Diagnosing IP Value in The Current Economic Environment
Amidst the global pandemic backdrop, I recently had the pleasure of interviewing Weston Anson (Chairman), and Jeff Anderson (Managing Director) from Consor, IP Consulting and Valuation firm. The goal was to conduct a “health check” of intellectual property (IP) in the current economic environment.
The diagnosis is that the downturn has left many “brick and mortar” retailers in intensive care fighting for their survival and their IP suffering from a loss of value. On the upside, consumer demand has risen for e-commerce based businesses and that has presented certain challenges to those businesses, incentivizing them to adapt and innovate more rapidly… not a bad thing!
A key takeaway from the interview is that this is good time for any business to turn its focus on its IP strategy and find ways to leverage this asset to raise financing. Consor is presently assisting companies with doing just that. One strategy suggested is to consolidate trademarks into one entity and sell or grant a master licence for the trademarked property. Another one is to leverage a company’s IP to secure financing. This past summer, United Airlines did just that using its MileagePlus® rewards program as collateral to secure a $5 billion line of credit:
“Covid-19 has heavily distorted UAL’s value, but the stunning profitability of the MileagePlus® program—which is mostly composed of various intellectual property and miles that can be created in unlimited quantity out of thin air—is undeniable.”
Despite some transactions we see on the market where IP is used as collateral, we still deal with the reluctance of traditional banks to lend directly against IP value. The difficulty in valuing IP assets (given their absence from the balance sheet) and the inability of banking regulation to recognize such assets and intangibles as an asset class that affords credit risk mitigation in the same way tangible and cash assets do are some of the factors that explain the challenge with granting borrowing power to IP.
The equity market as a source of funding for IP, however, is alive and kicking. Jeff points out:
“You provide capital through equity, and look what happens? Apple, Microsoft, Facebook, Netflix, Amazon. If banks would lend on the IP of small or start-up companies, perhaps those companies could blossom into the next cohort of FANG stocks?”
Definitely a statement that makes you go “hmmm”… Click here for the full interview.
Acknowledgement: I wish to extend a warm thank you to Chris Yangchen, graduate from the Faculty of Law of University of Montreal and currently completing the Quebec Bar, who prepared the Q&A and conducted the interview with me.