding and even constructing. Though it must be noted that Palmer was not the first to aspire to use the material in this way as that honour goes to the Patentee, Thomas Botfield of Staffordshire, this idea remained unexploited and it seems unchallenged by the holder of prior art-no change there then!

A remarkable story of a creative talent that brought real change in his lifetime by taking fullest advantage of the fertile market conditions of the day

We help inventors, small businesses and large corporations to deliver on their ideas and strategic aims.

Using our project management ‘know how’ and your understanding of the subject or business we can clearly define a goal. Working together we create a plan, focusing your time energy and resources on achieving your aim.

Our aspiration is to guide you through the journey one step at a time.

Please call us on +44 (0) 203 239 9188 or email info@k4innovations.com for a free half hour consultation.

In the second of two articles in this edition, Martin Brassell, CEO of Inngot & co-author of Banking on IP, asks how Banking on IP An Active Response takes us forward

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Banking on IP marks the first time the UK Government has seriously studied a fundamental issue facing the nation. If we believe that the future is knowl-edge-based, and that intellectual prop-erty is the currency of the knowledge economy, why is it so hard to recognise and use IP value for business finance?

Increasingly, the sort of firms on whom growth depends simply don’t have, or use, much in the way of ‘hard’ assets – the sort banks are accustomed to us-ing as collateral. Moreover, it would be a mistake to characterise this issue as being particular to technology compa-nies. Latest statistics published by the UK Intellectual Property Office (UK IPO) leave no doubt that there is a growing gap between tangible and intangible assets when it comes to company investment in general.

Equity investors generally have a good understanding of the importance of IP (even if their technical knowledge is not always that broad). Banks, how-ever, seldom if ever ask firms about it, and are accustomed to drawing a red line through any intangibles shown on balance sheets (understandably, since all such entries really tell them is that a company has spent some money).

There does at least appear to be a growing understanding of the prob-lem. At the same time as I was writing Banking on IP with Kelvin King, the European Commission’s expert group were composing a report on IP valua-tion which included consideration of

company financing issues, recently published. The challenge is: what can be done about this problem? The answer lies in examining, as we did in 200+ pages, what it is about IP that makes it prob-lematic for lenders to harness, and to what extent these hurdles can be overcome.

Security and lender needsProfessional practitioners dealing with IP every day sometimes find it difficult to understand why banks and lenders do not seem to appreciate the intrinsic value of these assets. After all, suc-cessful licensing aptly demonstrates how far IP can be a direct driver of revenue. Furthermore, the motive for most mergers and acquisitions is to gain control over knowledge assets, not hard assets.

However, from a banking perspective, property and tangible goods have one key advantage; they have been traded on transparent markets for decades. This makes it possible for a lender to anticipate their depreciation curve over

the course of a loan (real estate was assumed to appreciate in value, or at least maintain it, until recent financial shocks forced that view to be revis-ited). If a borrower defaults, assets like these are deemed to provide a reason-ably reliable ‘secondary exit’ route and can therefore not only be valued, but sold.

Clearly banks also have a responsibility to safeguard their own solvency and Basel III rules compel them to provide properly for the possibility of default. Hard assets with known resale value help to support bank balance sheets, whereas intangibles of uncertain real-isable worth don’t.

Interestingly, whilst writing Banking on IP, we discovered that there is no conceptual or regulatory obstacle to using IP as security in the full sense of the word. The practical difficulty is that a bank would need to persuade the regulator that it knew what the ‘loss given default’ ratio was likely to be. No lender is in a position to know this at present; and it is probably fair to say that IP does not necessary behave as a single asset class in the way plant and equipment does.

However, when it comes to ‘comfort’, advocates for IP have two strong cards to play. The first of these is that com-pany management often has a vested interest in their firm’s IP, so if a bank takes effective charges over this, they will have control over assets the busi-ness really cares about and will fight to

lenders need to appreciate and utilise IP value in the same way equity investors do

keep.

The second is that rescuing a dis-tressed company is made much harder if key assets like IP have been impaired and gone missing. At present, there’s no inventory to which a bank can refer to tell whether this is the case.

Banking on IP An Active ResponseAt the end of March 2014, UK IPO published its response to the 10 rec-ommendations made in Banking on IP. This chose to focus on three particular areas highlighted as blockages within the report:

Building understanding – working 1.with industry bodies to improve awareness of IP and its business value, illustrated with case studiesSupporting a productive dialogue 2.– by developing and testing a finance toolkit (making use of existing resources where possible) to help overcome the ‘language barrier’ and support due diligenceGrowing financial confidence – by 3.supporting the development of appropriate insurance policies and other risk sharing approaches, as well as assessing trading plat-forms.

The first of these aims to tackle the fact that companies who know about IP and look after it remain very much in the minority. New research by UK IPO for Banking on IP showed that 34% of large firms and 22% of medium-sized firms have patents or trade marks, but

the figure drops to 13% for small companies and as little as 2% for the micro-enterprises that make up the majority of active UK businesses.

Until such time as more companies un-derstand the crucial importance of IP to their business prospects, it is hard to envisage IP-backed lending becom-ing truly mainstream. Of course, this is only one side of the story; it’s hard to think of a bigger and better incentive to get businesses thinking seriously about IP than for their banks to take an interest in it.

In order to make progress in the near term, however, the second task is the most important of all. Through our own work with Lloyds, Nestaand others, Inngot has done more than anyone else to help companies identify their intangibles using consistent language that banks can understand. However, the same standards-led approach needs to be applied to due diligence procedures, legal templates and proce-

dures to record charges against IP at UK IPO as well as Companies House.

The third task is also vital. Whilst it is clearly helpful and important for lenders to understand whether a given ‘basket’ of IP is likely to have a mate-rial value or not, its theoretical worth is of little interest if this cannot be real-ised when necessary. Whilst IP market-places mature (as they surely will), the most promising route to pursue is to obtain insurance to mitigate risk.

This will probably not be the type of ‘pursuit and defence’ insurance historically associated with IP (typically bought in low volumes by companies who already know they have a prob-lem). It is more likely to be a means of providing a guaranteed floor value based on an assessment of the poten-tial market demand for a given technol-ogy, process, brand, trade secret or set of customers and contracts.

It is encouraging to see a coalition, including a number of willing par-ticipants from the banking industry, beginning to form around the view that lenders need to appreciate and utilise IP value in the same way equity inves-tors do. Licensing practitioners have a valuable role to play in providing con-crete evidence of realisable financial benefits and I would be delighted to hear from anyone who feels they have positive – and negative – experiences to contribute.

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Companies who know about IP and look after it remain very much in the minority

Martin Brassell is co-founder and Chief Executive of Inngot (www.inngot.com), the leading provider

of online tools to identify and describe IP and intangibles and estimate their value.

He is a former Enterprise Hub Director and a Fellow of the RSA. Martin can be contacted at

martin@inngot.com.

Technology Transfer, whilst not a new concept, is fast becom-ing more widespread, as product development becomes ever more costly and specialised rarely can an individual or some company find the time and money to de-velop a concept through to market without some form of collabora-tion.

I am frequently asked to advise clients on balancing ‘speed to market’ whilst safeguarding legal issues. So how to start when a cli-ent walks through the door claim-ing to have invented something which he is confident is novel, determined that there’s a market for it but has no means to exploit it alone?

Put the first statement to the test - is he truly the inventor? - or has he collaborated with others in devel-oping the technology? This is more common than one may imagine, so check any pending patent ap-plication to see if it’s been taken out in one or more names.

Try to identify exactly how the con-cept has come about and how has it been developed to date.

By way of example, from time-to-time pre-launch due diligence reveals software products with embedded unlicensed third party software. Finding this out late in the day is a costly exercise and best avoided.

Identify whether the client was working as a freelancer or as an employee or director of a company when he came up with the idea.

Has he used subcontractors? Did he have employees or has he adopted something that he thought inadvertently he was free to copy?

All these will have implications which need to be addressed. Consider the need to gather in any third party rights assignment. Get ‘all your ducks in a line’ before commencing any third party dis-cussions.

Aim to avoid the client finding mid-transaction he has an issue over IP ownership.

Where more than one IP owner is involved ensure they agree how they will split potential income or capital receipts before commenc-ing negotiations with third parties, otherwise prospective licensees will seek to capitalise upon any friction.

Identify your client’s strengths and weaknesses; if more than one per-son is involved, who does what? Do they have a common goal?

Do they both want to licence or is one of them hell-bent upon pro-ducing the product themselves?

Clarify whether the client wishes to be involved in the commercial-ism by working with the licensee and if so, is he free contractually so to do?

Having sorted out those aspects, next establish what steps the cli-ent may have taken to protect the IPR. Many believe that protection starts and finishes with patents; so consider Registered Design, Copyright and registering as Trade Marks potential brand names, es-pecially with B2C products. Each may create additional licence income streams.

Balancing ‘speed to market’ whilst safeguarding legal issues

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Appoint a suitably experienced licensed practitioner at www.iilp.net

Jonathan Silverman of Silverman Sherliker LLP discusses how businesses can collaborate on technology and product development to bring a concept to market whilst safeguarding legal issues.

Always ensure there is an NDA in place before commencing discussions

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Ensure your client consults an ap-propriately qualified patent agent to advise on patentability or reli-ance upon the concept of ‘trade secret’ as an alternative. Look at each case on its merits.

Repeatedly highlight to the client the need to maintain confidential-ity or all may well be lost, ensure the client does not disclose any-thing inadvertently which might either prejudice a patent applica-tion or simply lead to “a leak” of knowledge into the market.

Always check suitable nondis-closure and non-circumvention agreements are entered into before discussions regarding prototyping, prospective licensing or partnering to further develop a product

Consider with the client whom he thinks the most appropriate ‘partner’ to bring the product to market.

Appoint a suitably experienced and competent licensed practi-tioner (www.iilp.net) to identify suitable introductions and con-duct negotiations. Sometimes the most likely licensee may already be known to the client but having an agent to negotiate in those circumstances is essential.

Take steps to evaluate the pro-spective licensing agent, establish their propriety, track record and equally evaluate whether they’d get on well with the client during stressful negotiations.

Before letting a client enter into time consuming and expensive licensing negotiations check out if possible the bona fides, commercial integrity and finan-cial strength of any prospective licensee. Make discreet enquir-ies but also ask a licensee about

previous licensing arrangements and then follow up with the coun-terparties.

Always ensure there is an NDA in place before commencing discussions with any prospec-tive licensee but recognise that certain large players such as BAe, Unilever and P&G rarely enter into confidentiality agreements, in case their R & D teams have already come up with a similar idea; consider with the client to whether or not to proceed.

Always try to negotiate detailed heads of agreement, and even though they’re non-binding, this will hopefully enable both parties to know they are moving the same direction.

Never ignore the potential impact of taxation to both licensor and licensee; do not defer taking ac-countancy advice until too late in the day and risk the parties hav-ing to restructure arrangements purely for tax.

A successful licensing arrange-ment should be both commer-cially beneficial for the client and intellectually satisfying for the lawyer.

Jonathan T R Silverman is a com-mercial partner with City Law firm

Silverman Sherliker LLP. He may be contacted on:

+44 (0)20 7749 2700 jtrs@silvermansherliker.co.uk

EDITORIAL

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