SGX guidelines on disclosure of IP rights: impact on trademarks-focused businesses
On April 1 2013 Singapore Exchange Limited (SGX) released an advisory providing guidance on the disclosure of IP rights by listed companies and companies seeking listing. The advisory explains when companies are required to disclose such information, and provides recommendations on the approach that companies should take in complying with their disclosure obligations.
Under current SGX mainboard rules, companies seeking listing are required to disclose all material information in their prospectus to enable investors to make informed investment decisions. Likewise, companies that are currently listed are required to disclose any information which is likely to materially affect the price or value of their securities. Accordingly, offer documents do not generally contain any detailed discussions regarding IP rights, unless a particular IP right is materially important to the business, financial position, performance or prospects of the issuer, in which case it is discussed as part of the business description of the issuer.
The advisory makes it clear that companies seeking listing or listed companies which are materially dependent on IP rights must - taking commercial sensitivities into account - disclose information on their IP rights where this can affect the price or value of their securities. Such disclosure should:
- be easy to understand (ie, be free from jargon and understandable to lay investors);
- address how the IP rights fundamentally affect the listed company’s operations and business, as well as the overall impact on profitability and prospects of the issuer and its subsidiaries; and
- take into account other relevant laws and regulations that may prescribe requirements and restrictions on disclosures relating to IP rights.
Disclosures may therefore need to move beyond the typical listing of registered rights and the generic risk statements (eg, the potential impact of failure to secure registrations).
Some pointers regarding what trademark owners may consider and describe in the offer documents going forward include the following:
- Setting out the impact of the trademark portfolio or key trademarks on the success of the business. Simple statements, such as "our trademarks have significant value and are important to our marketing efforts", may be considered inadequate because they do not provide the investor with an understanding of the nature and extent of the brand value, the efforts undertaken by the business to develop and maintain the brand value, and the impact of the brand on the financial performance of the company.
- Identifying potential risks which the business may face if the trademarks are subject to challenge, and especially if there is a real risk of challenge that the company is aware of. This is particularly important for businesses which are known by, and are dependent on, their brand (eg, restaurants and hotels), as such companies may suffer severe financial impact if they are compelled to overhaul their brand identity (as opposed to a business where the brand at issue is just a product name among a range of goods).
- Disclosing any limitations on foreseeable expansion plans owing to prior third-party rights. For example, when there are known third-party rights in overseas markets in which the business is looking to expand, the risk of not being able to rely on existing trademarks can have a material impact on any proposed expansion plans.
In addition, one should also bear in mind that the disclosure should be worded in an easy-to-understand manner. Vague and generic statements highlighting a generic risk are of little benefit to an investor; the likely adverse effects on the business and financial performance must be explained in some detail.
In today's knowledge economy, companies are increasingly dependent on trademarks as a driver of growth. In such an environment, the advisory is particularly welcome as it reminds companies of the need to appropriately disclose information on their IP rights, including trademarks. This will enable investors to have a clearer and better insight into the brand value of the company, understand the legal rights of the company in relation to their brands and make an informed choice.
Angeline Lee, Baker & McKenzie.Wong & Leow, Singapore
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