Intellectual Property in a Debt TransactionBanker Resource
May 22, 2013 — 1,425 views
Intellectual property is an asset to any organization. If IP is recognized as an asset, it must be accepted that IP debt transactions are possible. In other words, it can be used as a form of collateral for the company trying to access loans. But as against other forms of collateral, IP as collateral comes with a set of challenges.
IP as an Asset
Assets of an enterprise can be broadly divided into two parts – physical assets and intangible assets. There can be several forms of intangible assets such as brands, design, know-how, and human capital most of which belong to the category of intellectual property. On the other hand, physical assets include machinery, buildings, infrastructure, and financial assets among others.
Just like the physical assets, intangible assets like intellectual property must be protected because they are assets. IP can be protected by acquiring IP rights for products and processes of innovative nature, literary, artistic, and other works of cultural nature. Many nations recognize computer software and compiled data from diverse sources as IP, which are protected under copy rights act. Industrial design rights protect designs like textile or industrial designs.
The possibilities of IP debt transactions and intellectual property as assets are compelling propositions for banks to consider insuring IP holdings.
IP Transactions and Due Diligence
Intellectual property is the key asset for many organizations. Since this is their most valuable asset, they must be protected in nearly every business transaction. There is a need to apply due diligence when considering business transactions such as a major acquisitions or joint ventures. Due diligence, being complex and a legally technical process, requires specialized law firms to handle it.
Some of the critical issues in the consideration of intellectual property due diligence include scope and management of the diligence, evaluation and valuation of portfolios, technology transfer agreements, as well as negotiation and drafting of the same.
While considering due diligence in intellectual property, problems are confronted because of multi-national transactions, since challenges are involved in handling IP across nations. So, examination of foreign diligence will be quite critical. Additional challenges could also be confronted when faced with conflicts from external clients.
There are several other issues in intellectual property that are important these days. One such issue is the IP debt transaction. The issue of debt transactions in IP follows from the fact that IP is an asset. In recognition of IP as a valuable asset, there are many uses of this intangible form of asset just like material assets. For instance, a company requiring loan can use IP as their collateral against which loans can be sanctioned.
According to a recent article in the Financial Times, there are banks in the US that are seriously considering the idea of insurance of intellectual property holdings. This move may be advantageous for both banks and the borrowers. For banks, this form of insurance will help them trim capital requirements. On the other hand, borrowers may be able to get loans at a lower interest rate.