While most banks acknowledge IP as a genuine asset, their unfamiliarity with valuation techniques often dissuade them from committing to securing business loans against it.
In the UK, changes in the Finance Act of 2004 led to IP being recognised as an acceptable asset class for use in pension-based business funding. Some US banks are now using the value of IP held by borrowers to trim their capital requirements and so increase their lending to IP owners. In Asia, businesses are yet to see money loaned against IP assets, as banks often consider them too risky.
In order for a bank to lend money, it must ensure that the risk is within their predetermined profile, which is why a high quality and credible valuation is necessary.
Recently, the Singapore and Malaysian Governments announced plans to encourage local banks to use IP rights as collateral when granting loans, whilst in Hong Kong, plans for the creation of a strategic IP hub have reached an advanced stage. If approved, these plans could make it cheaper and easier for banks to lend not only to start-ups and IP-rich but otherwise asset-poor companies, but also to larger multinational companies.
In its budget announcement last year, the Malaysian Government launched a valuation model for banks to determine the value of IP, with RM 19 million (approx. US $6 million) allocated to set up an IP market platform and develop training courses for IP evaluators, and RM 200 million (approx. US $65 million) allocated to develop an IP funding scheme with a two per cent interest rate subsidy and guarantee of 50 per cent.
In a subsequent announcement in October 2013, RM 50 million (approx. US $16 million) was allocated to establish a Malaysian Global Innovation and Creativity Centre (MaGIC), a onestop centre to empower entrepreneurs, and another RM 50 million (approx. US $16 million) for a Graduate Entrepreneurship Fund.
It is therefore clear that the Malaysian Government is making a firm commitment to encouraging innovation by providing a framework for the securitisation of intellectual property, together with support, training and funding for entrepreneurs.
Earlier in April this year, the Singapore Government introduced a new financing scheme to pave the way for local companies to use their patents as collateral when applying for bank loans. The Government will partially underwrite the value of patents so banks will not be made to bear all the risk in case of default. In doing so, it hopes to encourage banks to recognise patents as securitisable assets.
With Hong Kong ranked seventh in the 2013 Global Innovation Index, and first in Asia, its government has been actively promoting the territory’s development as a regional IP trading hub. With 2013 drawing to a close, its Working Group on IP Trading is in the process of finalising a strategic framework and exploring preliminary ideas regarding specific policy and other measures in support of four major areas: (i) enhancing IP protection, (ii) supporting IP creation and exploitation, (iii) fostering intermediary service and manpower capacity, and (iv) promotion, education and external collaboration.
Concrete measures promoting a strategic and business-orientated approach to IP are already in place. These include financial support for Hong Kong’s six universities to develop technology transfer offices and the maintenance of an IP Portal, administered by the Hong Kong Trade Development Council.
The Hong Kong Government is also working towards a standard for international IP trading as part of its strategic aims, and several privately run virtual exchanges have now been established in Hong Kong.
Clearly, IP owners in the region are beginning to wake up to the value of their portfolios as a source of capital, not just a defensive tool, and it remains to be seen what steps are to be taken to develop this further.