IP assets are crucial in insolvency, Bloomberg article says

Bloomberg’s US Law Week has published a very useful article on IP assets in company bankruptcy.

The authors of the piece, Understanding IP Assets Is Crucial During Corporate Bankruptcies, IP experts Christine McCarthy, Molly Sigler, and Gurpreet Kaur make a strong case for IP’s value in distress:

“A company’s IP may be one of the most valuable assets for generating value to fuel restructuring or discharge debt – provided it can be reliably understood. Determining and safeguarding that value requires a disciplined analysis centered on identifying and maintaining high-value IP assets in the marketplace. Best practice calls for assessing IP periodically.”

Although written with the US legal system front of mind, the advice they give has applications for lenders and investors anywhere in the world who are being asked to either invest in a company, or to provide debt funding. Obviously, with developments in the use of IP as collateral in bank lending, their comments have relevance to lenders developing IP-backed finance products as well.

One particularly cogent point they make is this:

“The US Bankruptcy Code directs procedures regarding patents, copyrights, and trade secrets—but differs in its treatment of trademarks, trade names, and service marks. Conducting an IP portfolio audit and inventory enables a company to fully understand the risks and remedies available in refinancing, asset sales, and bankruptcy relative to buyers and existing licensees.”

Here are a few of their other key points:

• IP owners should review their IP portfolios annually – and should analyse IP performance against the cost of developing and maintaining that IP.

• Companies that license IP out to other firms should make sure contracts cover issues if a licensee enters insolvency. This particularly applies to any IP used in (or developed as a result of) collaboration between two or more entities (Inngot’s latest article for the NatWest Insights Hub  covers collaboration in some detail here).

• Potential purchasers scrutinising companies in difficulty should conduct similar assessments to IP owners. Ideally, these should be done before a company files for bandkruptcy, as from that point on, important information about IP rights and the markets the company operates in may become more difficult to access.

• Insolvency practitioners and business advisers should also conduct similar IP analyses.