When clinical trial data is fudged; woe to the company or woe to the industry?

When I think of clinical test data, my attention is usually drawn to controversial Article 39.3 of

the TRIPS Agreement, which affords protection for confidential regulatory data in industries such as pharma and agrochemicals. Article 39.3 provides as follows:

“Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.”

However, the issue of trial data in the context of regulatory approval took on an entirely different meaning this week when it was announced, here, that a U.S. company, Hyperion Therapeutics, here, was cancelling its agreement to acquire the Israeli company Andromeda Biotech, here. Andromeda has been developing a Type1 (juvenile) diabetes drug (DiaPep 277).The value of the deal, which was announced a half-year ago, would have reached $570 million plus additional payments of royalties. As a part of the arrangement, Hyperion also undertook to fund Andromeda’s continued R&D activities. The primary beneficiary of the deal was Clal Biotechnology Industries Ltd, the controlling shareholder of the company. A first payment of $20 million dollars in cash and shares had already been made.

What was the reason for the cancellation of the transaction? As reported by Globes, a leading Israeli business newspaper, Hyperion advised that it had “uncovered evidence” that Andromeda employees had falsified certain clinical trials of the drug. More particularly, it is reported that Andromeda conspired

“with a third-party biostatistics firm in Israel to improperly receive un-blinded DIA-AID 1 trial data and to use such data in order to manipulate the analyses to obtain a favorable result.’ Hyperion further stated that ‘[a]ll of these acts were concealed from Hyperion and others. ”

Shares of both Hyperion and Clal Biotechnology nosedived in the aftermath of the disclosure.

What is both interesting and curious is that questions had already been raised about both the value of the transaction and the propriety of the company’s trial data. As for the price tag of the acquisition, Globes observed that “there were some who raised their eyebrows and wondered why the product was being sold at a relatively low price, earlier than expected, to a relatively unknown partner.” In light of recent developments, as observed by Globes,” the question arises whether other companies ran away from the deal after seeing Andromeda’s data.” Indeed, it is reported that rumors had already circulated in the past regarding what was termed “inconsistencies” between previously obtained trial results.

An interesting comment in this respect was reportedly made, here, by Mr Mori Arkin, a well-known investor, who often teams up with Clal Biotechnologies in investing in the biotech sector. Arkin is quoted as saying:

“There is no need for us to rebuke ourselves too much – neither the Israeli company nor the biomedical industry as a whole. The acquiring company, Hyperion, is not a large company. The data had these weaknesses from the beginning, and large companies probably realized it. If Hyperion overlooked weak points in the data, it’s their mistake, not that of the other side, and it’s not nice to make such unilateral accusations. It’s the court’s job to do that after a claim, and it’s not acceptable to lash out and damage the reputation of various parties.”

Arkin’s comments are particularly intriguing because they seem to place the burden for the failure to understand the problems with the trial data, at least in the context of the acquisition, on the acquiring party. In particular, it is suggested that the acquiring company (as a “small” company) did not carry out “proper” due diligence, in contrast with other, unnamed larger companies, which would likely have picked up on the “weak points of the data.” If Arkin is correct that size so matters in an acquirer’s ability to investigate a biotech target properly , especially when questionable data are at issue, this is a matter of material concern, giving new meaning to the term “caveat emptor” and raising a red flag on the ability of “smaller” biotech companies to carry out proper diligence in connection with acquisition activity.

Alternatively, however, perhaps what is taking place is an attempt by a major investor in the field to deal with a threat to the broader perception of the integrity of the entire industry, at least within the Israeli content. What better way to do confront this challenge (and presumably protect one's investments in the area) than to suggest that culpability lies not with the company and the ecosystem of the industry but with the acquiring company. The first class action suit has already been filed against Clal. Clearly, though, sorting out what really happened has only begun.

Bold Proposal on U.S. Patent Reform: Eliminate the U.S. Court of Appeals for the Federal Circuit

The Cato Institute is "a public policy research organization — a think tank – dedicated to the principles of individual liberty, limited government, free markets and peace," which operates the Cato Unbound forum, an online journal.  This month's journal features a discussion titled, "Patents and Public Choice."  The feature essay is authored by Eli Dourado, a research fellow at the Mercatus Center at George Mason University, and critically tackles the U.S. patent system.  There is one responding essay by Professor Zorina Khan (I recently highlighted one of her papers concerning patent trolls, here).  Forthcoming essays will be published by Professor John F. Duffy of the University of Virginia Law School and Professor Christina Mulligan of the Brooklyn Law School.  Mr. Dourado's essay is titled, "The True Story of How the Patent Bar Captured a Court and Shrank the Intellectual Commons."  The essay essentially argues that the U.S. Court of Appeals for the Federal Circuit, the supposedly specialist patent court in the U.S. with nationwide jurisdiction over patent appeals from U.S. district courts and jurisdiction over patent appeals from the United States Patent and Trademark Office, has been captured by the patent bar and has continuously expanded patent eligible subject matter to the detriment of innovation.  He points to software patents as a problem, including a discussion of the tragedy of the anticommons, as well as patent trolls.  Despite the U.S. Supreme Court's attempt to reign in software patents, he believes the Federal Circuit will continue to evade Supreme Court precedent (maybe true, but the composition of the court has been changing).  Here are his proposals for reform:

It would be better instead simply to abolish the Federal Circuit and return to the pre-1982 system, in which patents received no special treatment in appeals. This leaves open the possibility of circuit splits, which the creation of the Federal Circuit was designed to mitigate, but there are worse problems than circuit splits, and we now have them.

Another helpful reform would be for Congress to limit the scope of patentable subject matter via statute. New Zealand has done just that, declaring that software is “not an invention” to get around WTO obligations to respect intellectual property. Congress should do the same with respect to both software and business methods.

 . . . Current legislation in Congress addresses this class of [patent troll] problem[s] by mandating disclosures, shifting fees in the case of spurious lawsuits, and enabling a review of the patent’s validity before a trial commences.

What matters for prosperity is not just property rights in the abstract, but good property-defining institutions. Without reform, our patent system will continue to favor special interests and forestall economic growth.

I am not so convinced that returning to the uncertainty and splits of jurisdiction existing before the creation of the Federal Circuit and “races to the courthouse” is going to put us in a better position.  And, the party advocating for change and carrying the burden of proof may need to make a stronger case for reform given the relative success of the biotechnology and information technology industries in the U.S.   Professor Khan offers an incisive rebuttal, here.  This blog has featured posts challenging the assertion that patents in the information and technology communications space are inhibiting innovation, here,  [Although I do wonder about price.] and describing counter-arguments to proposals to reduce the Federal Circuit's influence over patent law, here.  We look forward to Professor Duffy and Professor Mulligan's essays.  [Hat Tip to Professor Dennis Crouch's Patently-Obvious Blog for a lead to the essay.]  

IP markets and enabling information ecosystems: a report -- and a comment

Via our friend Jackie Maguire (CEO, Coller IP, right) comes the following information regarding a new report published this week from innovation agency Golant Media Ventures (GMV) and commissioned by the UK's Intellectual Property Office (IPO).  The report, ‘IP Markets and Enabling Information Ecosystems’ (here) examines how to make IP more easily traded and financed, looking at the key characteristics of IP markets and the information that businesses need if they are to raise finance against and trade in their intangible assets -- this being a follow-up to last year's 'Banking on IP?' report (here, with active response here).   Jackie, one of the experts present at the workshop formed to contribute to the report and also a contributor to the European Commission’s Expert Group on Intellectual Property Valuation (here) says:

“Section 7.6 of the report stresses the need for valuation of intellectual property to be consistent. It states that common valuation methods and consistent and defensible ratings of factors such as will contribute to confidence in evaluating intangible assets.

We agree with these principles, and would add that as IP is, by its nature, innovative and therefore different, each case for valuation requires investigation, rather than a valuation being calculated automatically. IP valuation of a company’s assets is an opinion, at a particular point in time, for a given purpose. Although an informed layman might proffer a good guess, based on history, it is important to note that in the same way that one cannot automate the judgement on a law suit, one cannot automate judgement on an independent IP valuation. There are many factors involved and evidence can have a large impact.

The valuation of IP assets is indeed complicated by the fact that no two IP assets are the same. This is inherently the case when IP is protected by rights such as patents and trademarks, where a requisite for obtaining such rights is that the IP does not already exist.

The uniqueness of IP makes comparisons with other IP difficult, thereby limiting the usefulness of comparison-based pricing. As a result, valuations are often based on assumptions about the IP asset’s future use, what important milestones will be met and what management decisions will be taken.

The use of valuation methods will involve assumptions and judgement by the valuer. All assumptions are derived from and justified based on the bespoke, rigorous analysis of the IP within its business context, together with its importance versus other business drivers, broader industry and competitor constraints and dynamics and economic outlook.”

The main recommendations of the report are that a combined public and private sector effort should be made

* to build on existing solutions such as the Copyright Hub, the Anti-Copying in Design (ACID) Marketplace and similar for patents at home and overseas;

* to develop a framework of standards for how information about intangibles (including their valuation, ownership and use) can be shared by those working across all parts of the private and public sector;

* to bring together the private, public and not-for-profit sectors to develop and trial publicly accessible information services to help build IP markets – focusing initially on accurately identifying who has rights in what;

* to encourage and enable the development of research services which support decision making by businesses, investors and other funders around the sale, purchase, insurance, licensing and financing of intangible assets;

* to identify what information is needed by providers of products (for example, insurances) which reduce the risks associated with intangible assets to the point where funders will treat them as collateral for finance.

How the public and private sector efforts will be brought together is not yet clear.

This blogger would add that the identification and creation of the information discussed here is a necessary condition for the establishment of IP markets, but it is not a sufficient condition unless it actually possesses an enabling capacity.  This is also a function of two things: its availability to people who need it when they need it, and the extent to which it can be confidently appreciated and understood once it is in the hands of its recipient. This is a subject to which IP Finance will return in due course.

Intellectual Property and Venture Capital: The Secrets to building Innovation Ecosystems: a special report

From our good friend Janice Denoncourt (Nottingham Law School) comes this report, specially commissioned by IP Finance, on a fascinating event which we all wish we'd attended.  Janice writes:

First Ever Symposium on IP and Venture Capital? 

Research on entrepreneurship, innovation and governments’ attempts to stimulate economic growth was the concept of the Intellectual Property and Venture Capital: The Secrets to building Innovation Ecosystems.  The international symposium was organised by Professor Toshiyuko Kono of Kyushu University and held at the prestigious University of Tokyo on 4-5 September 2014 (details here)   

The Symposium was divided into several sessions: (1) IP and Finance in Innovation Ecosystems; (2) Venture Capital and IPOs; (3) Does Law Matter?; (4) International and Cross-Border Developments; (5) Future Policy Directions and finally, (6) Theory meets Practice.  

Speakers from around the world comprising a mix of successful venture capitalists, academic and practising lawyers and even an entrepreneurial journalist, tackled questions concerning the structure and dynamics of ‘successful’ innovation in Silicon Valley, Europe and Japan.  The integral role of IP in value creation and how it relates to VC financing of promising start ups and early growth phase small and medium-sized enterprises (SMEs) was considered.

The key note speech was delivered by Hironori Higashide, Professor of Entrepreneurship at Waseda Business School.  He presented the results of his empirical research on entrepreneurs’ multiple intelligences and behaviours and their impact on the performance rate of their ventures.   The behaviour of ‘partiers’ outperformed the musicians, the philosophers and the introverts.  

Professor Shinto Teramoto of Kyushu University presented his research concluding that entrepreneurs should accumulate as many IP rights as possible in order to maintain the discretion to choose the most suitable commercialization strategy.  

Steve Seuntjens, a successful venture capitalist with over 20 years of global experience in building and developing new businesses (see www.phsfund.com) clarified that in practice, financial resources are nevertheless limited, despite seemingly significant VC investment and leads  to the business focusing on acquiring those IP rights that are most likely to generate a financial return. 

James Mawson, founder and Editor-in-Chief of GlobalCorporate Venturing,  a monthly magazine and website containing news and data for the in-house VC units of business agreed that while VC finance is important it is only one  of a variety of methods of finance.  In his view, VC finance is limited by the fact that it primarily serves the capitalist interests of VCs over the public’s interest in supporting innovation.  In other words, what VCs choose to invest in may not take into account the public interest and ultimately may limit choice in the innovation ecosystem.  He called for the government to take a more active role in scrutinising and shaping the activities of VCs to increase the likelihood aligning VC financial interests to innovation policy.      

There was a broad consensus that while IP rights are a resource that appeals to venture capitalists, a variety of finance options area needed by start-ups and SMEs need given the decline in VC investment since the onset of the financial crisis in 2008.    Improving access to additional public and private capital is where the government, IP debt finance and secured transactions law have roles to play.   Further highlights from the Symposium proceedings are summarised below. 

Erik Vermeulen, Professor of Business and Financial Law at Tilburg University and Senior Counsel Corporate of Philips International B.V. in the Netherlands confirmed that presently there are fewer markets for initial public offerings (IPOs) as companies are able to stay private for longer periods of time.   

Takashi Shimizu of the University of Tokyo supported this view explaining that in many jurisdictions, especially in Asia, the IPO market is small and immature. 

Shiaw Jia Eyo of Hosei University added that the amount of investment by Japanese VCs is very small compared to the US and Europe.  Accordingly, companies are increasingly obtaining finance outside the VC arena.  However, transferring valuable VC experience of how to deal with IP to other finance platforms will be a key skill in the modern innovation ecosystem.  

Ryu Kojima of Kyushu University emphasized the significance of using IP as a financial instrument.    

Shinji Hino, founder and CEO of Patent Finance Consulting Inc., outlined his experience of successful patent-backed debt finance transactions with Mitsubishi Bank, the Development Bank of Japan and Fukuoka Bank. According to Hino, as the Japanese economy moves out of recession and begins to expand, IP finance is returning to pre-2008 levels although lenders are insisting on lower loan to value (LTV) rates of circa 30% coupled with tighter annual monitoring of the secured IP assets.   

Janice Denoncourt of Nottingham Law School spoke on ‘IP debt finance in the EU and Beyond: Does law matter?’  She argued that increased voluntary corporate disclosure relating to IP assets by start-ups and SMEs should assist to facilitate credit appraisal and potentially favourable lending decisions, reduce transaction costs and support annual IP asset monitoring by banks, opening up an existing but underused path to liquidity for entrepreneurs, start-ups and SMEs. 

Spyridon Bazinas, a co-author of UNCITRAL’s Legislative Guide on Secured Transactions Supplement on Security Rights in Intellectual Property (2010) reiterated the importance of IP financing on the basis that IP has an economic value and using IP as collateral will lead to start ups and SMEs being offered better credit terms than unsecured credit.   He explained that there are various types of IP financing practice depending on the type of IP asset involved.  For example, lending practice may differ as between the use of patents to secure pharmaceutical borrowing, movie or software financing or trade mark inventory financing.  The key objectives of IP financing are: (1) to allow IP owners to use their IP rights as security for credit to the extent permitted under IP law; and (2) allow secured creditors to obtain a security interest in an IP right, determine its priority and enforce it within the limits of IP law.  The IP Supplement clarifies the position whereby if secured transactions and IP law apply to the same transaction and lead to different results, then IP law prevails.  This increases legal certainty for all actors within the IP finance transaction, supporting confidence in this method of finance.    

Professor Neil Cohen of Brooklyn University reminded us that lowering legal risk should also lower the cost of credit.  However, he noted that the IP Supplement is not law although it is a very good model for states to implement, with one exception.   He disagreed with the subordination of secured transactions law to IP law as set out in section 4(b) of the IP Supplement on the basis that IP is not sufficiently different to justify materially different rules with respect to secured transactions.    

Stefania Bariatti, Professor of Private International Law at the University of Milan, introduced the European dimension on security interests in IP and Unitary IP rights.  She concluded that where the proprietor of the IP right is not the same as the guarantor (eg if the security interest is created by a licence) the security interest and the substance of the Unitary IP right might be governed by different national laws.   This is an example of as yet unresolved legal uncertainty within the EU with respect to security interests.   

Professor Orly Lobel, one of the sharpest minds in research at the University of San Diego and author of Talent Wants to be Free (Yale University Press, 2013) submitted that the reach of IP has been extended under the radar to include the new cognitive property ie human capital.   She pointed out that non-compete clauses in employment agreements aimed at protecting companies’ IP and preventing misappropriation negatively impact on regional brain gain and ultimately entrepreneurship within the innovation ecosystem.  

Professor Toshiyuki Kono of Kyushu University, the conference organizer and final speaker, spoke on future policy directions to support the innovation ecosystem in the post-recession economy.  He advocated a triple helix solution whereby governments are set to play a new role in encouraging and funding innovation and entrepreneurship.  

In conclusion, the first ever Symposium on IP and VC was designed to identify and explore opportunities for and experiences in using IP as a business and financial tool, as well as current research in the field of IP finance.  Potential improvements to the innovation ecosystem from differing viewpoints and areas of expertise were shared and debated with the aim of informing future IP finance policy.  While the views presented at the Symposium reflect the opinions of the individual participants and are not necessarily the views of all conference participants, there is little doubt that financial innovation will continue to play a critical role in shaping successful IP dependent start ups and SMEs. 

"Patents and value" dialogue: more input from the "value" side needed!

The text that appears below was posted last month, in the height of the summer break, announcing a forthcoming event that the IP Finance blog is sharing with the IPKat weblog.  To date we have a very creditable 35 people attending -- but there's scope for more.  Slightly disappointingly, the preponderant majority of registrants so far have been drawn from intellectual property practice rather than from the financial or business sectors.  It is hoped that this balance is redressed when readers of the IP Finance blog commit themselves to signing up.  Details are as follows:

"Patents and Value: a dialogue" is the title of a chaired discussion between IP Finance and IPKat blogger, scholar and legal practitioner Neil J. Wilkof with Intellectual Asset Management (IAM) editor and respected IP commentator Joff Wild. This event, which is co-sponsored by the IPKat weblog, is kindly hosted in the Holborn, London office of patent and trade mark attorneys and litigators EIP. It takes place on Tuesday, 16 September 2014, from 5.30 pm to 6.45 pm (with registration at 5 pm), followed by the usual refreshments. 

Neil and Joff will be discussing contemporary issues involving the value of individual patents and patent portfolios, such as "how do market forces shape corporate strategy for buying, licensing or litigating patents -- and what part does patent litigation play in fixing the price of patents?"  Jeremy Phillips will be in the chair.

Join us for for some fascinating insights from two well-informed and critical contributors to the current intellectual property scene. To find the venue, just click here.  As usual, there is no charge for registration, but anyone who signs up but doesn't attend will be entered on the IPKat's Naughty Book. To register, email theipkat@gmail.com with the subject line "Neil and Joff".

Background reading:

• blogposts from Neil here and here
• blogpost from Joff here

California Senate Passes Film Production Tax Credits Bill

This blog recently discussed California Assembly Bill 1839 concerning film production tax credits, here.  The bill is designed to incentivize the production of films (and create jobs) in California.  As noted in the previous post, the Milken Institute provided numerous recommendations modifying California's current film tax credit system. Assembly Bill 1839 followed many of the recommendations of the Milken Institute, but appeared to retain the criticized lottery system for determining who would benefit from the tax credits.  As discussed in the Los Angeles Times, after negotiations with Governor Brown, the Senate passed a version of the Bill that decreased the total amount of tax credits from $400 million a year to $330 million a year.  This still more than triples the amount of the tax credit from the current film tax credit system.  Moreover, the lottery system is also expressly abandoned for a system which allocates the tax credits based on number of jobs generated by the project.  This seems to heavily favor blockbuster, big budget movies.  However, the Assembly Bill does expressly allocate some funding for independent films. 

There is little doubt that Governor Brown will sign the Bill.  The current version appears to be a done deal: $330 million a year for tax credits, blockbuster movies are included and the lottery system is dead.  As to the total amount of tax credits, this is still less than the $420 million amount of film tax credits provided by New York State. 

Guest post: new frontiers in intangible asset financing

IP Finance is delighted to welcome the following guest post from Aritra Chatterjee.  Aritra's themes are a new initiative in Bermuda insurance markets (there are a number of highly rated insurers who have signed up) that should take intangible asset (IA) financing into mainstream corporate financing, and how IP managers can fully leverage their IP assets. An actuary with Hannover Re (Bermuda) and an Associate of the Casualty Actuarial Society (CAS), Aritra has a decade of experience in the field.  He writes:

New frontiers in intangible asset financing

It is not new that intangible assets represent 80% of the economy or that the majority of such assets do not appear on the corporate balance sheet. Financing on such assets is more likely to be handled by specialized PE and hedge funds, since broader financial markets like banks are not interested in providing finance on such assets as a standalone intangible. Part of the problem is the lack of valuation standards and the esoteric nature of these assets – there can be massively different valuations for the same IA portfolio and blind reliance on such models is not recommended. Besides, there is little by the way of balance sheet validation: this does not help either. Without a “base” value, intangibles are often included in the collateral package, backing a debt; valuation may be deeply discounted and is often not valued at all. So here lies the impasse: there is no industry standard for IA valuation -- without which financial markets will not get serious about intangible asset financing.

An insurance solution

A possible solution lies with the insurance industry. An insurance wrap on the intangible asset valuation creates a base value, which can then act as a facilitator for various financial structures. Insurance mirrors the structure of a put option and pays out a pre-determined value for the IA in the event of bankruptcy of the borrower and assignment of IA to the insurer. In certain cases insurers may accept senior rights to IA instead of an assignment and a call option can be attached to the policy by which the financier may buy it back at par in order to reorganize post-bankruptcy filing. Although the product was initially designed for debt/loan markets, in a sense it only provides a stop loss limit and a viable exit market for IA at bankruptcy and obtaining such insurance can be valuable for equity/hybrid financing as long as the financier has senior rights to the insured collateral (sale-lease back structures can be modified to address the requirements).

The equation for the insurer is different from rest of the pack with regard to IA valuation and underwriting. The insurer has a more cushioned position in underwriting and is less exposed to risk than is a typical financier. The first trigger is the need to file a bankruptcy followed by the second where the financier needs to assign IA rights to the insurer. Insurance underwriting in this context will be a combination of credit underwriting and IA selection, due diligence and valuation. Again, the insurer needs to be sufficiently conservative to be able to salvage its claim payment if all the triggers get blown. Insuring core IP will reduce the frequency of final claims.

Deal example

Company X is a well-established company with highly valuable patents and trade marks and a stable credit profile. In addition to PP&E, inventory and accounts receivable, X is seeking a loan facility using its IA. However, the banks are only offering unsecured rates and a smaller facility for its IA. X can add an insurance wrap on its IA which transforms it into a “hard” asset, similar to its PP&E, and thereby deriving better terms on its facility. If X files for bankruptcy and the bank wants to exit its position, it transfers the covered IA (or IA facility with senior rights to covered IA) to the insurer and gets paid up to the insured limits.

The deal enables X to reduce its borrowing cost, increase borrowing base and, if its intangibles were undervalued in its embedded value (EV) calculations, then X experiences an improvement in its EV.

Was it tried before?

Intangible asset insurance was tried briefly in the pre-financial crisis era. A specialized insurer called IPI offered similar insurance solutions and wrote a handful of middle market borrowers in mid-2000s, notably BCBG Max-Azria and ATD Corporation. However IPI is no longer operational and it is not clear why it closed down.

To make this a sustainable product that makes a difference to the banks and corporations, the insurer must possess a high financial strength rating of at least AA- (S&P) and must be a multiline insurer to provide capital relief to the banks. IPI was more a mono-liner with much smaller balance sheet strength, which might have caused its demise; nevertheless it paved the way for future innovation by larger insurers.

While the structure was applied on IA loans, it can be extended to securitization/bond issuances, and even pure equity financing can be structured around the insurance value.

Value added

There are numerous benefits to both financiers and IA owner for accessing insurance markets.

Financiers:

• New source of deal making (loan, securitization, hybrid and equity)
• Banks may obtain a Tier 1 capital relief depending on difference between borrower’s credit rating and insurer’s credit rating
• Increase deal size for new deals with significant intangibles
• Higher recovery and viable exit market for intangibles at bankruptcy

IA owner:

• New capital source based on an invisible asset – increases borrowing base
• May improve Enterprise value by financing on an invisible asset
• Better terms and larger size on deals
• Continued access to its most valued asset

Market dynamics

At present there are only a handful of financial institutions lending against IA. The only bank which lends against IP, and which again is more of a venture debt than a typical bank, is Silicon Valley Bank (SVB). There are a few programmes recently launched in the UK market and again for SME lending, one such programme being from Santander. In the PE space, Fortress Investment Group lends against patents and a few hedge funds finance patent lawsuits. 

Apart from this, there is limited participation from the market in IA financing. All of the above target SMEs and start-ups. However IA is rarely considered for larger deals where money central banks participate. IA financing is still considered a “niche” market and, unless the money central banks participate in this market, IA financing will still be a peripheral financing vehicle accessed either as a vehicle of last resort or for start-up funding.

What does it take?

With insurance market participation this might change and it is possible that larger money central banks will start to consider IA as an additional facility in their deal-making. Key to the whole equation will be insurance pricing and a meaningful valuation which is neither too low to make a difference nor too high that insurers face a significant loss.

Recently a number of large multi-line insurers and reinsurers S&P A rated and above have been exploring opportunities in the IA lending space for larger more credible borrowers. Up to $200 million of insurance capacity should be available per deal for larger operating entities with significant intangibles. A few money central banks are in advanced talks with the insurers to extend loans against IA using insurance structures as defined. What comes out we are yet to see: definitely a positive for IA financing.

Links to further reading here, here and here

Please feel free to comment on this piece. Aritra welcomes discussion, and so do we.

Singapore's IP ValueLab: ambitious, but can it deliver?

Singapore's IP Week @ SG 2014 event is seeking to showcase the city state as a model base for cultivating and developing IP projects.  A media release issued from that event this morning focuses on, among other things, an extremely ambitious project, the IP ValueLab. According to the relevant extract from this release, which summarises a keynote announcement made by Mr K. Shanmugam, Minister for Foreign Affairs and Law:

IP ValueLab

5. Developed as a subsidiary of the Intellectual Property Office of Singapore (IPOS), the IP ValueLab will promote and develop IP management and strategy, IP commercialisation and monetisation, and IP valuation in Singapore [these being skills that are not normally found among technically qualified examiners and administrative staff that make up the bulk of most IP offices' labour force -- and for which IPOS will presumably have to compete with the private sector when it comes to recruitment and salaries].

6. For companies and investors, the IP ValueLab will provide them valuation advice to monetise their IP assets [this involves a bit of a shift in focus too: national IP offices are generally preoccupied with the point at which concepts are turned into rights, whereas valuation usually kicks in at a later point in time, where IP rights are protecting products and processes in the marketplace and there is more of a clue as to how the valuation can proceed]. The lab will enable companies to put IP at the core of their business strategy, providing services to help them better understand and tap on IP in their growth and expansion plans.

7. For practitioners and academics, the IP ValueLab will provide a platform for them to collaborate on research and provide thought leadership in IP valuation methodologies [and not before time!] and best practices, with a focus on generating industry-relevant and practicable insights. This will raise the level of confidence and trust in IP transactions, and support and stimulate international transactions. The lab will also deliver training and accreditation to raise competency within the industry.

8. To deliver on its goals, the IP ValueLab will partner the Singapore Accountancy Commission (SAC) to develop and promote IP valuation guidelines, methodologies and best practices, as well as to develop curriculum for the training of IP valuers. SAC will also be represented in the advisory panel of the IP ValueLab, to provide strategic guidance [given that Singapore does not operate in a vacuum but trades with the rest of the world, it will be important to ensure also that its valuation methodologies are transparent and intelligible to businesses and entrepreneurs based in its trading partners; this will no doubt require some marketing and advocacy skills]. ...

How serious is the IPOS about delivering on all of this? Pretty serious, if you take a look at some of the vacancies which it is currently seeking to fill.  IP Finance will keep an eye on how things progress.

IP ValueLab fact-sheet: read it here or download it here

Ireland supports Commission review of patent boxes

Is the patent box an unfair
way of saving on tax payments?

An article by Ciarán Hancock, which appears in The Irish Times, reverts to the vexed question of Ireland and the Patent Box. Readers of this weblog will recall that, in July, this blogger listed Ireland as a country that already had a patent box tax break, only to be told by a reader that the Emerald Isle had scrapped its patent box regime back in 2010.  Well, the topic appears to be back on the table again, this time within a wide European Union context, in the hope that some sort of consistency of approach can be achieved.  The article, in relevant part, reads as follows:

Review of patent tax regimes in EU has Irish support

Ireland supports the EU review of all patent box regimes – under which certain member states offer tax breaks for intellectual property – and has decided to take a “wait-and-see approach” on the issue until guidance is provided by the European Commission. This has emerged from briefing documents provided recently by the Department of Finance to its newly-appointed Minister of State Simon Harris.

A patent box is a special tax regime offering a rate that is lower than a country’s standard corporation tax rate. Questions have been raised as to whether it breaches state aid rules, with the UK’s scheme being closely scrutinised by the commission.

The Ecofin council of EU finance ministers recently requested that the commission carry out an assessment of all patent boxes by the end of 2014. It is examining schemes in the UK, Belgium, Cyprus, Spain, France, Hungary, Luxembourg, Malta, the Netherlands and Portugal.

The briefing note to Mr Harris states that 

“Ireland is supportive of the . . . decision to look at patent boxes. There has been a lack of clarity around the issue of patent boxes for some time, and therefore we believe there should be a thorough analysis of these measures. In particular, given the persistent calls on Ireland to introduce a patent box, it would be helpful to get guidance from the commission. Ireland can adopt a ‘wait-and-see’ approach on this issue.”

Harmful competition

The briefing note adds some EU countries consider the patent box to be a “form of harmful tax competition, with Germany’s finance minister Wolfgang Schäuble making comments to the effect that they are contrary to the European spirit”. ...

Our thanks go to Chris Torrero, for spotting this link.