Search the Archives           Subscribe           About this News Service           Reader Comments

Archived updates for Monday, October 10, 2005

Macroeconomic Evaluation of Licensing Markets in Europe, Japan and the United States

According to Shigeki Kamiyama, writing for the Organisation for Economic Co-operation and Development in 2005, most firms elect not to disclose licensing revenues, even though such information has been shown to have a positive effects on investors (Guand Lev, 2004). As a result, available data on patent licensing is limited, scattered, and lacking in uniformity. The limited information that does exist suggests that markets for technology are large and growing.

With regard to the size of the worldwide market for technology licensing, a conservative estimate indicates that it averaged more than USD 36 billion between 1990 to 1997 — considerably higher than the estimated average of USD 5.6 billion in the 1980s (Arora et al., 2001). In the United States, it has been estimated that patent licensing revenues rose from USD 15 billion in 1990 to more than USD 100 billion in 1998, and experts estimated that revenue could top half-trillion dollars annually by the middle of next decade (Rivette and Kline, 2000). In a recent OECD survey of businesses found that approximately 60% of responding firms had seen an increase in both inward and outward patent licensing over the previous decade, and around 70% of respondents expected the importance of inward and outward patent licensing to
grow in the next five years (Sheehan et al., 2004).

International licensing is also large and appears to be increasing. In Japan, patent licensing revenue from foreign parties totalled JPY 340 billion in fiscal year 2002, and Japanese firms spent approximately JPY 210 billion on foreign licenses, yielding a surplus of JPY 130 billion (Figure 2, left). If business transactions within affiliated firms (groups) are excluded, however, total revenue and expenditure become about JPY 140 billion and JPY 180 billion respectively, resulting in a deficit (JPO, 2004).

OECD data on receipts from international licensing and transfers of patents also show steep increases in France and Germany (Figure 3, right). In France, receipts increased by more than a factor of six between 1990 and 2003 from EUR 330 million to EUR 2.4 billion (not taking into account inflation), while in Germany they doubled from EUR 1.3 billion to EUR 2.7 billion. Receipts remained relatively flat in Italy at roughly EUR 200 million to EUR 300 million per year, in contrast.

In the United States, the private-sector Financial Accounting Standards Board (FASB) has agreed that “financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions”. In order to be reported as an asset in financial statements, an
item is required to meet several criteria according to FASB rules. First, it must meet the definition of an asset and offer “probable future economic benefits obtained or controlled by a particular entity as a result of past transaction or events”. In addition, it must satisfy three criteria namely measurability, relevance and reliability. In other words, an item lacking reasonably reliable measurement can not be recorded as an asset in a financial statement which leaves out most of intangible assets.

Recent developments may encourage greater reporting of intangible assets. In 2001, FASB released SFAS No.141,”Business Combinations” which requires that all business combinations be accounted for by the purchase method, recording a business combination based on values exchanged, instead of by the pooling method. This change makes it possible to provide better information about the total purchase price paid to acquire another entity. It is also required that intangible assets be reported separately from goodwill, if the assets arise from contractual or other legal rights or if they are separable from an acquired entity. Patents, licenses and royalty agreements are listed as such intangible assets. In addition, the US Sarbanes-Oxley Act of 2002, which aims to improve the accuracy and reliability of corporate disclosures, also affects reporting practices for intangible assets, through requirements to indicate important IP assets, risk factors related to IP and any material IP litigation, etc.
    (0)comment(s)     translate     More Updates     Send