Call for Papers: Intangible Corporate IP Rights Assets: Finance and Governance for Sustainability Transitions

Professor Janice Denoncourt has sent us this call for papers for the LAWS MDPI journal.  Details are below. 

Call for submissions:  Special Edition of LAWS MDPI - sister journal of Sustainability MDPI 

Associate Professor Dr Janice Denoncourt will Guest Edit a special issue of LAWS MDPI (ISSN 2075-471X), an open access, sister journal of Sustainability MDPI), together with members of Nottingham Law School’s Intellectual Property Research Group.  LAWS MDPI is tracked for impact and indexed in SCOPUS.  

The Special Edition is entitled: Intangible Corporate Intellectual Property Rights Assets: Finance and Governance for Sustainability Transitions 

The Special Law Journal Issue is now live and open for submissions, see the link below.  The deadline for manuscripts is 31 August 2023.   

It is a common understanding that the magnitude of corporate ownership of intangible intellectual property rights (patents, trademarks, copyright, trade secrets and designs) has a pervasive role in the modern business environment.  Intellectual property rights (IPRs) are fundamental, yet intangible resources for explaining various aspects of economic value creation, critical for fostering resilience, growth and corporate longevity. However, varying degrees of knowledge and understanding of IPRs inhibit management and corporate communication between firms, their shareholders and other stakeholders in both the traditional financial accounts and narrative corporate reports.

In terms of corporate governance research reference points, a responsible business considers society, the economy and the environment whilst promoting the success of the firm.  Responsible businesses acknowledge shareholder primacy but are also driven by many other important, non-financial information (NFI) considerations such as the strategic and ethical use of their powerful IPR portfolios.    Sustainability and NFI are increasingly central to the decision-making of most business leaders, investors, regulators, politicians, consumers. Further, monopolistic IPRs have the potential to provide a significant long-term competitive advantage. Indeed, capital market participants progressively prioritize disclosure and transparency in this type of NFI. However, there is a surprising lack of material quantitative and qualitative information made available by companies, and even less about how corporate IPRs connect to sustainable transitions and responsible business.

This Special Issue will examine intangible management, corporate reporting, materiality and transparency with respect to the disclosure of non-financial narrative information (NFI) in annual reports and other grey literature.  The NFI will focus primarily on corporate intangible IPR assets (patents, trademarks, copyright, trade secrets and design) with the aim of developing a better understanding of how they support sustainable transition contexts.

From corporate annual reports to corporate websites, the dissemination of knowledge regarding corporate intangible assets is affected by various types of regulation, or the lack thereof. This may be legislation in the form of the Companies Act 2006 UK as amended (and its equivalents in other jurisdictions), intellectual property laws or accounting rules.  There is an evolving debate regarding the scope of corporate disclosure and non-financial information norms, i.e., what should mandatorily or voluntarily be made public.  Thus, corporate intangible asset reporting presents a complex area with little research-based evidence to guide company directors, preparers, accountants, auditors, lawyers and IP professionals.

This Special Issue brings together academic lawyers, business scholars and relevant IP and other professionals who share a common interest in the role of intangible IPRs in corporate governance and reporting. We are open to authors representing various methodological approaches, from traditional legal analysis to interdisciplinary and multidisciplinary approaches and methodologies.  We welcome authors presenting different national and regional perspectives.  Researchers are encouraged to submit articles that showcase evidence regarding how best to regulate corporate IPR asset disclosures and materiality, with a view to ensuring corporate accountability for statements and claims made and avoid greenwashing. We look forward to receiving your contributions.

Associate Professor Dr. Janice Denoncourt, Nottingham Law School, UK
Dr. Onyeka Nwoha, Nottingham Law School, UK
Guest Editors

Michelle Okyere, PhD Candidate, Nottingham Law School, UK
Guest Editor Assistant

Guest Post: Intellectual Property, Finance and Corporate Governance

We are pleased to publish this guest post by former IP Finance contributor and Senior Lecturer in Law, Dr. Janice Denoncourt, at the Nottingham Law School at the Nottingham Trent University. 

The emergence of IP rich companies is the new corporate governance challenge. This is because IP is largely invisible, not only in the financial accounts, but also more generally in corporate law theory and the legal framework.  The research in my new book Intellectual Property, Finance and Corporate Governance demonstrates why companies need to communicate more about how they manage corporate intellectual property (IP) rights portfolios and their strategy for delivering shareholder value. Depending on their business model and corporate objectives, companies add value via their corporate IP assets in different ways to achieve their goals.   In the modern era, all companies, large and small, have intellectual property (IP) rights, sometimes across multiple jurisdictions.  They are corporate IP owners.  At the same time, the shift to intangibles and IP assets as the major driver of value in business is clear and unstoppable.  Since the Global Financial Crisis ten years ago there has been a renewed interest in our current understanding of capitalism.  As a result, shareholders, business people, stakeholders and the public, seek more relevant, accurate information about IP-dependent business models and their impact on commercial value.    

Dr. Janice Denoncourt

In the aftermath of the Theranos 'misleading investors' scandal, this is an increasingly important modern corporate governance issue.  Theranos, Inc. is an American consumer healthcare technology company based in Palo Alto, California founded in 2003 by inventor and Managing Director Elizabeth Holmes. In 2018 Holmes was subject to civil charges by the United States Securities and Exchange Commission (SEC) for massive fraud in excess of $700 million USD for having repeatedly yet inaccurately assured shareholders and regulators that the company’s patented blood testing technology was revolutionary (see https://www.sec.gov/litigation/complaints/2018/comp-pr2018-41-theranos-holmes.pdf).  Theranos’ 200 plus US patent portfolio is public information via the United States Patent and Trademark Office (USPTO) portal and a significant corporate investment in IP. Holmes co-invented more than 270 of the company’s patented innovations. While patents do not equate to innovation or commercial success, they do act as business indicators of inventive activity as well as a commitment to protect the results of innovation.  Holmes, of all people, was well placed (if not best placed) to understand the capability of the blood testing technology. The alleged misconduct, namely misleading investors and government officials, has generated a new global regulatory discourse about what companies need to tell us about their IP.  Arguing that it needed 'to protect its IP' to excuse material omissions and misleading disclosures is not acceptable according to the SEC.  In the SEC’s press release on 14 March this year, Steven Peikin, Co-Director of the SEC’s Enforcement Division stated:

            Investors are entitled to nothing less than complete truth and candor from companies and their executives... The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.

Stephanie Avakian, Co-Director of the SEC’s Enforcement Division further confirmed:

            As a result of Holmes’ alleged fraudulent conduct, she is being stripped of control of the company she founded, is returning millions of shares to Theranos, and is barred from serving as an officer or director of a public company for 10 years...This package of remedies exemplifies our efforts to impose tailored and meaningful sanctions that directly address the unlawful behaviour charged and best remedies the harm done to shareholders.

Key corporate governance principles of transparency and disclosure are being more rigorously applied to corporate ownership of monopolistic IP rights that protect innovation and creativity.  In the US, SEC disclosure law Regulation S-K requires disclosure of the importance, duration and effect of all patents, trademarks, licences, franchises and concessions that a company holds.  The standard for 'material' corporate IP asset disclosures will continue to evolve in the US and other IP-rich jurisdictions.  The civil legal action brought by the SEC against Holmes is the catalyst highlighting a void in corporate practice.   IP-rich companies like Theranos will continue seeking corporate finance which falls under the corporate governance regulatory umbrella.   IP rich companies need to ensure they reflect on disclosure and transparency rules and take into account the growing magnitude of their corporate intangibles, IP assets and IP business models that potentially generate future wealth for their shareholders and potential investors.  

Closer to home, in 2017 the UK implemented the EU Non-Financial Disclosure Directive which requires large and listed companies to include additional disclosures of non-financial information in their annual reports, similar to the disclosure requirements in the Strategic Report.  The Non-Financial Reporting Regulations insert sections 414CA and 414CB into the Companies Act 2006, supplementing the existing strategic report requirements as set out in section 414C.  These new company law equirements potentially increase the reporting of non-financial information, better business and IP strategy reporting through the mandatory requirement to report the company’s business model.  This EU-wide reform highlights the growing importance of disclosure of non-financial information.

IP rights have evolved from being “a little pool to a big ocean” of corporate value and that corporate governance needs to respond to society’s rising expectations of directors and boards.  The astonishing lack of quantitative and qualitative public information about the growing magnitude of corporate IP assets makes it difficult to assess strategic value (“the IP value story”) and directors’ stewardship of those assets.  More relevant, accurate and 'joined up' corporate IP information (mostly known to internal management) is needed to triangulate intangibles financial data through cross verification with narrative disclosures and actual events.  The SEC stated that Theranos engaged in “elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business and financial performance.”  This is a new frontier in corporate governance thinking and practice. 

My research evaluates how corporate boards can ensure an appropriate level of transparency and make voluntary and mandatory ‘true and fair’ disclosures about a company’s corporate IP assets such as patents and trade secrets in traditional formats such as the accounts and the annual report.   The philosophies and principles that underpin debates on disclosure and transparency suggest that more 'open' disclosures about innovation, whilst preserving competitive advantage, are necessary so we have something to read, evaluate, react to and question. Countries including the US and the United Kingdom have mandatory obligations to report on gender balance, climate change and more, but not expressly corporate IP.  Patents, mini-case studies and an original business triage-style model for assessing corporate IP information, strategy and disclosures illustrate the gaps corporate governance theory needs to address.  Companies need to tell us how their corporate investment in R&D and IP rights contributes to the bottom line and regulators need to ensure boards of directors are accountable for IP management and strategy decisions, an important underside of the intangible economy.  

Intellectual Property, Finance and Corporate Governance contributes to the legal and economic literature for readers interested in what lies behind the headlines.  The foreword is written by Professor Nicolas Binctin, Universite of Poitiers. As for the future of the Silicon Valley biotech company Theranos, Inc., the company has since made hundreds of staff redundant to avert becoming insolvent.

Dr J Denoncourt, Nottingham Law School

IP & Sustainable Corporate Governance : Part 1 KingIV and IP

This is the first post of a series dealing with the role of IP in corporate governance in the wake of the launch of the KingIV report in South Africa by the Institute of Directors earlier this week. The conference had well over 1000 business leaders based in Gauteng and a stellar line-up of speakers.

This post explores the relationship between the KingIV Report on sustainable governance and IP, the next traverses a three step approach to IP management, followed by a case study illustrating the need for a deft touch on IP enforcement where brands cater for social good, and the power of measurement.

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Professor Mervyn King, the name that is inextricably linked to the KingIV report on sustainable governance, started off his presentation at the launch this week with a slide that I often use to start off my own presentation on intellectual property and innovation. I am sure he would be pretty bashful about using my favourite slide. That’s not true of course, but the fact that he used that particular slide, my slide, is.

 

 

He used it to illustrate, in his wise demeanour, that the value over time in companies has shifted from physical assets to intangible ones. This illustrated too, the evolution of the King reports (I-IV) and the shift in emphasis of governance over time from profits and outputs, to outcomes i.e. intangibles.

His particular example was the business of Ben & Jerrys which he introduced as a pioneer in using business as a force for good.  I am familiar with their ice cream and subsequently looked that business and came across a book published in 1994 entitled “Ben & Jerry’s: The Inside Scoop” which focusses on “how two real guys built a business with a social conscious and a sense of humour.”

1994 was of course also a critical date for South Africa and the wise Prof reflected upon that, stating that the evolution of King was is indeed an unintended and positive by-product of our grappling with our unique circumstances as a nation at that time, and since then. A nation with so much diversity and disparity. He explained that this is the reason why KingIV is also a pioneer, worldwide and why he sits on so many international boards, on governance. I am sure that there are many more reasons.

The use of that particular slide by me is significantly less profound but hopefully no less remarkable. You see the link between intangibles and intellectual property is in fact tangible. Intellectual property in its legal forms as patents, trade marks, designs, copyright and knowhow are the only legal way in which intangibles are protected and nurtured. Proper governance under KingIV will therefore mean proper IP governance.

So, despite the phrase “intellectual property” not featuring once in the entire KingIV report, adhering to KingIV naturally means adherence to sound policies on IP management and governance. The better this governance, the better care of the intangibles and potentially, the higher value of the business.  

It is worth mentioning here, that the ISO standard on brand evaluation published in 2010 (ISO10668), advocates a three step approach to brand evaluation. Brands are of course, the touch and feel of a business, that distinguish it from others and through which repeat customers are retained.

The Apple brand speaks to innovation and tremendous customer experience, whereas the Oakbay and Enron and now Eskom conjure up completely different images. Those brands also have three different brand values. Apple dominates the world, whereas Oakbay, Enron and sadly now Eskom do not.

 

The first step of the three step approach to brand valuation entails a thorough examination of the legal position of the brand i.e. legal governance of intellectual property used to protect a brand. The second and third steps, by the way, entail measuring the behavioural and financial aspects of a brand. I am no accountant but these are very King-like attributes to me.

An example of where a simple trade mark opposition had a direct effect on a listing value in an IPO was that of Skype. Their litigation (including routine oppositions) with BSkyB in Europe had to be disclosed in the listing documents as a material risk, directly affecting its value.

But this stage I am hoping that you are with me, that IP governance and KingIV outcome based reporting, and brand valuation are in fact, three peas in the same pod. I will go as far as to say so is innovation. The normal use of that slide is to draw parallels between IP governance in the creation of opportunities to innovate, create jobs and grow. Intellectual property therefore potentially underpins it all.

Next up, a three step approach to effective IP management.

 

Posted by Darren Olivier (editor of Afro-IP)