172. The EU delegation is pleased to co-sponsor this agenda item together with the delegations of the UK, the US, Canada, Japan, Switzerland, Chile, Australia and Singapore. We thank in particular the UK for the active role in the drafting of the document submitted in the present discussion to the TRIPS Council. Intellectual property rights play an increasingly important role in corporate strategy and the intangible assets created through innovation represent a major share of the value of today's businesses. The IP rights associated with intangible assets are the legal guarantee for potential returns on investment in innovation. Innovation is a complex activity usually with the involvement of many inventors. It is rare that there is a single inventor for any given innovative product or service, and hence there is a need to exchange and bundle inventions and intellectual assets that stem from different sources.
173. The world is becoming increasingly ingenious overall, although certain regions experience more intensive growth. For example, the total number of researchers in Asia is now larger than that of the US and EU combined. A well-functioning IP asset market makes a greater number of valuable inventions available for the market. In this respect, in finance, the securitization is an important instrument supporting IP valuation. Securitisation is a process through which an asset, especially a loan, is converted into marketable securities, typically for the purpose of raising cash by selling them to other investors. A solid new asset class in the market energizes the securitisation market. However, a number of obstacles currently preclude IP exchange platforms from working optimally. These include the difficulty for sellers and buyers to swiftly identify each another, the contract negotiation is a difficult process and there is a lack of agreed standards and terms.
174. As intellectual property (IP) and intellectual property rights (IPRs) play an increasingly important role in corporate strategy, the accurate valuation of IP remains a major obstacle to their emergence as a tradable asset class. Though there are several generally accepted ways to measure the value of IP, the introduction of more transparency in IP valuation procedures may render the trading of IP rights significantly more efficient and profitable. IP valuation is a complex process, rather than an automatic calculation. Therefore, there is a need to create a pool of IP valuation professionals and standardised methods that would be recognized by both the investors and the business partners. Existing ISO standards of IP valuation methods are a worthy starting point but more should be done in this regard.
175. There is also a need to work on the accounting frameworks to improve the way companies can report on their intangible assets, as currently it is mostly limited to optional descriptive reporting or reporting of assets that have been traded. A Report was prepared by the European Expert Group on Intellectual Property Valuation in 2013. The report covered the commercialisation of innovative ideas, with the value of the IP asset acting as collateral. The report looked especially at small and medium-sized enterprises. The report found that the role of IP in the financing process is often an indirect one. IP plays a supporting part in the bigger picture for the provision of loans and equity investments. In the regular banking, venture capital or private equity sectors, IP is generally evaluated but not formally valued. Equity investors typically invest into companies as a unit, but not into IP assets as such.
176. In return for their investments, investors receive an equity stake of a company, which owns IP and intends to exploit the IP. However, low quality IP can be a deal breaker for investors. An IP audit is considered by some Venture Capitalists as an important tool to assist the investment process by signalling the quality of the IP in possession of the investee. The Expert Group noted that an issue that influences a company's decision to protect its IP, especially in the case of SMEs, is to what extent such rights are enforceable, the time and costs involved in litigation, and the foreseeable economic results. The quality of the enforcement system has also an important impact on IP protection. SMEs, and large companies, need to be assured by an accessible justice system against infringements.
177. Large investment banks and private equity firms alike have raised and invested funds in IP and other intangible assets. Rather than looking for entrepreneurs and start-up companies, these firms are looking to invest in IP and Intangible Assets for development and commercialisation purposes. These firms work with companies to either buy the IP and the Intangible Assets or invest in the company for commercialisation of the IP and the Intangible Assets.
178. The valuation of IP rights has mostly focused on patent rights so far. But valuation of other IP rights is also possible. The EUIPO is looking to the IP valuation as one of the component to raise IP awareness and support businesses to access to finance. The EUIPO's work is at an early stage, looking into the opportunities and benefits that IP valuation could bring to EU SMEs. The EUIPO focuses on the valuation of trademarks and more specifically, EU TMs.
179. The EUIPO has started consultations with professional IP valuators and SMEs. The aim is to identify business cases where the understanding of the value of an intangible asset could help SMEs in various business stages and situations. The EUIPO is analysing the feedback received from IP valuators and SMEs and looking into some preliminary data modelling related to the valuation of EU trademarks. If the feedback is positive, the EUIPO will share the results and continue the work towards an IP assess valuation method.
COSME and Innovfin
180. The EU is very interested in exploring ways to promote the use of IP as collateral in debt financing. COSME is Europe's programme for SMEs. COSME aims to make it easier for SMEs to access finance in all phases of their lifecycle – including the creation, expansion, or business transfer. hanks to the EU's support, businesses have easier access to guarantees, loans and equity capital. EU 'financial instruments' are channelled through local financial institutions in EU Members.
181. As regards the COSME Loan Guarantee Facility and the InnovFin SME guarantee facility, these are instruments that are managed by the European Investment Fund and deployed by eligible local banks, leasing companies and guarantee institutions. Within the assessment of the quality of the applications received by financial intermediaries to benefit from the guarantee, one aspect that is assessed is the ability of the applicant to finance SMEs, or facilitate finance to SMEs. Here is where a financial intermediary could indicate its expertise in assessing IP assets and their potential use as collateral. The Innovfin guarantee refers more directly to IP rights. This guarantee scheme financed by Horizon 2020 supports innovative SMEs. One of the eligibility criteria for such companies to obtain a preferential credit based on this guarantee scheme is the ownership of an IP right related to technical inventions and the aim of the loan is to enable the direct or indirect use of this technology right.
Cultural and Creative Sectors (CCS)
182. The culture and creative sectors perform various tasks for the economy and society. However, there are still structural problems, which are holding these sectors back from achieving their full growth potential. The Creative FLIP project – co-funded by the European Union – is aiming to resolve this situation. Its main objective is to establish constructive and sustainable framework conditions in the fields of finance, learning, innovation and patenting for the cultural and creative sectors in Europe.
183. Over the course of the 28-month project term, the project partners will develop various research and pilot measures to improve the use of the finance and patent system and to ensure greater integration of the cultural and creative sectors into the European competence and qualifications framework. The project also seeks to strengthen the relationship between players in this sector and formal and informal education through Peer2Peer exchanges and innovative Learning Laboratories.
184. Exploring this aspect seems quite relevant for the creative sectors, which rely on IP assets and where notably SMEs may find it hard to obtain financing general. However, in a context where IP assets prevailing in the creative sectors are protected by copyright or other non-registered IP (e.g. unregistered design), harnessing such use can be extremely challenging. With regards to debt financing, a better connection between the Cultural and Creative Sectors and financial intermediaries is needed. The experience of the Cultural and Creative Sectors Guarantee Facility (CCS GF) managed by the European Investment Fund is relevant in this respect.
185. The Cultural and Creative Sectors Guarantee Facility benefits micro-businesses and SMEs in the cultural and creative sectors, which often face difficulties in accessing affordable debt financing for their projects. The guarantee aims to change that. Loans supported by the European Union under Cultural and Creative Sectors Guarantee Facility are now available for business in all of the participating countries, which include the EU Members, Iceland and Norway.