From big corporations to small and medium-sized enterprises (SMEs), IP assets represent an extremely significant portion of the overall value of any organisation. That is true not only when IP rights are being sold and purchased, but also when they are exploited through licensing and franchising.
The importance of IP valuation
IP valuation serves to determine the monetary value of IP assets such as trade marks, designs, patents, and copyrights and to assess how much of a competitive advantage a company may have over others in the industry. One of the biggest challenges for SMEs is how to assign value to their IP: while some IP rights generate direct revenues (for example licensed trade marks), others (for example trade secrets) only have value as the negative right to prevent others from encroaching in some way on the holder’s business. Overall, any IP right has a value because it deters potential competitors. This is, however, difficult to evaluate for any company. It is even more difficult for SMEs that don’t have regular IP audits or other established processes and may not be aware of the IP they hold, such as non-registered rights like copyrights.
The broader picture
To put things in perspective, with a valuation exceeding USD 355 billion, Apple is considered the most valuable brand in the world in 2022, while TikTok is regarded as the world’s fastest-growing brand. In 2022, tech remains the most valuable industry as a whole, while the pharmaceuticals sector is regarded as the fastest-growing industry due to the development of COVID-19 vaccines throughout late 2020 and the whole of 2021.
A recent study conducted by the EUIPO in collaboration with the European Patent Office reveals that ownership of IP rights makes a real difference in terms of size, performance, and employee welfare within any organisation. Companies that own intangible assets tend to be larger (as measured by the number of employees), have on average 20 % higher revenue per employee and pay on average 19 % higher wages compared to companies that do not have protected IP assets. The same study also indicates that the strongest effect is associated with owning patents (53 %), followed by designs (30 %) and trade marks (17 %).
While IP valuation can be done in different ways, determining the monetary value of IP assets and taking steps to protect them is crucial at several defining moments in the life of any organisation, including when:
- seeking to attract investors and partners and, more generally, commercial opportunities (for example in the context of university research / spin offs);
- undertaking licensing and franchising initiatives;
- resolving disputes with competitors and other third parties that might have unduly exploited a company’s own IP, for example a logo, invention, or design.
IP valuation is also vital when a company or an individual creator tries to secure financing for its activities: for example, the late David Bowie was famously able to raise USD 55 million on the basis of future royalties from his music.
The importance of IP awareness to SMEs
Given the importance of IP to any organisation, raising awareness of its value among companies with fewer internal resources than larger ones, notably SMEs, is very important. This is also the case considering that, by employing around 100 million people, SMEs represent 99 % of all businesses in the EU and account for more than half of the EU’s GDP.
Enhanced awareness of IP and its value are also among the reasons why SMEs decide to register their IP rights. As SMEs are the ‘backbone’ of the European economy, supporting their efforts to register their IP is key to protecting innovation.
How the EUIPO is supporting SMEs
The EUIPO is playing an important role in enhancing knowledge of IP and its value among SMEs, including the benefit of protecting intangible assets via registered IP rights. Among other things, the EUIPO is currently running the Ideas Powered for business SME Fund (SME Fund). The SME Fund provides financial support to EU-based SMEs to protect their IP rights in the form of vouchers that partially refund the costs of several activities carried out to protect IP assets. Such activities include IP pre-diagnostic services (IP Scan ), as well as applications and registration of IP rights (trade marks, designs, and patents).
The future of IP valuation for SMEs
To support SMEs effectively – which is not necessarily an easy feat in the multilingual European Union – the European Commission’s IP Action Plan envisions a European IP Information Centre (EIPIC), which would be a one-stop shop that will simplify the IP landscape to better support SMEs in their IP journey. It is crucial to support SMEs both in their understanding of the value of IP and in protecting it, including through user-friendly online tools. This will be key not only to exploit and protect intangible assets, but also to help companies assess and value a third-party’s IP assets that they may wish to purchase or use. For instance, a licensing agreement could be reached for the use of another company’s trade mark or a franchising agreement in order to sell third-party branded products.
Going forward, and considering the institutional efforts to create a fair and competitive digital economy in the EU, the importance of intangible assets is likely to become even greater to SMEs as nowadays many sell their goods online and their markets extend beyond EU borders. SMEs need support to safeguard their IP so that it can be also protected and enforced outside the EU. E-commerce platforms are key players here, and their influence is increasing because of the persisting impact of the COVID-19 pandemic.
[Article written by Eleonora Rosati and published in the February edition of Alicante News]