Let’s start with a thought experiment. Imagine a restless entrepreneur in bronze-age Mesopotamia with an eye for the main chance. When he spots a peasant making wonderful progress carrying his grain to market in a box propelled by a round thing, he immediately calls it a ‘wheel’ and dashes to Mesopotamia’s patents office in down-town Babylon where he registers ‘his’ invention – tough on the peasant – in the name of his company, Nineveh Investments.
As a result of this and the 4,000-year stream of income from licensing the rights to use the wheel, today Nineveh Investments is the world’s most valuable company and Iraq is its wealthiest country.
Okay, we might have several objections to the logic underlying this tale, not least of which is that Mesopotamia’s patent laws must have been so restrictive as to stifle all innovation (and, yeh, okay, Mesopotamia didn’t have any patent laws). But let’s not sweat the detail. The point is to illustrate the income-generating power – and therefore the value – of intellectual property (IP) and its accounting equivalent, intangible assets.
Yet this presents us with a problem: if intangible assets are so important, why is their value so unimportant compared with tangible assets, the stuff of business that you can see and feel, in accounting assessments? True, the question isn’t new, but it still awaits a satisfactory answer. Meanwhile, the anomaly between the power of IP and its rather…