financeAs individuals and small businesses look to secure funding during a credit freeze, finance innovation has led to a jump in IP-based funding.  In 1997, David Bowie opened eyes when he issued asset-backed bonds on the basis of future royalties, raising over $55 million.  This year, Annie Leibovitz, the famed photographer for Rolling Stone and Vanity Fair, secured $16 million in loans by pledging her life’s work of copyrights.  The practice is not exclusively available for stars, however, as companies are turning to their IP to boost their pool of collateral, especially in the software and biotech industries.  It is apparent that banks and investors will be more inclined to offer money for the pledge of cash flow assets, such as the royalty streams of licensed IP rights, rather than the pledge of implicit assets, such as patents used internally for operations.  The latter will require additional proof of potential liquidity.  For the former, funds such as Royalty Pharma and Altitude Capital Partners have surfaced in recent years for the purpose of investing money in IP-rich companies in return for pledging IP rights or royalty streams.

In the U.S., recent legislation and policy changes have helped to facilitate the use of intangible assets to secure credit.  The American Recovery and Reinvestment Act of 2009 (ARRA) provides for $255 million in funding to the U.S. Small Business Administration (SBA) for new deferred loans to be sba-1used by small businesses to pay off existing debt.  The loans are available up to $35,000.  Importantly, the ARRA allows the Small Business Administration to accept “any available collateral” to secure this loan.[1]  In March of this year, the SBA also revised its policy for goodwill and intangible asset lending.  Originally, the SBA had limited lender use of SBA-backed loans to finance goodwill at a maximum of 50% of the loan amount up to $250,000.  Lenders expressed concern that the limit would stop business acquisitions at a time when the very same needs facilitation.  The SBA lifted the limit and now reviews these loan applications.[2]

wipoIP finance is also without critical standards, and it lies at the intersection of two bodies of law, commercial law and IP law, which do not always move in tandem.   For this reason, and because of the emerging possibilities, the U.S. and international community are attempting to harmonize the two.  On March 10 of this year, the World Intellectual Property Organization (WIPO) met in Geneva to discuss the topic of IP finance, and specifically “ways in which improvements in law or financing practices may assist IP rights holders to manage their IP assets for greater value, and thereby assist Member States in setting-up appropriate national strategies in the field of IP.”[3]  This meeting comes on the heels of a United Nations initiative under the UN Commission on International Trade Law (UNCITRAL), Working Group VI.  In 2007, the Commission promulgated a much anticipated Legislative Guide on Secured Transactions to help member states standardize their offering of low-cost credit, but it was structured around the use of tangible goods and receivables.  Identifying its possible clash with respective IP laws, the Guide does not apply “to the extent [that it is] inconsistent with intellectual property law”,[4] and instead the Working Group VI is in the process of preparing an IP Annex to the Guide, which purports to proffer standards for IP finance worldwide.  The Group meets for a final time from April 27 - May 1, 2009 in New York to complete the IP Annex.

IP Prospective will keep an eye on all of these initiatives as they move forward.

 


 

[1] American Recovery and Reinvestment Act of 2009, Section 506.

[2] Press Release, “SBA Revises Goodwill Lending Provisions in SOP; Will Consider Higher Limits Case-by-Case”, U.S. SBA (March 5, 2009). 

[3] WIPO Information Meeting on Intellectual Property Financing, found at http://www.wipo.int/meetings/en/2009/ip_fin_ge_09/ (last visited March 11, 2009).

[4] UNCITRAL, Legislative Guide on Secured Transactions (2007).


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This entry was posted on Thursday, April 9th, 2009 at 4:33 pm.
Categories: Burgeoning Business, Investment Intelligence, Monetizing IP, Portfolio Potential ~ by Ian McClure.

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