Challenges in IP licensing and transfer, lack of uniformity in valuation of IPs among reasons cited for slow pace of financing
The fifth edition of Confederation of Indian Industry’s flagship annual intellectual property (IP) conference, which focused on “Creating IP-led technology for a $5 trillion economy” saw the release of a report which brings global examples to showcase the virtues of using IP as collateral for financing.
The report, ideated by CII and co-created by Duff & Phelps, says that India is standing at the cusp of an IP revolution; being the third largest economy for startups in IP-intensive industries including technology and bio-pharmaceuticals. While government initiatives such as the launch of National IPR Policy in 2016 for spurring interest in IPR commercialization have been institutionalized, traditional asset securitization process is still deeply embedded in India’s lending process. Other reasons for the relatively slow pace of IP financing in the country include unwillingness to treat IP as a business asset, insufficient market and legal infrastructure for monetizing IP assets, challenges in IP licensing and transfer, and lack of uniformity in valuation of IPs.
IP-backed financing refers to the use of IP assets to gain access to credit. Globally, more and more multinational corporations and Small and Medium Sized Enterprises (SMEs) are leveraging their IP assets in exchange for finance, and lending institutions around the world are considering IP as collateral when extending loans. Normally, tangible assets such as real estate, equipment and inventory are used to secure asset-based loans; however, the collateralization of IP can also increase the amount of available credit. In cases where borrowers pledge their IP (such as patents, trademarks or copyrighted works) as collateral, the collateral pool increases in value and the potential for a successful loan can be increased ‘With ideas and innovation becoming the key driver of a business, a financing infrastructure that supports the commercialization of IP assets is extremely crucial.
Commenting on the report, Mr Arvind Thakur, Chairman, CII National Committee on Intellectual Property & Senior Advisor to the Board, NIIT Technologies said it will help industry and banks in developing a good understanding of the subject matter and proceeding in this direction. “CII firmly believes that IPR should be at the centrel stage in competing in the global world of artificial intelligence in a meaningful manner. It is hoped that it would open a new field of financing in India,” he said.
We need to have a mechanism for availing requisite financial support as well as a robust marketplace for IP assets in India,” said Aviral Jain, Managing Director Valuation Advisory Services and Co-Head, Restructuring, Duff & Phelps. India can possibly take lessons from IP friendly countries like Singapore and Korea, who have taken concrete steps to set up an IP financing ecosystem. The schemes introduced in these countries not only encourage IP financing for SMEs and startups, but also come with benefits for the participating lending institutions.
Some of the other key findings of the report are as follows:
• While the regulatory environment is evolving globally and initiatives to provide impetus to IP-backed financing are underway, some economies such as Singapore exhibit
a sophisticated regulatory environment as well as a robust infrastructure for IP financing.
• IP financing transactions where IP is used as a collateral, have declined over the past five years globally. However, transaction financing where acquired IP is the primary
collateral, and monetizing IP under a distress situation have gained traction.
• There is increasing interest from large, global PE funds in innovative, IP-based companies. These funds are not only investing in IP-based companies, but also providing
finance to help protect IP in certain situations.
4 December 2019