While the value of some assets can be negatively impacted during a recession, like the one that many markets around the world are experiencing as the coronavirus crisis continues to circulate, intellectual property is one asset class that tends to do well during downturns, according to an IP expert.
“It's an asset class that doesn't lose its value,” said Lewis Lee (pictured), global head of IP solutions at Aon.“As companies struggle for capital and working cash, we actually see people turn to their IP more – we see people do more IP monetization and there's usually a spike in IP litigation as a result of that … and that's happened in the last several recessions.”
During the type of economic downturn that we’re currently living through, companies react in a few different ways when it comes to safeguarding their IP and putting it to good use. The first reaction tends to be licencing their IP or selling some of it do bolster their cashflows. The second reaction is usually seen in smaller and mid-sized operations that are hunting for capital and have been through a few financing rounds.
“We have a solution at Aon that allows you to use IP as a collateral to back loans, so we're lending money now to businesses that have some IP and some revenue, and it's backed by their IP value,” explained Lee.“We can write significant sized loans to give these guys their operating capital they need to get them through this period of time.”
The third reaction is to look at IP-related risks that come up during this type of economic crisis, and draw up defences to protect against potential loss resulting from those risks, which include an increase in lawsuits as companies try to monetize other firms’ patents, and the work-from-home environment that has resulted in heightened cyber as well as IP theft risks.
The fourth and final way that companies use their IP during an economic crisis is by reimagining the future that will follow the downturn.
“Typically, when you hit recessionary periods, these tend to be some of the more innovative times of life,” said Lee. “Companies get serious about how they're allocating cash, they start innovating to get new product lines going because they’ve got to be very competitive coming out the other side … and IP solutions map onto that pretty closely.”
Today,close to 85% of the value of the S&P 500 (or $19 trillion) is represented by intangible assets, making it both a resilient asset in times of economic hardship as well as an asset that requires protection.Awareness around the value of IP and insurance solutions for this asset class has been growing over the past two decades, noted Lee, and the insurance industry has stepped up to the plate in providing coverages and valuation technology to meet these needs.
“We're able to do things today that we weren't able to do 10 years ago, and as a result of that, [valuing IP]has become a data science problem,” said Lee, adding that Aon is building a platform powered by Big Data that allows experts to assess and value IP in real-time, which will be a game-changer.
He continued: “We are able to show executives, insurance carriers, and financiers that this is a measurable space, and we can do valuations that have high fidelity at speed and at scale … That's going to unlock so many things, whether it's capital, whether it's insurance, whether it's lending, whether it's a strategy for how you should be building a future, or whether it's M&A and how you value those IP assets in a transaction.”
