User:Anthere/Intangible asset finance

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Intangible Asset Finance also known as IP Finance is the branch of finance that uses intangible assets such as intellectual property (legal intangible) and reputation (competitive intangible) to gain access to credit. Like other areas of finance, intangible asset finance is concerned with the interdependence of value, risk, and time.

Basic principles[edit]

Business can benefit from unlocking value from their intangible assets, with intellectual property and other intangibles adding at least double the value to products as tangible capital.[1]

In 2003, one estimate put the economic equilibrium of intangible assets in the U.S. economy at $5 trillion, which represented over one-third or more of the value of U.S. domestic corporations in the first quarter of 2001.[2]

Among companies in the S&P500, intangibles including intellectual property account for 90% of the total market value.[3]

One of the goals of people working in this field is to unlock the "hidden value" found in intangible assets through the techniques of finance. Another goal is to measure how firm performance correlates with intangible asset management.

Intangible assets include business processes, Intellectual Property (IP) such as patents, trademarks, reputations for ethics and integrity, quality, safety, sustainability, security, and resilience. Today, these intangibles drive cash flow and are the primary sources of risk. Intangible asset information, management, risk forecasting and risk transfer are growing services as the economic base divests itself of physical assets. Rights to tangible and intangible assets are intangible, and can be traded globally.[4]

Policymakers have explored a variety of measures around IP-backed financing including the creation of dedicated funds; education programs to develop standards, raise awareness and promote good practice; as well as, in some cases, subsidized interest rates for loans based on IP as collateral. It is still a relatively new policy area with both firms and governments are experimenting with how they can support IP-rich businesses to grow.[5]

Business models using IP-backed financing[edit]

A number of intangible asset business models have evolved over the years.

  • Patent Licensing & Enforcement Companies ("P-LECs"): These are firms that acquire patents for the sole purpose of securing licenses and/or damages awards from infringing parties. Perhaps the most famous P-LEC is NTP, Inc., which has successfully asserted patents related to email push technology. Another name for a P-LEC is "patent troll," although this is viewed as a pejorative reference. Recently, hedge funds have raised capital for the specific purpose of investing in patent litigation. One such hedge fund is Altitude Capital Partners, which is based in New York City.
  • Royalty stream securitizers: These are firms that are engaged in the buying and selling of what are essentially specialized asset-backed securities. The assets that are securitized are typically intellectual properties, such as patents, that have been bearing royalties for a period of time. Royalty Pharma is a well known firm that uses this business model, and which has done by far the largest and most high-profile deals in this space.[6] Royalty Pharma handled what many consider to be the first pharmaceutical patent-backed securitization to be rated by Standard and Poors, which involved a patent on the HIV drug Zerit.[7] The other parties involved in the Zerit transaction were Yale (the owner of the patent) and Bristol Myers Squibb.
  • Reinsurers: These are firms that use the techniques of reinsurance to mitigate intangible asset risks. In the same way that some firms issue cat bonds to mitigate the risks associated with extreme weather, earthquakes, or other natural disasters, firms exposed to substantial intangible risk can issue "intangible asset risk-linked securities" that transfer intangible risk to hedge funds and other players in the capital markets with a sufficient appetite for risk. Steel City Re, which is based in Pittsburgh, is a thought leader regarding the use of risk transfer techniques to protect and recover intangible asset value.[8]
  • Market makers: Firms that are working to provide more liquidity to the market for intellectual property. Early market makers offered on-line intellectual property exchanges where buyers and sellers could exchange rights in licensed intellectual property, usually patents. On April 22, 2008, Ocean Tomo reported[9] that it had transacted approximately $70 million in its IP auctions across Europe and the United States. Between 2009 and 2015, The Intellectual Property Exchange International (IPXI), headquartered in Chicago, operated as the world's first stock exchange with an intellectual property focus.[10] In 2017, Ocean Tomo launched its Bid to Ask market.[11][12]
  • Investment Research Firms: Companies that provide specific advice to investors on intellectual property issues. Recently, hedge fund managers have been hiring patent attorneys to follow and handicap outcomes in high-stakes patent cases.[citation needed]

Significant transactions[edit]

  • 1997: David Bowie securitizes the future royalty revenues earned from his pre-1990 music catalogue by issuing Bowie Bonds.
  • 2000: BioPharma Royalty Trust completes the $115 million securitization of a single Yale patent with claims covering Stavudine, which is a reverse transcriptase inhibitor and the active ingredient in the drug Zerit. This was the first publicly rated patent securitization in the U.S. At the time of the deal, Bristol Myers Squibb had the exclusive rights to distribute Zerit in the U.S. Not long after closing slow sales of Zerit along with an accounting scandal at Bristol Myers Squibb triggered the accelerated and premature amortization of the transaction. Many observers believe that this deal was ultimately unsuccessful because of a lack of diversification as it involved a single patent and a single licensee.
  • 2005: UCC Capital Corporation securitization of BCBG Max Azria's royalty receivables generated from worldwide intellectual property rights worth $53 million. This transaction is recognized as the first "whole company securitization" involving primarily intangible assets. UCC Capital Corporation was founded by Robert W. D'Loren, and was acquired by NexCen Brands, Inc. in 2006. NexCen sold substantially all of its assets to Levine Leichtman Capital Partners in 2010.[13]
  • 2005: Ocean Tomo holds its first live IP auction. Although proceeds from the first auction were unremarkable, the relative success of the Ocean Tomo auctions that followed showed that the live auction is a reasonably viable business model for monetizing intellectual property.
  • 2006: Marvel Entertainment's film rights securitization in conjunction with Ambac Financial Group to provide a triple-A financial guarantee on a credit facility for Marvel backed by a slate of 10 films to be produced by Marvel Studios and intellectual property related to some of Marvel's most popular comic book characters.[14]
  • 2012: Alcatel-Lucent secures € 1.6 billion in a loan secured by its intellectual property portfolio and other assets.[15]
  • 2020: Aon launched an intellectual property capital market solution designed to help companies protect and maximize the value of its intangible assets. Its first deal involved an agriculture technology firm, Indigo, which gained access to $100 million through IP collaterals.[16]
  • 2020: American Airlines secured a $1.2 billion investment by Goldman Sachs Merchant Bank in the form of two senior secured note transactions to be collateralized by intellectual property and other assets.[17]
  • 2020: IP Finance Transactions of South Korea Surpass KRW 2 Trillion.[18]
  • 2021: BDC Capital provided $2.6 million in growth capital to Novarc Technologies in IP Backed-Financing Fund’s first deal.[19]
  • 2021: entrinsic biosciences secures $49 million in non-dilutive growth capital from Jefferies Funding LLC in deal supported key Collateral Protection Insurance.[20]
  • 2022: Agriculture commerce bank of Zhangjiagang, based in China's Suzhou province issued a 500,000 digital yuan loan supported by intellectual property.[21]
  • 2022: BDC Capital announced the addition of eight portfolio companies to its IP-Backed financing fund.[22]
  • 2022: Chinese municipal bank issues first digital yuan loan holding IP as collateral.

Government, societies, think tanks, and other non-profits[edit]

The World Intellectual Property Organization (WIPO) is the global forum for intellectual property (IP) services, policy, information and cooperation. It is a self-funding agency of the United Nations, with 193 member states.

Its stated mission is to lead the development of a balanced and effective international IP system that enables innovation and creativity throughout the world.[23] In June 2021, WIPO released its Medium Term Strategic Plan (MTSP), which included working with its partners to catalyze international discussions on the important questions of IP valuation and finance. The organization is launching a new report series, studying country experiences with IP-backed financing.[24] The series was formally launched in 2022.[25] It includes Jamaica, Japan, Singapore, Switzerland, and the United Kingdom.[26] In November 2022, WIPO held a High-level Conversation on Unlocking Intangible Asset Finance, announcing its action plan on the topic.

The United Nations Commission on International Trade Law (UNCITRAL) plays a key role in developing progressive harmonization and modernization of international trade law. UNCITRAL does so by promoting the use and adoption of legislative and non-legislative instruments in a number of strategical areas of commercial law . The UNCITRAL Legislative Guide on Secured Transactions promotes low-cost credit by enhancing the availability of secured credit. In line with this objective, the Supplement on Security Rights in Intellectual Property is intended to make credit more available and at a lower cost for Intellectual property rights owner.[27]

The Organisation for Economic Co-operation and Development (OECD),  is an international organization that works in establishing evidence-based international standards and finding solutions to a range of social, economic and environmental challenges. In addition to other topics, the organization explores the role of intellectual property rights, studies the economic impact of IP regimes globally.[28] In 2019, it produced a paper on the use intangibles to strengthen SME access to finance.[29]

The International Financial Reporting Standards Foundation (IFRS) is a nonprofit accounting organization, which promotes the development of financial reporting standards. Its International Accounting Standards (IAS 38) set out the criteria for recognizing and measuring intangible assets:  “An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights.”[30]

On June 23, 2008, the United States National Academies hosted a one-day conference in Washington, D.C. entitled "Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth."

The Intangible Asset Finance Society provides a forum for finance, innovation, legal and management professionals to discover better ways to create, capture and preserve the value of intangible assets.

The Athena Alliance is a non-profit organization dedicated to public education and research on the emerging global information economy. On April 16, 2008 it published[31] a widely circulated working paper on the topic of intangible asset finance.

Challenges in IP-Backed Finance[edit]

Challenges in intangible asset financing include:

  • High transaction costs.[32]
  • Lack of confidence in IP valuation methodologies[33]
  • Liquidity of the underlying assets[34]
  • Lack of familiarity with intellectual property as an asset class among lenders.[35]

See also[edit]

References[edit]

  1. ^ Organization, World Intellectual Property (2017). World Intellectual Property Report 2017 : Intangible Capital in Global Value Chains. Geneva: World Intellectual Property Organization. ISBN 978-92-805-2895-4. OCLC 1128429013.
  2. ^ "A Trillion Dollars A Year In Intangible Investment," Leonard Nakamura in Intangible Assets: Values, Measures and Risks at 28, Hand & Lev, Oxford University Press (2003).
  3. ^ Banker, Rajiv D.; Huang, Rong; Natarajan, Ramachandra (Ram); Zhao, Sha (2015). "Market Reaction to Intangible Asset Value: Evidence on SG&A Expenditure". SSRN Electronic Journal. doi:10.2139/ssrn.2589319. ISSN 1556-5068.
  4. ^ Gio Wiederhold; Valuing intangible Capital, Multinationals and Taxhavens; Springer Verlag, 2013.
  5. ^ Organization, World Intellectual Property (2017). World Intellectual Property Report 2017 : Intangible Capital in Global Value Chains. Geneva: World Intellectual Property Organization. ISBN 978-92-805-2895-4. OCLC 1128429013.
  6. ^ "A seller's market," The Deal, September 5, 2008
  7. ^ "Avoiding Transaction Peril," Heller et al., in From Ideas to Assets: Investing Wisely in Intellectual Property at 487, Bruce Berman, John Wiley & Sons, 2002
  8. ^ "Steel City Re". Archived from the original on 2008-02-29. Retrieved 2008-05-23.
  9. ^ Ocean Tomo Press Release April 22, 2008[permanent dead link]
  10. ^ "Broken by a system that encourages bad behaviours, IPXI closes down | IAM". www.iam-media.com. Retrieved 2021-12-31.
  11. ^ "Patent and Intellectual Property Brokers | Ocean Tomo Bid-Ask Market". www.oceantomobidask.com. Retrieved 2021-12-31.
  12. ^ "Launch of First Auction on Ocean Tomo Bid-Ask™ Market Platform". PRWeb. Retrieved 2021-12-31.
  13. ^ NexCen Press Release, May 13, 2010[dead link]
  14. ^ "Ambac's press release, 2006" (PDF). Archived from the original (PDF) on 2006-10-16. Retrieved 2008-05-14.
  15. ^ "Alcatel-Lucent secures €1.6B loan package to refinance debt". www.spglobal.com. Retrieved 2021-12-31.
  16. ^ "Aon announces IP capital market solution, first $100mn deal - Reinsurance News". ReinsuranceNe.ws. 2020-10-06. Retrieved 2021-12-21.
  17. ^ "AMR grabs 'largest US private placement' in airline sector | Analysis | Airfinance Journal". www.airfinancejournal.com. Retrieved 2021-12-21.
  18. ^ "Korean Intellectual Property Office Public Relations > News". www.kipo.go.kr. Retrieved 2022-11-13.
  19. ^ "Novarc Technologies receives $2.6M in growth capital from BDC Capital". BDC.ca. Retrieved 2021-12-21.
  20. ^ "Novarc Technologies receives $2.6M in growth capital from BDC Capital". BDC.ca. Retrieved 2021-12-22.
  21. ^ "Chinese municipal bank issues first-ever digital yuan loan using intellectual property as collateral". Financialexpress. Retrieved 2022-08-24.
  22. ^ "World IP Day: BDC Capital's IP-Backed Financing Fund celebrates a busy year helping Canadian companies grow". BDC.ca. Retrieved 2022-10-02.
  23. ^ "Inside WIPO". www.wipo.int. Retrieved 2021-12-31.
  24. ^ "Launch of new WIPO report series on unlocking IP-Backed Finance at Singapore's IP Week, 26 August 2021 – Sharing the Singapore Country Report". www.wipo.int. Retrieved 2021-12-31.
  25. ^ "New WIPO Report Series on Unlocking IP-Backed Finance". www.wipo.int. Retrieved 2022-01-17.
  26. ^ "Country Perspectives on IP-backed finance". www.wipo.int. Retrieved 2022-07-31.
  27. ^ UNCITRAL legislative guide on secured transactions : supplement on security rights in intellectual property. United Nations Commission on International Trade Law. New York: United Nations. 2011. ISBN 978-92-1-133708-2. OCLC 746172450.{{cite book}}: CS1 maint: others (link)
  28. ^ "Intellectual property rights (IPR) - OCDE". www.oecd.org. Retrieved 2021-12-31.
  29. ^ Brassell, Martin; Boschmans, Kris (2019-01-08). "Fostering the use of intangibles to strengthen SME access to finance". OECD SME and Entrepreneurship Papers. doi:10.1787/729bf864-en. S2CID 170002648. {{cite journal}}: Cite journal requires |journal= (help)
  30. ^ "IFRS - IAS 38 Intangible Assets". www.ifrs.org. Retrieved 2021-12-31.
  31. ^ "Intangible Asset Monetization: The Promise and the Reality" (PDF). Archived from the original (PDF) on 2008-12-03. Retrieved 2008-05-14.
  32. ^ "Launch of new WIPO report series on unlocking IP-Backed Finance at Singapore's IP Week, 26 August 2021 – Sharing the Singapore Country Report". www.wipo.int. Retrieved 2021-12-31.
  33. ^ Using Intellectual Property to Access Growth Funding, British Business Bank, 2018. https://www.british-business-bank.co.uk/wp-content/uploads/2018/11/502-IP-Report_singles_v2.pdf PDF download. pg 16. Retrieved 12-31-2021
  34. ^ "Enquiries Into Intellectual Property's Economic Impact" (PDF). OECD. 2015. p. 465.{{cite web}}: CS1 maint: url-status (link)
  35. ^ Brassell, Martin; Boschmans, Kris (2019-01-08). "Fostering the use of intangibles to strengthen SME access to finance". OECD SME and Entrepreneurship Papers. doi:10.1787/729bf864-en. S2CID 170002648. {{cite journal}}: Cite journal requires |journal= (help)

Further reading[edit]

Category:Intellectual property law Category:Financial economics Category:Fields of finance Category:Intangible assets

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