Now that many entrepreneurs are facing financially challenging times, I think it is important to discuss an often less well-known part of the valuation of companies: the patent portfolio. A company's collection of patents is all too often underestimated during liquidations and takeovers. I understand that these are prospects that nobody really likes to think about, but still it is good to be realistic and critical. Patents are hugely valuable and often crucial to a company's raison d'être. Yet they do not always get the attention they deserve in difficult times. What needs to be done differently and what can you do yourself before or during a liquidation or takeover?
Cost or investment?
Let me start with the problem. In order to maintain a patent, you, as an entrepreneur, pay an annual renewal fee. On paper this is a cost item, in reality it is an investment. A liquidator may want to stop paying it as quickly as possible, whereas an entrepreneur may want to keep paying it for as long as possible. After all, without a patent portfolio, a restart is pointless for most innovative entrepreneurs. We can compare it to a carpenter's hammer. In the past, a bailiff was not allowed to seize this from a carpenter. When you deprive a company of its patents, you are more or less doing the same thing. They can be a crucial tool for a successful restart or a good sale.
Three tips on how to prevent loss in value
Fortunately, you can do a number of things yourself to respond to this reality. With the following three tips, you reduce the chance of unnecessary loss in value in advance and increase the chance of a restart or successful sale.
1. Transfer your organisation's intellectual property to a separate holding company.
As a result, your patents will not be part of the liquidation assets. This by definition makes it more difficult for a liquidator to simply cancel the intellectual property.
2. Call in the help of experts so that you can evaluate your patent portfolio together with them.
This is something every innovative entrepreneur should, in fact, be doing on a regular basis. Many of them build up a portfolio without taking a critical look at the older patents. That is why they often pay for the protection of innovations that are no longer viable. By giving up these patents they get some financial breathing space, which gives them the opportunity to invest in new patents or to reduce their operating costs.
3. Continue to pay the renewal fees for important patents.
As already mentioned above, patents only remain valid as long as you pay your annual fees. So make sure that these continue to be paid, even in financially difficult times. An evaluation will tell you which patents are indispensable and will enable you to convince a liquidator of this. If the fees continue to be paid, the intellectual property and the added value it represents will be retained for the company.
Finally, a bonus tip, which was there for you to read between the lines in all three tips: discuss your situation with a patent attorney, even if you are in dire straits. Patent attorneys can contact the liquidator directly to reach agreements on how the portfolio can be optimally maintained. We can explain how patents that are crucial assets can best be protected. Making this transparent and putting this into words is something we do every day. This ensures that a liquidator (and a creditor) also comes to the same conclusion and that the added value of your intellectual property is not underestimated during a liquidation or an attempt to restart.
Even though patents are crucial to your business, they may be considered superfluous during a liquidation. This is why you should anticipate this and avoid unnecessary loss in value of what you have worked so hard for.