Securities and Exchange Comission May Change the Disclosure Requirement About Intellectual Property
The SEC’s newly issued Concept Release focuses on the Regulation S-K requirements for business and financial disclosures.
The US Securities and Exchange Commission (SEC) issued on April 13 a 341-page Concept Release seeking public comment on whether and how it should change both the substance and format of certain provisions of its Regulation S-K, which dictates most of the disclosure requirements for public companies other than the financial statements.
The Concept Release is part of a broad and ongoing review by the SEC of its disclosure requirements and focuses on the Regulation S-K requirements for business and financial disclosures. It is likely to be followed at some later date by proposed rule changes, which would be influenced by the comments the SEC receives for this release. Among the hundreds of questions posed by the SEC in the release, a few pertain to the existing requirements relating to intellectual property.
Currently, Regulation S-K requires disclosure of the importance, duration, and effect of all patents, trademarks, license, franchises, and concessions that a company held. However, there is no clear guidance regarding how much detail is needed to meet this reporting requirement. At present, as the SEC noted, biotechnology and pharmaceutical companies typically provide detailed patent disclosure and often include the jurisdiction in which a patent was granted, year of expiration, type of patent, products or technologies to which the patent relates, and how the patent was acquired. In contrast, information technology and service companies often provide only a high-level summary of their intellectual property portfolios, which include a general statement of developing, using, and protecting their intellectual property.
Among other things, the release asks for comment about whether the detailed disclosures typically made by biotechnology and pharmaceutical companies should be required for all companies for which intellectual property is material, or alternatively, whether detailed disclosures should be limited to particular industries. The release also asks whether the current requirements should be extended to other types of intellectual property, such as copyrights, noting that information technology and service companies use copyrights to protect against the unauthorized copying of their software programs.
The SEC has also requested comments on possible changes to risk factor disclosures that would be significant to companies with material intellectual property portfolios, such as requiring them to present risk factors in order of importance as perceived by management or to provide greater specificity on how the companies are addressing the risk.
Public companies for which intellectual property disclosures are a significant issue and expense should consider focusing on the pertinent sections of the Concept Release and submitting comments that address concerns and suggested revisions. The deadline for submitting comments is July 21, 2016.