Intellectual property, finance and economic development

AuthorJohn P. Ogier
PositionIntellectual Property Economist and Lead of the Finance, Business and Economics Sector Workgroup of the Intellectual Property Awareness Network (IPAN), London, UK, of which he is also Vice Chair

Only by developing and adapting market mechanisms and risk-return methodologies for IP assets and other intangibles and then applying them, will it be possible to offer IP-rich companies the financial support they need to expand their businesses and thereby improve economic growth. But progress in this area must involve financial markets, professional bodies, government policies and international trading standards.

IP value in knowledge-based economies

In knowledge-based economies, economic value is captured through the IP system, and the rights it confers which transform intangibles into tradable economic assets.

Up to the 1980’s, tangible assets accounted for 80 percent of company value; the rest was made up by intangibles, including IP. Thirty years later, the reverse is true with 80 percent of company value made up of intangibles.

The relative value of intangibles combined with digital trading is evident from the fact that Alibaba, the world’s largest retailer, owns no stores; Uber, the world’s largest “taxi business”, owns no taxis; and iTunes only supplies digital recordings of music.

Research published in 2012 by the United States Patent and Trademark Office notes that “the entire US economy relies on some form of IP, because virtually every industry either produces or uses it.” In 2010, IP-intensive industries accounted for USD5.06 trillion in value added, representing 34.6 percent of US GDP and directly supporting 27.1 million jobs.

Similar results were found in the UK where, according to a report by the UK IP Office, in 2011 the UK market sector invested some GBP137.5 billion in intangible assets and IP rights, with just GBP89.8 billion invested in tangibles. The gap in investments in tangibles and intangibles continues to widen.

The report indicates that just under half (48 percent) of knowledge-based investment - worth around GBP65.6 billion - is protected by IP rights. Copyright represents 46 percent of the total, trademarks and designs, 21 percent respectively, patents 9 per cent with registered designs making up the balance at 3 percent. The true value of UK IP-related investment, however, is likely to be higher as the study does not include the value of trade secrets nor does it fully account for “combination assets” like brands.

The gap in IP finance and funding

Despite broad recognition of the economic value of IP and its contribution to economic growth, many start-ups face difficulties accessing affordable funds to expand their businesses. Many micro, tech/creative start-ups and small and medium-sized enterprises (SMEs) are IP rich and...

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