Use Your Brains: Companies Sitting on an IP Fortune

World-wide there is a revolution going on in the way that companies view the value of their intellectual property (IP).

Traditionally, companies viewed their IP (usually in the form of patents and trade marks) purely as something they had to prevent others from competing with them in the market. The furthest they went in making their IP work for them was through licensing the IP in return for royalties.

Internationally, however, an entirely new way of regarding IP as an asset like any other asset is taking hold. Its full advantages are only starting to be appreciated in South Africa. Those in the know are making their IP assets work for them, using IP in new ways. Indeed, for some companies, IP is moving to the core of their profit-making activities. Companies are increasingly finding they have valuable assets they were never aware of and are beginning to utilise them in a range of beneficial ways.

Recognising, these developments, Spoor & Fisher has set up Spoor & Fisher Consulting, a new company specialising in the valuation of IP and consulting on intellectual property related aspects of business.

Most South African companies still do not understand the full import of this revolutionary way of viewing IP. For growing numbers of companies world-wide, the true value of the company lies in its IP, not in its physical assets. Among listed companies on the New York and London stock exchanges, it is estimated that, whereas in 1970 approximately 80% of value lay in the tangible assets of such companies, today it is more like 30%, with fully 70% of value lying in intangibles. This ratio is even higher in sectors that are heavily dependant on copyright (such as the IT and media sectors), patents (such as the technology and pharmaceutical sectors) and brands (such as the pharmaceutical, fast moving consumer goods, media and financial services sectors). There has been a complete reversal in the traditional way of viewing business: now the true value of many companies lies in intellectual capital, including people and IP.

In order to leverage a company´s IP properly, it needs to be valued. Spoor & Fisher Consulting remains a pioneer in this field. There are a wide range of potential benefits to be gained from the valuation of IP, including significant tax benefits and increased flexibility in tax-planning; the raising of finance; the provision of security in financing transactions; for insurance purposes; when there is a need to reflect IP on the balance sheet; in mergers, acquisitions and disposals; for licensing purposes and for brand management, including resource allocation, brand strategy development and performance tracking. Spoor & Fisher Consulting is currently working closely with major auditing firms, financial institutions and tax planners in these innovative fields of endeavour.

Although there have been recent amendments to the Income Tax Act, it is still possible to get attractive tax write-offs on the acquisition of IP. In addition, for Capital Gains Tax purposes, a wide range of commercial transactions involving IP (almost all sales of businesses contain at least some IP component) will involve a capital gain or loss. In the absence of a valuation, the Income Tax Act will determine how value is to be allocated to IP in such transactions, and not necessarily to the proprietor´s advantage.

There has been a significant increase in South Africa of companies using IP as security for raising finance, and it is possible to do so in a highly tax-efficient manner. In addition, for companies with significant numbers of patents and trade marks, new sources of revenue are being identified amongst non-core IP assets, which are then sold or licensed in terms of structured licensing programmes. It is in this way that IBM has managed to increase its licensing revenue from an extremely low base to over $1 billion per year. Not only is this a major source of revenue which was previously ignored but it moves straight to the bottom line. A number of South African companies are beginning to move in the same direction.

In summation, an IP revolution is going on out there. It is often not appreciated that almost all companies have some amount of IP: a company´s trading name, for example, is often its most valuable trade mark. In South Africa only a few have begun to be aware that they could be sitting on a goldmine if their IP is intelligently exploited to maximise its true value. All it requires is awareness of the current significance of IP in the modern business arena.


Date published: 2009/03/01
Author: Spoor & Fisher

Tags: ip fortune