The importance of IP in disputes and commercial activity

Intellectual property (IP) is inevitably involved in most commercial matters, both contentious and non-contentious. The pervasiveness of IP is hard to escape but it is often not considered fully. It covers many different forms, from specifics such as trade marks, patents, and copyright to more remote concepts such as lost profits. IP also constitutes the majority of value in most businesses. For instance, from acquisitions made the by the FTSE 500 last year, 80% of the value was attributed to intangible assets - $178bn.

IP can be extremely valuable. As it is so pervasive and valuable it is almost impossible for IP to remain unaffected by business activities, either positively or negatively. But how to identify and quantify this impact or damage? IP value is often overlooked by the legal community. Lawyers often don’t necessarily need to know that IP has been affected and if they do, it might not be relevant or quantifiable. In this context, quantifying the ‘unquantifiable’ is generally possible. Specialists exist who do this. Even if quantification is impossible, or highly subjective, some analysis is better than none.

Quantifying IP is useful for lawyers for a number of reasons. In acquisitions, it can help focus areas of due diligence, so that the appropriate attention is given to IP. It can also help boost the value of a business for sale. Unfortunately the accounting standards pretty much fail to allow meaningful reporting of IP value. To fill this gap specialist research and analysis is needed, not least into the legal rights themselves.  

In litigation some form of damage to IP is generally a potential issue. This impact needs to be identified and quantified which can result in an increased claim and recovery. IP valuation methodologies are now standardised and accepted by financial regulators and courts alike.

However, special nuances exist in the application of these valuations which are often not appreciated. This was recently illustrated in esure v Direct Line where the Court rejected the brand expert’s evidence as being personal opinion which the Court was just as qualified to form. The consumer research was also rejected as ‘the directions of the court as to the scope or methodology of any proposed consumer survey that the parties may desire to put in evidence at trial’ had not been sought. Market research can be submitted as evidence but is often rejected if poorly executed and without requisite prior approval of the Court as to its scope. This too is often missed.

These points are not just my opinion but gauged from research into how lawyers use valuations, for our survey ‘Valuation in Practice’. With full knowledge of the existence, importance and value of IP, better deals could be struck and claim quantification improved. Leading law firms should routinely include IP quantification as an important item on their commercial checklists.