By - King Stubb & Kasiva on September 6, 2023
In recent years, a heightened awareness of the significance of intellectual property (IP) has permeated micro, small, and medium enterprises (MSMEs) as well as startups in India. Within this evolving landscape, the Department of Promotion of Industry and Internal Trade (DPIIT) is diligently working towards the establishment of a comprehensive IP valuation system. This strategic endeavour aims to facilitate IP financing, thus creating novel avenues for raising capital. In this article, we explore the Intellectual Property Financing, its manifold benefits, DPIIT's elaborate plans to fortify IP financing in India, and the instructive insights that India can glean from Singapore's IP financing model.
IP financing serves as a strategic financial approach that capitalizes on intellectual property rights to procure funding or generate revenue. This can be accomplished through the sale or licensing of IP rights or by employing IP assets as collateral to secure loans. The significance of IP assets varies among businesses, constituting a substantial portion of value for some, while representing a smaller fraction for others. Irrespective of the scale, effectively communicating the worth of IP assets to lenders and investors holds paramount importance.
While IP financing is experiencing a surge in popularity, particularly among innovative startups and IP-rich MSMEs, it remains in the nascent stages of development. Both commercial entities and governmental bodies are actively exploring methods to make financing accessible, contingent upon the robustness of intellectual property portfolios.[1]
IP financing is still an emerging concept, and various experiments are underway, both within the private sector and at the government level, to enhance access to financing using intellectual property as collateral.[2] The advantages of IP financing are diverse and offer several key benefits:
Access to Credit Markets: IP financing enables service-oriented companies, especially those with limited physical assets, to tap into asset-based financing options, thereby diversifying their sources of funding.
Risk Mitigation: The transfer of IP assets to a separate investment entity can reduce the borrower's overall risk profile. This reduction in risk makes IP financing a more attractive proposition for potential lenders.
Recapitalization: IP financing empowers companies to inject additional capital into ventures that hold the promise of generating returns that surpass the cost of borrowing. This approach allows for strategic reinvestment and expansion.
Debt Restructuring: IP financing with favourable terms can aid companies in restructuring high-cost debt obligations. This flexibility can help address liquidity challenges and avoid share dilution, thereby preserving ownership stakes.
DPIIT's endeavours to fortify IP financing are in perfect alignment with the objectives outlined in the National Intellectual Property Rights (IPR) Policy.[3] This policy is designed with several key goals in mind:
Valuation of IP Rights: The policy aims to facilitate the valuation of IP rights, recognizing them as valuable intangible assets. To achieve this, appropriate methodologies and guidelines are to be employed to assess their worth accurately.
Securitization of IP Rights: Another pivotal objective is to make it easier to securitize IP rights. This means creating a framework that allows IP assets to be used as collateral for financial transactions.
Supportive Framework: The policy envisions the creation of a comprehensive legislative, administrative, and market framework that is conducive to the utilization of IP assets as collateral for various financial purposes.
An essential aspect of DPIIT's strategy is the understanding that intangible assets, such as intellectual property, demand robust protection and effective control mechanisms. This recognition stems from the fact that IP financing in India is still in its infancy. Therefore, by creating a well-defined and secure system, India can unleash the full potential of its IP assets, contributing significantly to economic growth and innovation within the country.
Singapore undeniably stands as an exemplary model in the realm of successful IP financing.[4] Several crucial elements contribute to its reputation in this field:
Robust IP Legal Framework: Singapore has meticulously crafted a comprehensive legal framework that encompasses the registration, protection, and commercialization of various IP assets, ranging from patents and copyrights to trademarks. This framework is subject to regular reviews to ensure its adaptability to the evolving business landscape.
Specialized IP Courts: The establishment of a specialized IP Court in 2002, complemented by the IP Court Guide in 2013, has been instrumental in bolstering Singapore's prowess in IP protection. The High Court of Singapore houses a cadre of specialized IP judges, fostering expertise and ensuring the delivery of high-quality decisions in IP-related cases.
Alternative Dispute Resolution: Singapore's commitment to effective IP dispute resolution is exemplified by the presence of the WIPO Arbitration and Mediation Centre within its borders. This facilitates the resolution of IP disputes through alternative methods, reducing the time and costs typically associated with traditional litigation.
Adherence to Global Financial Standards: Singapore's commitment to international financial reporting and accounting standards ensures that potential financiers have a transparent understanding of the value of IP assets as reflected in a company's financial statements.
Support for IP Commercialization: Singapore takes an active role in supporting the commercialization of IP assets. The country excels at connecting IP creators and innovators with potential users, buyers, and funding institutions, thereby creating an environment that nurtures the growth of IP-driven businesses.
Singapore's exceptional success in IP financing serves as an inspirational blueprint for India to follow and adapt to its own unique context.[5] By studying and implementing these successful practices, India can elevate its IP ecosystem, fostering innovation, economic growth, and enhanced competitiveness in the global market.
The implementation of a robust system for IP valuation and financing in India carries the potential to have a profound impact on the country's economic growth, with a particular focus on benefiting startups and MSMEs. DPIIT's proactive approach aligns seamlessly with the objectives outlined in the National IPR Policy, offering the following promising outcomes:
Enhanced Access to Capital: Businesses, especially startups and IP-rich MSMEs, stand to gain significantly by recognizing the inherent value of their intellectual property assets as a viable source of capital. This realization can lead to financial institutions and banks being more inclined to extend credit and funding opportunities to these enterprises, facilitating their growth and expansion.
Alleviation of Stigma: The prevalent perception of intangible assets, including intellectual property, within the financial sector may undergo a positive transformation. As more businesses embrace IP financing, financial institutions are likely to become more comfortable with these assets as collateral, resulting in increased access to credit for businesses, including those with IP-rich portfolios.
Augmented Reputation of IP: Through the active utilization of their IP assets, businesses can contribute to enhancing the reputation and significance of intellectual property across various sectors of the economy. This heightened recognition can drive an increase in the number of IP applications and registrations, ultimately strengthening the intellectual property landscape in India.
Growth in the IP Sector: The establishment of clear and well-defined guidelines, accompanied by legislative support for IP financing, has the potential to stimulate substantial growth within the intellectual property sector. This growth, in turn, can foster a culture of innovation and competitiveness, positioning India as a formidable player in the global intellectual property arena.
The ongoing development of intellectual property valuation rules in India and the concurrent promotion of IP financing represent pivotal steps towards unlocking the latent potential of intellectual property assets. This strategic initiative holds the promise of becoming a game-changing catalyst for India's economic growth, with a particular focus on providing substantial benefits to startups and MSMEs.
Further, the DPIIT's proactive initiatives, closely aligned with the objectives laid out in the National Intellectual Property Rights (IPR) Policy, unmistakably signal a dedicated commitment to harnessing the economic power inherent in IP assets. By drawing inspiration from the well-established and successful IP financing model of Singapore, India has a remarkable opportunity to cultivate an ecosystem where intellectual property assets are not merely safeguarded but also strategically leveraged to propel innovation, entrepreneurship, and overall economic prosperity.
As IP financing gains increasing momentum within India, it emerges as a potent driver of innovation and competitiveness. In the process, it positions India as a frontrunner and global leader in the dynamic and evolving field of intellectual property. India's journey in the realm of IP financing is undoubtedly one to watch, with far-reaching implications for the country's future economic standing.
IP financing involves using intellectual property rights to secure funding or generate income. Startups and MSMEs can benefit from IP financing by leveraging their intellectual property assets to access credit markets, reduce risk, recapitalize their businesses, and even restructure debt. It provides an alternative source of capital for businesses with valuable IP.
Singapore's IP financing success is attributed to its robust legal system, IP dispute resolution mechanisms, support for IP commercialization, adherence to international financial reporting standards, and promotion of alternative dispute resolution. India can draw inspiration from these elements to develop a thriving IP ecosystem that fosters innovation and economic growth.
The implementation of IP valuation and financing mechanisms in India is expected to elevate the perception of intellectual property as valuable intangible assets. This will encourage more businesses to protect and leverage their IP. Consequently, the intellectual property sector in India will experience growth, attracting more applications, registrations, and contributing to the nation's overall economic development.
[1] 444, "ITEM 12: INTELLECTUAL PROPERTY AND INNOVATION: INCLUSIVE INNOVATION AND MSME TRADE EXTRACTED FROM DOCUMENT IP/ C/ M/ 87/ADD.1." Https://www.Wto.Org/, 20 Oct. 2017, www.wto.org/english/tratop_e/trips_e/16_ip_and_innovation_inclusive_innovation_and_msme_trade.pdf.
[2] National Intellectual Property Right Policy." Https://ipindia.Gov.in, 12 Apr. 2016, ipindia.gov.in/writereaddata/Portal/Images/pdf/2016-_National_IPR_Policy-2016__English_and_Hindi.pdf.
[3] ibid
[4] Toh, Andre "Unlocking IP-backed Financing in Singapore." Https://Ipindia.Gov.in, 12 Dec. 2020, www.wipo.int/wipo_magazine/en/2021/04/article_0001.html.
[5] WIPO. "Unlocking IP-backed Financing: Country Perspectives Singapore’S Journey." Https://Www.Ipos.Gov.Sg, 12 Dec. 2020, www.ipos.gov.sg/docs/default-source/resources-library/unlocking-ip-backed-financing-2022-web.pdf.
King Stubb & Kasiva,
Advocates & Attorneys
Click Here to Get in Touch
New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Mangalore | Pune | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com
