The disclosure requirements for listing in Singapore Stock Exchange (SGX) have increased with the recent request of making public all material information related to Intellectual Property Rights (IPR).
IPRs have always been a source of long standing competitive advantage and often companies have been reluctant at providing such information. However, with the updated Listing Rule 703, Singapore is imitating a similar guideline issued by the Hong Kong counterpart a few months earlier.
The new rule aims at creating a safer environment for investors – the stock market house ensures. As modern companies base their success and growth increasingly on IP and other forms of intangible assets, SGX wish to replicates this situation in the documents available to investors. By knowing how much of the business depends on IPRs and how risky these assets are, investors can get a clearer idea on where to put their money.
The guidelines leave wide space for interpretation: it specifies that all commercially sensitive information is excluded from the requirement. Where to draw the line is hard to say. Certain is that this new requirement will cause additional stress to listing companies, which are already busy in dealing with market turbulence and other regulatory requirements. Luckily, a new generation of IP professionals is emerging and can provide relief to the incumbency. Professionalism, competence and discretion remain the key words when dealing with sensitive information in IPR: be careful your partner has all the three.
The announcement from Singapore Stock Exchange is quoted as below:
In today’s knowledge-based economy, intellectual property plays an increasingly important role in a company’s portfolio. As businesses move up the value chain, intangible assets exert greater influence on growth, processes and activities. On 1 April 2013, the Singapore Ministry of Law announced the acceptance of the IP Hub Master Plan recommendations, where one of the key strategies includes enhancing transparency and certainty in IP transactions. In this regard, the Exchange considers this an opportune time to provide guidance on disclosure of intellectual property rights by listed companies.
Intellectual Property Rights
According to the Intellectual Property Office of Singapore (“IPOS”), intellectual property rights (“IPRs”) includes patents, trademarks, industrial designs, trade secrets and confidential information, plant varieties, layout-designs of integrated circuits, geographical indicates and copyright. In some instances, information on IPRs owned, obtained or acquired by listed companies may be considered material information.
Singapore’s disclosure-based regime requires listed companies to disclose all material information for investors to make informed investment decisions. Companies seeking listing are required to disclose information on their IPRs in their prospectus if their businesses are, or will be, materially dependent on such IPRs. Likewise, listed companies that are or will be materially dependent on any IPR shall, taking into account commercial sensitivities, disclose this material information as required under Listing Rule 703. In making disclosures on IPRs, as like all material information, it is necessary and important for listed companies to provide descriptive and quality content that explain the value of IPRs to their operations and business.
Benefits of Disclosures – Beyond Regulatory Requirements
Disclosing of material IPRs allows investors to have clearer and better insights into the intangible assets of the company, and understand the legal rights the company retains over certain activities. While IPRs do not necessarily indicate economic returns, they may represent opportunities for growth, intelligence that tangible assets and reporting figures are unable to communicate. A clear, thoughtful and structured disclosure on IPRs allows the market to better determine a listed company’s value. By disclosing material IPRs, listed companies can protect the knowledge and legal rights it may have as it becomes publicly available information. This helps the listed company to differentiate itself from competitors.
A Balanced Approach
Listed companies should also take into account relevant commercial considerations as IPRs may contain trade secrets that are commercially sensitive. The feasibility of such disclosures must be considered carefully. In some instances, disclosing the information may be prejudicial to the interest of the listed company and adversely impact its application for patents and licenses. In such instances, listed companies may consider the disclosure of IPRs without the inclusion of details that are commercially sensitive.
For effective disclosure of IPRs, listed companies should take the following considerations into account:
Disclosures on IPRs should be easy to understand, free from jargon with minimal technical language. The content should be understandable to lay investors as they are readers of the prospectus and announcements;
Address how the IPRs fundamentally affect the listed company’s operations, business as well as the overall impact on profitability and prospects of the issuer and its subsidiaries; and
Other relevant laws and regulations that may prescribe requirements and restrictions on disclosures relating to IPRs.