ALTERNATIVE FINANCING FORMS
FOR ENTREPRENEURS AND INVESTORS
3 questions to smart minds

What role do intangible legal assets (IP) play in business valuation? What are the procedures for this?

For this 3 questions to U. Henkenborg

ARQIS Attor­neys at Law
Photo: U. Henken­borg | ARQIS Attor­neys at Law
7. August 2013

Intan­gi­ble assets often repre­sent a signi­fi­cant value for the owning company. Incre­asingly, these assets are being incor­po­ra­ted into corpo­rate finan­cing. Accor­din­gly, they also have an impact on mergers & acqui­si­ti­ons. In addi­tion to real estate and machi­nery, intan­gi­ble assets such as brands and patents can serve as valuable finan­cing instru­ments, e.g. as part of loan colla­te­ra­liza­tion, rating opti­miza­tion (Basel II) or sale-and-lease-back procedures.


For this 3 ques­ti­ons to Part­ner at ARQIS Attor­neys at Law in Munich

1. When a company seeks finan­cing, busi­ness valua­tion is the primary conside­ra­tion. The valua­tion of a company’s intellec­tual property (IP) is essen­tial in this context. How can IP be evalua­ted at all?

Quite funda­men­tally, the valua­tion of intan­gi­ble legal assets of a company is a much discus­sed and extre­mely complex topic. This is espe­ci­ally true in the area of brand valua­tion. The value of trade­marks depends, among other things, to a not incon­sidera­ble extent on the aware­ness of the trade­mark among the rele­vant public in the market. For the valua­tion of intan­gi­ble legal assets, a number of methods have been deve­lo­ped by audi­tors in the past accor­ding to which the value of diffe­rent intan­gi­ble assets can be deter­mi­ned. These methods are to be used on a case-by-case basis. The choice of method to be applied in a speci­fic case is also deter­mi­ned by the type of property rights and intan­gi­ble legal assets present in the company.

It is very diffi­cult to give a gene­ra­li­zed answer to the ques­tion of how IP is valued in a company. In this context, it is of utmost importance to conducta thorough IP due dili­genceas a first step in order to accu­ra­tely deter­mine the inven­tory of intellec­tual property rights in the company. This synop­sis of the inven­tory subse­quently enables the adequate choice of method for the subse­quent evalua­tion of the legal assets.

2. How to protect IP (intellec­tual property) when a company is seeking funding?

In the field of inven­ti­ons and other regis­tra­ble work results, it is highly advi­sa­ble to apply for property rights in the name of the company. By regis­tering as a property right, one achie­ves a mono­po­liza­tion of the respec­tive rights. For tech­ni­cal gauges that contain inno­va­tions compared to the current state of the art, the appli­ca­tion and regis­tra­tion as a patent or utility model is possi­ble. Other (crea­tive) work results can, depen­ding on their type, be given legal protec­tion by apply­ing for regis­tra­tion as a trade­mark or as an indus­trial design (design).

Natu­rally, it beco­mes more diffi­cult where work results are not regis­tra­ble. This applies in parti­cu­lar to copy­righ­ted works and tech­ni­cal know-how that does not reach the level of inven­tion requi­red for a patent appli­ca­tion. Here, protec­tion of intellec­tual property against third parties can usually only be effec­tively achie­ved through compre­hen­sive non-disclo­sure agree­ments. When draf­ting such non-disclo­sure agree­ments, parti­cu­lar care must be taken to provide for a rever­sal of the burden of proof in the event of unaut­ho­ri­zed disclo­sure of secret infor­ma­tion. Such a provi­sion impo­ses the obli­ga­tion on the contrac­ting party to prove, in the event of a dispute, that the infor­ma­tion it disse­mi­na­ted was alre­ady known to the public beforehand.

3. Nume­rous young Inter­net compa­nies, some of which are alre­ady estab­lished, such as mytheresa.com, Lieferhelden.de or zalando.com, are pure service provi­ders. Are IP rights protec­ted in such compa­nies? And if not, on what is the company’s valua­tion based?

Follo­wing a change in case law, the regis­tra­tion of trade­marks for retail services has been possi­ble for seve­ral years. It is only neces­sary to speci­fi­cally name the goods with which retail trade is carried out within the scope of the trade­mark appli­ca­tion. This was an important deve­lo­p­ment for young but estab­lished Inter­net compa­nies such as zalando or mythe­resa, which have inves­ted a lot of money — in some cases with exten­sive adver­ti­sing acti­vi­ties — in buil­ding up their brand. This allows you to obtain compre­hen­sive protec­tion for the trade­marks for the services offered.

For such compa­nies, it is usually diffi­cult to have their value-added content protec­ted by regis­tered rights. Crea­tive ideas, designs of online sites, busi­ness plans and finan­cing struc­tures are — as far as they are charac­te­ri­zed by a crea­tive perfor­mance — possi­bly protec­ted by copy­right, possi­bly also under aspects of know how protec­tion. In this respect, it must be asses­sed in each indi­vi­dual case whether copy­right or know-how protec­tion exists and how valuable the under­ly­ing ideas are. The mone­tary valua­tion of copy­rights and busi­ness concepts is ther­e­fore extre­mely diffi­cult and time-consuming.

3 a): Are there any new deve­lo­p­ments in IP? International?

Due to the outstan­ding importance of intellec­tual property rights in commer­cial tran­sac­tions, this area is constantly charac­te­ri­zed by new deve­lo­p­ments. The IP area in parti­cu­lar is subject to strong Euro­pean law influen­ces as part of the efforts to harmo­nize law in the Euro­pean Union.

At present, the discus­sions on the amend­ments to the Trade­mark Direc­tive as well as the funda­men­tal adop­tion of the Commu­nity patent are occu­py­ing the expert bodies. The amend­ments to the Trade­mark Direc­tive curr­ently inten­ded by the EU Commis­sion and still contro­ver­si­ally discus­sed are inten­ded to bring about even grea­ter harmo­niza­tion of natio­nal trade­mark law in the indi­vi­dual member states and thus further increase legal trans­pa­rency in this area. — In addi­tion, at the end of 2012, after years of wrang­ling in Brussels, the intro­duc­tion of the Commu­nity Patent was adopted for the EU. The future Commu­nity patent, like the Commu­nity trade­mark, is a single property right with uniform effect in the member states of the EU. Howe­ver, unlike the Commu­nity Trade Mark Regu­la­tion, which applies to all member states, Italy and Spain do not parti­ci­pate in the Commu­nity Patent system. Natio­nal patent appli­ca­ti­ons will still be requi­red in these countries.

Subscribe newsletter

Here you can read about the latest transactions, IPOs, private equity deals and venture capital investments, who has raised a new fund, how Buy & Build activities are going.

Get in touch

Contact us!
fyb [at] fyb.de