Patent-rich firms and corporate restructuring: patent signaling, valuation, and governance

When insolvency strikes the knowledge economy, the corporate collapse may cause even wider financial and social harm than is typically the case, given the negative impact on commercialising innovation, an important goal in modern societies. This chapter examines the new relationship generated between modern IP-centric technology firms and insolvency during corporate restructuring events in advance of, and to stave off, corporate insolvency. Intangibles, an accounting term, a subset of which includes intellectual property (IP) rights such as patents (the foremost IP right), are a wide-ranging asset class requiring specialist IP valuation and legal expertise in order to identify, capture and maintain economic value for distressed firms. In this chapter we focus on how to deal with corporate patent assets when the business is viable but needs to restructure and/or sell the assets and containment of the impact of the insolvency. This is followed by a discussion of recent developments which have necessitated a more holistic approach to IP valuation, beyond the quantitative financial value. In this regard, the demise of American unicorn firm Theranos, Inc. is used as a case study to map the issues that can arise and illustrate the use of technology readiness levels (TRLs) and evaluation of the human capital to support an accurate evaluation of the distress value of patent portfolios. We then consider the role of IP governance and potential predatory behaviour on the part of company insiders, competitors and other predators who may covet the future value creating potential of the company’s patent assets and who seek to take control of them or transfer them so they are out of reach of the creditors. To this end we provide a deeper understanding of the complex new relationship between distressed companies, their corporate patent assets and the activities and responsibilities of insolvency practitioners