Corporate Finance: Companies Need to Take Strong Action to Protect Intellectual Property

Article excerpt

High-tech companies in the IT and biotechnology sectors are struggling with a unique business problem - how to put a realistic value on intellectual property.

Increasing numbers of modern businesses are ideas-driven, earning a living through the wits of their founders and the innovative thinking of key employees.

Often, however, the ideas are commercially unproven, and the companies are not yet in profit.

Despite the absence of trading records, these businesses are often seen as desirable targets for larger concerns keen to establish a foothold in what is perceived as the cutting edge of industry.

They have cash to spend and an appetite for the technologies and know-how they believe will generate wealth into the 21st century.

Which means that many an entrepreneur at the helm of a loss-making business is being wooed by potential suitors.

"When you come to sell a company like that, the problem comes in trying to assess the value of the intellectual property," said Mr William Barker, a partner and IP specialist at Birmingham law firm Martineau Johnson.

"Simply defining what intellectual property is can be difficult.

"Basically it's the difference between the tangible assets of a company, and what a potential purchaser is prepared to pay."

This embraces nebulous areas such as 'goodwill' as well as more easily valued assets like brand names and trademarks, and, increasingly, patented technologies and applications which may not yet have been developed commercially.

"Young companies often have little in the way of tangible assets, and what the buyer is acquiring is the existing and potential know-how in the company and its people, and the research and development capability," adds Mr Barker.

Mr Roger Blears, also a partner at Martineau Johnson, has established a reputation as a specialist in the IT/biotech sector, and has recently been appointed to the board of a leading venture capital trust.

His work has given him a hands-on knowledge of the needs of start-up companies at the leading edge of technology - and of the value of the intellectual property which invariably provides the mainstay of their businesses.

He underlines the importance of the patent to protect novel ideas, and advises that great care should be taken to ensure that the intellectual property is not put in jeopardy.

"The trading company should never be the company that holds the patent. If it is, and the company fails for any reason at all, valuable intellectual property will fall into the hands of the receiver, to be disposed of for the best price he can get," said Mr Blears.

"This is particularly important if an idea has more than one commercial application," he added.

"It should never be the case that the failure of a single company can deprive an individual of his intellectual property."

The patent system is designed to stimulate investment in research and development by offering inventors and innovative thinkers some protection for their ideas.

"Without the patent system, research and development would come to a standstill," said Mr Blears. …