CONCEPT OF IP FINANCING
of Intellectual Property as an asset is quite different in developing countries
when compared with the developed countries. IP is treated as an asset and
inclusive of a company’s portfolio, hence considering the goodwill, reputation,
licensing of patented technology, copyright assignment are considered common
practices, however the same is not deemed as a practice in developing
countries. The jurisprudence behind their recognition is due to their strong IP
development and stringent IP portfolios.
However the lack of resources and development in the field of IP poses a
hindrance for the developed countries to strive on the same path. Also the quantum of IP filings with respect
to patent, trademark is quite meager when compared with the developed
countries. Developing countries predominantly practice the import of technology
from developed countries hence posing an obstruction in the sphere of IP
financing. All these factors are deemed integral and prove to be of great
significance while the concept of IP financing is practiced.
benefits of securitization can be judged from both of the view points, one from
the investor and the issuer. IP issuer in the process of securitization
involves transfer of risk, cheap funding, reduced moral hazards1,
and increased standardization. From the view point of investor, securitization
of the IP assists in diversifying the sector which is inadequately represented in
terms of fixed amount.
Securitizing can be classified under these types of intellectual property
dealing with commercial origins.
– applicable mostly on music, literary , films or other artistic works
– strictly concerned with innovations
India neither the SARFESI Act, 2002 nor the Patent Act, 1970 mentions about
patent securitization which appears to be the prime reason why the concept of
patent securitization has not yet been developed in India. A typical process of
Patent securitizations in India involves the following steps
of Special Purpose Vehicle to hold the financial asset.
of such financial assets by the innovator or the originator of the asset to the
SPV which would further hold such asset.
of securities in the capital market by the SPV.
Indian Securitization Act primarily focuses for banking purposes which offers
methods of generating revenue of NPA. However the applicability of the same
principles with respect to patent or trademark securitization seems doubtful.
The following conditions provide the obstacles through the existing
Securitization Act provides two structures2
through which the process of securitizations can be performed, “pay through”
and “pass through”. In “pass through” the investor holds charge over the
property which implies that in cases of normal asset like mortgage a loan is
certain whereas the certainty might not be applicable in case of patents since
the value of such IP fluctuates and is not definite.
Securitization Act does not define “Bond Investors3”.
In such case the normal asset can be securitized but with respect to patent, it
may not work out. Due to the absence of bond investors neither the debt service
fund will be effective nor will the bonds be issued in the capital market.
valuation of the IP is a mandatory step towards IP financing but since the
notion of specified agents or professionals is absent in the act, there
persists a chance that the patent securitization may fail.
absence of any database available for scrutinizing the value of the concerned
IP in this case patent. Hence in the absence of appropriate valuation of IP,
the risk of IP financing comes into picture.
and Cash flows with respect to IP financing. There arises difficulty in
predicting cash flows due to specific IP risk involved. Valuation of an IP
still remains at a nascent stage in developed countries. In developing
countries valuation of IP remains contested and various disputes arises due to
the methodology of the method used.
being a developing country has taken steps to realize the importance of
intellectual property considering them as collateral to raise funds. The National
Intellectual Right Policy4
has proposed the securitization of IP rights, allowing them to use the
concerned IP as collateral to raise funds for their commercial development. The
policy is aimed to be in consonance with the developed countries which allow
the practice of recognizing the IP as a financial asset. Countries like US and
Japan recognize IP asset and allow the mortgaging of the same. The lacunae
prevailing under the Securitization Act have been proposed to be countered
through the introduction of experts, companies or any external body for the
purposes of appropriate valuation of IP. The policy also focuses on the concept
of registration of IP which would aid the banking institutions while granting
policy aims to support the IP owners to achieve loans by setting up IP exchange
forums. The government also aims to provide easy loans to farmers, weavers and
artisans thought the introduction of corporative and rural banks. The efforts
made by the government in realizing the importance of IP assets and
securitization of IP would not only help the innovator but also assist the
venture capitalists in the effective management of the IP regulation system
across the country.