IP General

Using Intellectual Property to secure finance

Wherever a business uses specialist knowledge to serve its customers, its activities will have intellectual property (IP) at their core. This IP might lie in “formal” rights like patents, designs or trademarks; increasingly, in a service-driven economy, it is likely to involve proprietary processes, trade secrets and copyright material.

But IP poses companies with a common problem, wherever it may lie. While a business’s bundle of IP assets often underpins all its income streams, its worth is seldom expressed on a balance sheet. Since the underlying IP is hardly ever identified or valued, it cannot be exploited in the same way as tangible assets like property, plant and machinery – assets whose importance is reducing in an increasingly knowledge-based age.

Understating a business’s value in this way inevitably curtails its ability to borrow and to fund growth, a problem that is widely recognised in industry and Government circles. For example, at its February 2007 seminar on SMEs and their intangible assets, the ACCA summarised the position as follows: “Impetus must be given to developing an accepted valuation methodology and to stimulating intangible asset markets… It is imperative that a methodology is developed that values intangible assets so as to promote innovation within firms and the economy as a whole1” In February 2008, the DCMS paper Creative Britain concluded that: “Since most of the value of the creative sector derives from intangible assets, creative businesses must be able to value them accurately and have confidence that they will be vigorously defended under the law2.”

The way forward

There is no legal impediment to deriving greater shareholder value from IP. As its name suggests, IP is essentially a type of property, which means it can be licensed, bought and sold (or, technically, assigned) in much the same way as any tangible asset. However, to enable this potential value to be realised, two key preconditions need to be met.

Firstly, the IP’s scope and nature need to be clearly understood. This requires there to be an accepted means of describing and “commodifying” it – in other words, to transform the IP into a business asset with a separate identity, capable of being transferred to other parties. Secondly, the IP needs to have a financial value attributed to it.

Inngot’s system has been designed to overcome these two barriers. It provides new processes to explain what a company’s IP is, where its value lies, and how much it might be worth. In doing so Inngot also enables companies to make their IP known to a wide range of prospective customers, partners and investors.

With the help of Inngot’s registration and valuation regime, IP can be sold to a finance house, which then leases or licences the exclusive usage rights back to the originating business, in return for a monthly payment stream.

Inngot registration

Inngot’s systems exploit the potential of existing copyright law to create a secure environment where businesses can register and publish their IP. A unique new classification system is used to describe both the business and its IP, making it easy for potential customers, collaborators, acquirers and financiers to search for it. This is the opposite of existing copyright registration schemes, which effectively “lock away” published material.

As well as registering the IP, Inngot records the existence of any finance associated with it, creating a “notice mechanism” needed for a market in IP to prosper.

Inngot valuation

While IP valuation is conducted regularly, it is usually a “one-off” exercise in the context of a business sale or licensing agreement. Comparatives are rarely available and seldom published.

Inngot’s valuation mechanism has been created with a standardised transaction form in mind – an “arm’s length” sale to a finance house. In this context, the importance of the valuation is that the amount involved must be realistic; the asset must be worth at least the amount being lent (having factored in an appropriate contingency); and the lessee must have the ability to repay on the agreed terms.

Benefits

For companies, using IP as security provides a means to maximise the value of existing core assets without having to sell shares. All of the exclusive rights of usage remain with the originator, who can continue to develop its IP just as it would previously have done, but with the benefit of significantly more capital.

Asset finance always involves a fixed stream of payments over a given period of time, likely to compare favourably with variable bank charges. At the end of the term, a lease can revert to a “peppercorn” rental, while a licence can provide for full ownership to be returned at the end of the term. In the meantime, the fact that the legal ownership of the IP rests with a major financial institution significantly reduces the risks of deliberate infringement by a competitor.

Entering into a lease agreement does not “fix” the value of the IP, any more than the size of a mortgage determines the value of a property. If the business does well, the value of the IP will increase, opening up opportunities to realise further funding streams. This also suits the lender, as it prevents them from becoming technically “over-collateralised”.

The way forward

There are a growing number of commercial finance precedents where IP has been used to provide security for lending, and the mechanisms involved are familiar and well understood. As the marketplace develops, many of the techniques already developed in a competitive leasing market will start to be introduced, such as extended primary periods, payment holidays, peppercorns for secondary periods, and even (potentially) “balloons”. There are already signs that finance houses and brokers will develop specialisms in one or more sectors or IP types, as they have done for many years with tangible assets.

Inngot registration and valuation address the structural issues which have constrained the use of IP as security for finance to date – chiefly the lack of clear description, valuation and notice mechanisms. With these points addressed, IP-based financing becomes a very attractive option both for innovative companies and for finance companies.

Visit www.inngot.com today to find out more..

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The role of copyright in the UK knowledge economy

Traditionally, “innovation” has been viewed as being synonymous with scientific discovery and the development of new physical products. Accordingly, it has been measured using established yardsticks such as research and development expenditure and patent production.

However, in the UK, the service sector now counts for over 75% of added value, and technical development is often realised in software, which is seldom patentable. This changing economic emphasis has led to a growing acceptance that traditional measurements, and traditional approaches to intellectual property (IP), no longer reflect how innovative any given company or sector actually is. In July 2008, DIUS asked NESTA to launch consultation on a new Innovation Index, on the basis that innovation “now encompasses not only the development of new components and products but new services, technical standards, business models and processes.”

As the legal means to protect “literary works” of all kinds, including software, copyright is the type of IP that is arguably most vital in understanding and developing the UK’s knowledge economy. The drive to exploit this automatic right more effectively is being led by Inngot, a private venture, which is launching a new service to register and publish copyright material. It enables innovative businesses to use their IP to attract customers, find collaborators, and secure finance and investment.

Inngot’s views coincide with the conclusions of the far-reaching Gowers report into IP policy, commissioned by HM Treasury and published in December 2006. Rather than extend monopolistic patent rights into software and business models, this recommended (among other measures) that government agencies should collaborate with others to improve the coverage of copyright.

The versatility of copyright

The principal reference point for current UK copyright law is the Copyright, Designs and Patents Act 1988 (“the Act”). According to the Act, copyright automatically arises when an original work is recorded, an approach which is mirrored in most other markets, and lasts for up to 70 years. Where copyright material is created in the normal course of business activities, it generally belongs to the employer by default (and there are no moral or other rights provided in law for the creator of any computer-generated material if they work for someone else).

Under the provisions of the Act, software has the same protection as other written work. Strictly speaking, this level of protection covers the expression of an idea, rather than the idea itself. However, the two concepts are not mutually exclusive; in the case of software, the expression of an idea in code is what gives it an effect. Moreover, it is not only lines of code that can be protected – tables and compilations are specifically included in the scope of the Act, and even diagrams can also count as original artistic works.

As a type of property right, copyright can be fully or partially assigned (i.e. sold) to another party. It can even be assigned before it has been recorded, creating an entitlement to work which has not yet been created. While this practice is most familiar in the context of book advances, it could prove equally applicable to software.

Copyright infringement

A copyright owner whose copyright has been infringed has a right to damages, and can take out an injunction to prevent further breaches. Under the Act, a copyright infringement by a company that occurs with the consent or connivance of a director or manager of a business can also make them personally liable for damages.

However, if the infringing party did not know, and had no reason to believe, that copyright existed in a work then there is no entitlement to damages. This provides a vivid example of the importance of publicly asserting copyright in any original work, so that it falls clearly within the scope of the law (and another benefit of registering and enquiring with the new Inngot register).

In addition to a “fair use” exemption for purposes such as legitimate research, copyright is not deemed to have been infringed unless a substantial part of a work has been copied. However a part may be “substantial” because it represents the most original and distinctive aspect of a work – the calculation is not simply one of volume, and case law has established that even a very small part of an original work can prove to be substantial in this context.

One popular misconception is that copying needs to be literal (i.e. word for word) in order for there to be an infringement. This is not necessarily the case: copying can also be demonstrated where it is not literal, provided that the material in question is expressed in the work and is not merely an idea (for instance, the plot of a literary work can be protected by copyright as well as the words on the page which explain it).

This is an interesting precedent which demonstrates that software, as a “literary work”, could also enjoy copyright protection if the substance of its code is copied, even though the exact form of words may differ.

Inngot in the knowledge economy

Whether they are seeking to assert their rights to copyright material, or trying to ensure that they are not in breach of existing copyright, knowledge economy businesses have been disadvantaged by the lack of a trusted central repository for “unpublished” material (i.e. copyright material that is not on general release).

Inngot addresses this by providing a common language to describe innovative businesses and their IP, and by publishing it in a secure environment protected by copyright. In doing so, it provides the significant benefit that a business can assert its ownership of specific IP without the downside risks of detailed disclosure – which is a statutory requirement prior to receiving patent protection.

Inngot does not duplicate the statutory registration regimes for patents and trade marks. By contrast, it harnesses the flexibility and dynamism of copyright to enable software and service businesses to express what makes them special.

Visit www.inngot.com today to find out more..

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Is your Intellectual Property utilised?

Intellectual Property has too long been seen as a guard against imitators and should be better used forging partnerships and raising valuations, Sean Hargrave Discovers.

There are two major problems with the way the business world considers intellectual property (IP). Many companies see a patent, trademark or registered design mainly as a defensive measure and so will not look beyond these protective rights and consider what other IP the business might own.

Read the full article Here

Visit www.inngot.com today to find out more..

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Careful with that copyright

Just because copyright is automatic, it doesn’t mean you can let it look after itself

By Martin Brassell, CEO Inngot.com | Source & Publisher– Computerworld UK | View the article here

Much of the debate around copyright law is currently focused on its (in) ability to protect artists’ original works, at a time when their predominantly digital format makes rip-offs easier than ever. But copyright is also a fundamental right for software of all kinds, versatile and wide-ranging – and as well as ensuring your business benefits from it, you need to ensure you don’t fall foul of it either.

At first sight, it may seem incongruous that the law treats software in general as an “original literary work” – but in fact it’s very appropriate, considering that code is now often constructed using language that even non-programmers can recognise. And it covers more than you might think. Tables and compilations are covered under the relevant law (Part I of the Copyright, Designs and Patents Act 1988), as well as lines of computer code. Your basic rights as a copyright owner include copying (no surprise there), public sale, performance, broadcast and adaptation.

Interestingly, “adaptation” includes conversion into a different computer language or code – so it’s not acceptable for someone to “translate” your software and claim it as their own. And all these rights apply to the whole work, or any substantial part of it. Case law (for instance in the context of recorded music) suggests that a “substantial part” can be a pretty small element, if it is distinctive of the work as a whole.

  • International copyright development and the concept of fair use

Of course, no form of intellectual property protection really safeguards an idea, because copyright, patents and designs don’t prevent someone designing around your innovation (in fact it’s worse than that – a patent discloses exactly how you’ve created something, thereby making it easier for others to design around your work). But in software, more than any other creative domain, it can be perhaps argued there is no longer a clear distinction between the expression of an idea and the idea itself.

A great benefit of copyright is that it is very long-lasting. In the case of software, the clock starts ticking when the code is first written, and the alarm doesn’t go off for up to 50 years, so your market opportunity will have run out long before your protection does. Best of all, the rights exist automatically in a work once it is first “recorded” – there’s no need for statutory registration in order to get legal protection.

However, it is very important to draw attention to your copyright at every opportunity, and not just to put people off from copying you. You need to preserve all your rights, including damages and injunctive relief, in case someone infringes your work. If an offending party does not know, and has no reason to believe, that copyright exists, your right to damages is lost (this is where the absence of formal registration has its downsides, and is one of the areas we are seeking to remedy with Inngot.com).

The assertion process is fairly straightforward – the familiar © mark followed by your company name, the date and the phrase “All rights reserved” will normally suffice. Then you can sell, assign or license copyrighted software, in whole or in part, just like any other piece of personal property. To do that, of course, you have to tell people that it is available but more than anything else, you will need to be able to prove that you really own it. Straightforward, yes?

Not necessarily. If all development has been done in-house by employees of your business, there should be no issue. Under the Act, literary or artistic works made in the course of employment generally belong to the employer, in the absence of any agreement to the contrary, and computer-generated works don’t provide for a “moral right” to be identified as an author.

However, you will need to be confident that your developers haven’t “borrowed” chunks of code they’ve previously created for other people, or lifted them from any other application that is subject to someone else’s copyright. If they have, be aware that if any offence is committed by a company with the consent or connivance of a director, manager or company secretary, then you too can be found guilty of infringement.

The most common problem arises when a business wants to sell off work which has been done in whole or in part by subcontractors without providing for transfer of copyright ownership. This shouldn’t be difficult, since the law allows for copyright to be assigned even before any code has been written. The problem is more often a practical one; if some dispute arises over the quality or timeliness of the work done, the subcontractor has an incentive to hold the rights as hostage in order to extract payment.

Overall, though, the great appeal of copyright is that it is designed to protect goods that are meant to be sold. And in the case of digital media sales, it’s not the law that needs fixing: it’s the business model that’s broken.

Martin Brassell is CEO of Inngot.com, a new online marketplace that enables companies to publicise their IP, including copyright protected software, in a secure environment and use it to find customers, partners and funding.

Visit www.inngot.com today to find out more..

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Inngots profiling system explained – Intellectual Property

A video on intellectual property based around inngots recently new and improved Profiling system which helps identify and capture organisations innovations.

It can sometimes be hard to separate an organisations intellectual property from the rest of the company. Inngot’s profiling system helps separate your intangibles from your organisation; a crucial part to utilising and making the most of your IP.

Identify, explain and promote your intellectual property and intangible assets. Our web tools will help you capture and identify not only intellectual property like copyright, patents, designs and trade marks but also value producing intangibles like trade secrets, special processes, specialist technical know-how and brand reputation — over 40 different types in total. Up to 75% of a company’s value can be hidden within its intangible assets. Make the most of yours by using Inngot’s profiling tool today.

Check out our new video and let us know what you think. Subscribe to our blog to keep up to date with future posts.

Visit www.inngot.com today to find out more..

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