Collateralization of Intellectual Property in Singapore and China

The efficient collateralization of intellectual property is a way for small and medium size enterprises to obtain financing for continued expansion, and additional research and development.  As reported by Ellie Wilson on the IPKat blog, a loan with IP as collateral was recently approved in Singapore. The Press Release from the Intellectual Property Office of Singapore states: 

While using tangible assets such as machinery and inventory to apply for loan financing is a common practice for companies, using intangible assets in the form of patents is a recent development.

3.      Singaporean entrepreneur, patent owner, founder and Group Chief Executive Officer of Masai Group International, Mr Andy Chaw, shared, “We are honoured to be the first company in Singapore to have successfully obtained the IP financing to unlock the value of our intellectual property. With the financing, we will continue to invest and strengthen our global IP portfolios and brand marketing, as well as continue our research and development efforts in new technologies and products development.”

4.      The IP-financed loan was supported by DBS Bank (DBS), one of the scheme’s three participating financial institutions (PFI). DBS’ Group Head of Small-and-Medium Enterprise Banking, Ms Joyce Tee, said, “As the principal banker for the Masai Group, we recognised that the patents acquired would essentially translate into future earnings. We are very pleased that the collaboration with IPOS to monetise these intangible assets, recognising the patents as an alternative security, has worked well. With this as the first successful case of an IP-backed loan in Singapore, we will continue to build a sustainable capabilities platform so that we can help our SMEs unlock the hidden wealth in their intangible assets and convert into cash for their business growth.”

5.      UOB, another of the scheme’s PFI, has a strong pipeline of IP financing cases to help companies capitalise on the value of their intangible assets. Mr Eric Tham, Head of UOB’s Group Commercial Banking, said, “As businesses evolve with the changing times, intellectual property will increasingly form a significant part of an enterprise’s value. We welcome IPOS’ forward-looking enhancements to the IPFS, as more companies in Singapore would be encouraged to innovate and help create the ‘Silicon Valley of the East’.”

More PFI, IP Valuers and Qualifying IP Asset Classes for IPFS

6.      Effective 1 July 2016, IP owners can look forward to monetising other IP asset classes such as registered trade marks and copyrights through IPFS. The addition of new IP asset classes, over and above patents, is aimed at spurring an intellectual property and innovation-driven economy in Singapore.

7.     The scheme will also be extended for another two years till 31 March 2018, as applications are expected to increase. The all-time high IP filings in Singapore is a testament of the current buoyant innovation climate. To meet the anticipated surge in demand for IP loan financing, IPOS has appointed a fourth PFI and expanded the panel of IP Valuers from three to seven. This move will allow companies to work with a larger number of PFI and competent IP Valuers for successful loan applications.

8.      Mr Daren Tang, Chief Executive of IPOS, said, “As Singapore’s economy becomes more innovation-driven, IPOS is stepping up our efforts to help local companies and entrepreneurs realise that IP is not just about protection of their legal rights; it is about using it to grow their business. He added, “IPOS will continue to work with more partners to provide opportunities for companies to go beyond IP protection to monetisation. The IPFS is one such scheme and we hope that local companies with valuable IP will take full advantage of it, as we continue to look for new ways to help them succeed in the global innovation market.”  

Lexology reports that:

Recently, the State Administrations of Industry and Commerce (SAIC) made an announcement that, after July 1, 2016, 25 local Administrations of Industry and Commerce (AICs) may receive pledge applications of trademark rights on behalf of China Trademark Office. Applications filed through the local AICs are free of charge.

Are there any other developments concerning collateralization of IP in Asia?  

IP not a homogeneous asset class: patents are the big risk-bearers

On 5 September IP Finance hosted a contribution from Aritra Chaterjee, "New frontiers in intangible asset financing", which has drawn the following observation from Ron Laurie (Managing Director, Inflexion Point Strategy):

In response to Aritra’s Chaterjee’s excellent guest post on the use of intangible assets as loan collateral, I would like to add the following U.S. perspective.

What patents are all about?

Those of us that have been looking at IP collateralisation over the past several years recognize that valuation challenges are at the heart of the “problem".  However, it is of critical importance to recognize that the valuation uncertainty varies considerably with the type of IP under consideration. More specifically, the risk profile impacting liquidation value uncertainty in the event of default differs materially depending on the type of IP involved. Most of the IP-backed finance that occurred from 1995 to 2005 involved “brands" (trademark IP) and “content” such as music and film (copyright IP) which carry much less legal risk — in terms of validity, scope of rights, and infringement — than do patents. This is even more true today in light of

(1) the recent U.S. Supreme Court patent-related decisions (e.g., Alice, Nautilus, Octane); 

(2) the new America Invents Act-based administrative procedures for challenging the validity of issued patents in the USPTO; 

(3) the practical unavailability of injunctive relief for patent infringement after eBay; and 

(4) the rapidly changing Federal Circuit and District Court case law affecting the calculation of reasonable royalty damages for patent infringement, the net effect of which is to lower the expected return from enforcing patent rights in court.

Bottom line: in this area as in others, one should be careful in talking about “IP” as if it were a homogeneous class of rights.

Thanks, Ron!