The impact of blockchain on IP and business value

Blockchain technology is not just for trading in cryptocurrencies. Blockchain is now widely adopted, as illustrated by the following examples across industries:

•  banking and finance, to assist fund transfers and know-your-customer processes;
• retail supply chain, to trace each product from manufacture to retail. Retailers can use blockchain to demonstrate where their products have come from, and counterfeiting can be tackled;
• healthcare, to safeguard data such as from clinical trials and medical records;
• travel, to increase customer reach and promote destinations.

Blockchain is now a major disruptive force across markets. Therefore it should now be securing market positions and opportunities. Conversely, enormous problems will be created by under investment in the technology. This needs to be reflected in the value equation.

Practical use of IP and business valuations

IP and businesses are valued in practice for a number of reasons:

• business development, acquisitions, disposals, licensing and franchising;
• financing and lending;
• for information so that the value of a critical asset is measured and managed;
• dispute resolution; and
• accounting for acquisitions and impairment.

This is a subjective process, but valuation analyses can assist greatly in informing negotiations and discussions relating to value. A well thought through valuation will be based on information and assumptions used for alternative ways of assessing value which are widely adopted and uncontroversial in principle:

• by anticipating future income;
• benchmarking on market transactions; and
• assessing historic costs, the cost to recreate or the value of underlying tangible and intangible assets.

However, a significant part in managing a dispute should not be ceded to expert witnesses. Dispute resolution management should rest with the parties and their lawyers.

COVID-19 and the economic consequences

The COVID-19 pandemic has a significant effect on IP and business valuations, as expectations for future income (and the risks associated with such income) have changed, and will change, significantly. A direct example would be an airline, where cancelled flights and bookings will be directly reflected in reduced income which cannot be immediately mitigated enough by reducing or deferring the cost base. Many airlines are run on a marginal basis and in such cases COVID-19 could eliminate any equity value fairly quickly. It has been thought that COVID-19 helped push Flybe to collapse into administration recently.

If the value of IP is correlated in some way to market transactions then the recent COVID-19 related market swings will need to be considered. These swings have been sudden and massive.