Business valuers can expect further changes in the UK landscape for IP creation and commercialisation. Intellectual Property Exchange argues that UK investment in IP is now over £150 billion—50% more than investments in tangible assets.

Intangibles now represent almost 90% of the market value of the largest listed companies (according to analyses from Ocean Tomo, the leading management and advisory firm in the area), so these changes may be the most significant factor in many current business valuations.

Changing valuation expectations: Projected synergies and/or profits derived from IP assets have trended downward after the bubble the huge Nortel and Mortorola transactions created in 2011. Nortel’s insolvency led to its IP assets being sold for £3.4 billion (for some 6,000 patents and patent applications in fields including wireless, wireless 4G, data networking, optical, voice, internet, service provider, and semiconductors). The buyers were Apple, Microsoft, and Research in Motion (Blackberry). In the same year, Google attributed £4.3 billion to patents and developed technology when it acquired Motorola.

Many patent sales have occurred since then, though none have equaled the size or expected ROI.

Growth in the market for IP rights: The market for IP rights, particularly patents, has grown in recent years, with a number of entities active in funding, syndicating, acquiring, and licensing or asserting patents and other IP rights. Both investor groups, which typically purchase patents and seek to generate revenue by negotiating licences, and ‘patent trolls,’ which typically sue potential licensees, continue to operate in the market.

The EU Commission last published a report on the patent enforcement situation in Europe in 2016, and it agreed that the legal environment could force down the value of these intangible assets. The report expressed concern that additional litigation, the threat of litigation, and arbitration efforts may impose additional cost on the innovation ecosystem and obstruct innovative initiatives.

Other trends affecting the business value and marketability of IP and other intangible assets:

• New IP exchanges, which create local or regional marketplaces for buying and selling IP rights (the London IP Exchange is one example).
• Patent ‘networks,’ which acquire patent rights and license them to their members.
• Government-sponsored patent pools (GSPP): an example is the Innovation Network Corporation of Japan (INCJ)—founded partly in order to increase the patent royalties Japanese universities receive.
• Programs an increasing number of governments established to encourage enterprises to exploit their IP rights and help companies raise funds based on such assets.
• Cross-licenses of large patent pools to avoid litigation between the parties to the cross-license, provided these are within the scope of applicable antitrust laws.
• Technological innovation continues to move away from large, in-house R&D labs and toward fully open innovation ecosystems consisting of startups, academia, special interest groups, incubators, accelerators, etc.
• The adoption of open source platforms and open access repositories (e.g., arxiv.org) as inventors prefer to leverage their skills or publish their work, thereby immediately creating prior art rather than monetizing their inventions through patents.
• Standard-essential patents (SEPs) and FRAND licensing principles. When a patent is considered to be essential to a technological standard—a standard-essential patent (SEP)—this fact has to be reflected in the valuation process. The parameters considered for the valuation of SEPs have to be aligned with fair, reasonable, and nondiscriminatory (FRAND) principles, which underlie licensing terms for SEPs. In Setting Out the EU Approach to Standard Essential Patents, The European Commission placed a high emphasis on SEP and FRAND, highlighting the need for increased transparency and searchability of SEP databases as well as more scrutiny on claims of essentiality.
• Some digital companies publish user statistics in their financial statements (e.g., daily average users, monthly average users, and average revenue per user). Financial analysts should consider any ‘user base’ information when estimating future market valuations for these companies.

A new helpful resource: The International Chamber of Commerce released the ‘Handbook on Valuation of Intellectual Property Assets’ late last year. It examines many of these trends and provides additional resources for UK business valuers.