Book Review: Intellectual Property, Finance and Corporate Governance

Ruth Soetendorp (Professor Emerita, Centre for Intellectual Property Policy & Management, Bournemouth University) reviews Intellectual Property, Finance and Corporate Governance, by Janice Denoncourt (senior lecturer at Nottingham Trent University):

Intellectual Property, Finance and Corporate Governance is an authoritative and comprehensive text that examines the place of intellectual property (IP) in the context of corporate governance, and gives insightful suggestions as to how it might improve. It is aimed at company directors, and readers interested in the backstory to many corporate scandals. It will be welcomed by academics and researchers looking for rigorous, academic coverage of the complexities of managing corporate IP. It will prove essential reading for anyone teaching or researching corporate governance, finance or intellectual property. I am delighted that there is now a go-to text to improve my own understanding of finance and corporate governance when introducing students to these crucial aspects of IP management.

Dr Denoncourt acknowledges the paradox of IP being a main corporate asset that is consistently left out of corporate governance and financial analyses. She offers two significant reasons for this gap as the absence of corporate IP culture and management’s lack of IP awareness. These, combined with the absence of the value of IP from the balance sheet, conspire to ensure that corporate IP continues to remain a mystery.

She explores the implications of this status quo, and addresses the challenges it poses to company directors, shareholders and investors in chapters that cover the diverse aspects of IP that demand the attention of directors tasked with governance of corporations.

1. Corporate governance and IP assets

Presenting IP rights as part of corporate intangible assets means the author can engage with the reader who is unfamiliar with IP concepts, and extend their understanding. The use of case studies, and presentation of different IP players’ perspectives prepares the reader to make the most of what is to follow.

2. The IP and patent ecosystem

It is inevitable that the book focuses more on patents than the other main IP rights (trade marks, copyright, design rights). This is because patents are registered rights, which have a longer and more established history of being valued in the course of trade. For example, the European Patent Office developed IPScore patent valuation software to help companies evaluate and manage patents and development projects. Companies should be enabled to do the same with valuation of trade marks, as the sale in 1998 of Rowntree’s KitKat® trade mark to Nestlé, and evidence that Apple’s trade marks may be more valuable than its patents, suggest. Similarly, for media and software dependent high tech companies, understanding the valuation of copyright is crucial.

3. Bridging the gap between corporate finance and corporate governance

Different ways to finance the cost of innovation are explored, alongside the World Intellectual Property Organization’s IP Advantage database. It is described as a “valuable and unique resource which, through its 100 case studies, provides the opportunity to analyse how innovating SMEs obtain finance to commercialise their inventions”. The concern of lenders, uncertainty, risk and liquidity, are examined as is the role of corporate governance in supporting access to IP finance. The author identifies this as an area “ripe for further research”, in need of systemic change and “the development of a new global framework for IP finance”.

4. True and fair patent valuation

Obligations of a board to ensure that IP receives its true and fair valuation are set out, with examples of the models for valuation that have developed since Kelvin King described valuing IP as “a dark art”. The author identifies a fundamental problem as the invisibility to the financial world of value derived from a patented invention developed in-house (as opposed to having been acquired). She concludes that “current UK corporate and reporting laws which hinge on IAS 38 in respect of intangible assets do not go far enough”.

5. Transparency in corporate IP asset reporting

The UK and EU law regulatory requirements governing corporate reporting are fully covered, with particular attention paid to directors’ accountability for IP information disclosures. Conceptual differences are drawn between accounting presentation and corporate disclosure law.

6. International initiatives in corporate narrative IP asset disclosure

Comparisons are made between disclosure of corporate IP assets in four countries:Denmark, Germany, the United States and Japan. The author refers to the work of Prof Leif Edvinsson, who questions the usefulness of traditional reporting and concludes that “the real value of companies cannot be determined only by traditional accounting measures”.

7. Developing a normative practice for corporate narrative IP asset disclosures

In a chapter that looks forward to improvements that could be made to enhance the benefit IP asset reporting could provide for shareholders, lenders, investors and other stakeholders, GlaxoSmithKline plc provides a useful case study.

8. Triage-style “materiality evaluation model” for IP and patent disclosures

Answers to the question “what is material to IP disclosure?” include a business triage-style approach of including Essential, Desirable and Optional patent information. In addition, reports should include detail of non-financial qualitative information, and patent information that indirectly contributes to cash flow, and patent citations.

9. Reflections, conclusions and recommendations

Image: Enrique A Sanabria

The author is in full command of her subject, and an inspiring and innovative facilitator of IP learning. No surprise, then, that she promotes IP education as essential in the professional qualification of everyone responsible for corporate governance.  Researchers will be grateful that this under-researched topic receives such deep and wide-ranging treatment here. It should find a place in the library of every institution whose students’ successful careers will include involvement in establishing, running or advising commercial enterprises. Academics using this volume with students will appreciate the insightful use of case studies, e.g. The Waterman pen company, James Dyson’s empire and GlaxoSmithKline plc. They provide a welcome resource for sharing the more complex concepts discussed in the book with learners of all disciplines at all levels. The author concludes with the modest hope that her book will add to the body of knowledge related to corporate governance and IP and promote the success of innovation companies. I am sure that it will.

288 pages, 1st edition
Routledge, 2018 £115.00 (hardback) £18.50 (eBook)
Amazon £115 (hardback) £14.05 (Kindle)

This review was first published on The Law Teacher and re-posted with permission from Taylor & Francis.