IP-backed securitization consists of the transfer of IP by an owner to a special purpose investment vehicle (SPV) for securitization and the receipt of capital from investors in the form of a lump sum payment. In 2005, IP innovations estimated that there are about $1 billion in IP-backed deals each year. This figure is not so exciting, for the universe of buyers and sellers is limited. But if the recent proliferation of Intellectual Property Exchanges on the Internet is an indication, then it is only a matter of time before all concerned will develop greater interest and capacity to use IP assets for financing business start-ups and expansions.
To be attractive to prospective investors, the securitization of IP needs to be based on a diversified portfolio of patents and/or other IP assets. This helps to spread risks and increases transaction size, thereby making investment worthwhile. From the Internet companies’ perspective, the problem is that they usually only have a few patents or IP assets. Another complication is that costs are (potentially) higher if it is necessary to defend a large number of patents.
21.4 Suggestions and Conclusions
Though there have been welcome changes and development on IP financing for Internet industry in China, the situation is still far from optimistic. IP owners or the IP-based Internet companies often lack the necessary knowledge about IP protection and management. Investors again find it rather difficult to adequately evaluate IP assets that have not been properly reported. Additionally, a secure, open, transparent, fair, and efficient capital market for intangible assets such as IP assets has not been built yet. Finally, the VC industry and the GEM are not fully developed, while IP securitization meets many obstacles. Based on the analysis of the selected patterns above, this article puts forward many possible approaches to solve current problems.
21.4.1 Comprehensive and Effective Systems on Registration and Publicity of IP
The registration and publicity of IP and its licensing contract are basic premise for IP financing, because clear ownership on IPR can help reduce the risk of financing and thus promote the transactions and flow of IP assets. But China’s current IP registration and publicity system fell far short of the requirements of IP financing.
According to Chinese Copyright Law, copyright is granted automatically and no registration or publicity is required. This may result in dilemmas like selling or licensing the same copyright to more than one buyer or licensee. Therefore, the safety of IP exchange cannot be guaranteed, VCs and other investors may stop when considering such risks.