With the increasing awareness of intellectual property among the MSMEs, startups and businesses in India, the proper valuation framework for intellectual property is required.
This is necessary to facilitate IP financing, making space for newer and progressive financial instruments.
The Department of Promotion of Industry and Internal Trade (DPIIT) is eyeing to devise a system of IP valuation as an intangible asset. This move will aid businesses, especially micro, small and medium enterprises and startups with valuable IP, in striving for alternative sources of raising capital.
What if IP financing?
Intellectual property rights are crucial to secure financing by selling or disseminating rights to cash flows derived from these assets. Alternatively, a company’s intellectual property can indicate a firm’s value and provide strong backing in financing decisions. For some businesses, intangible assets only designate a small share of a company’s worth. For others, the prevalence of their value may flow from their intellectual property. These companies must convey the value of their intellectual property and other intangible assets to lenders and investors.
IP Financing is increasing but still mainly developing. Experiments by commercial actors and governments to enhance access to finance on the strength of intellectual property are ongoing.
Benefits of IP Financing
- IP finance makes the credit markets available to service companies with “hard-asset-light” needs for asset-based financing.
- If the IP is transferred to a particular purpose, bankruptcy-remote investment company, IP financing may appeal more to lenders under a credit-enhancement structure by lowering the borrower’s risk profile.
- Recapitalization via IP financing can boost available funds for venture investments that provide returns that outweigh the cost of borrowing.
- By using IP financing options with favourable conditions, companies may be able to restructure high-cost debt, address liquidity issues, and avoid share dilution.
What is DPIIT’s plan for a strong management of IP financing?
The strategy is in line with the National Intellectual Property Rights (IPR) Policy, which aims to “enable the valuation of IP rights as intangible assets by application of appropriate methodologies and guidelines; facilitating securitisation of IP rights and their use as collateral by the creation of enabling legislative, administrative and market framework.”
According to the department, developing new financial instruments and technologies, derivative contracts, corporate securities, or pooled investment products for financing or loan raising would become an alternative economic and financial tool if claimed as intellectual property rights.
The official said that intangible assets need to be protected and controlled because IP financing in India is still in its infancy.
Why should India take inspiration from the IP financing model in Singapore?
The legal system in Singapore has earned a reputation for being open, effective, and impartial, and it is widely trusted. Singapore was placed second globally and first in Asia for its IP protection framework in the World Economic Forum’s Global Competitiveness Report of 2019. For the seventh year running, Singapore also placed first among the economies in the Asia-Pacific region on the Global Innovation Index (GII) 2020 and eighth overall.
Singapore has also established a robust IP legal framework for registering, protecting, and commercialising patents, copyrights, trademarks, and other types of IP. Through recurring evaluations, IPOS works tirelessly to ensure Singapore’s IP laws remain applicable in the country’s changing business environment. From 2014 to 2016, Singapore’s registered design review included several discussions, expanding registered designs to virtual configurations. A copyright review was also started by IPOS from 2016 to 2019 to facilitate the production and consumption of creative works in the modern digital era.
In 2021, a new copyright amendment bill is anticipated to go into force. To introduce a new IP amendment bill in 2021, IPOS has also started a new round of consultations. This builds on a prior public consultation on modifications suggested to optimise and simplify IP processes and enhance user experience with digital efforts in August 2020.
Singapore has also worked to improve its IP dispute resolution process, establishing a specialised IP Court in 2002. The IP Court Guide, published in 2013 to outline specific case management practices for IP cases, supplemented this. Today, the High Court of Singapore has a roster of knowledgeable and specialised IP judges to hear IP cases. This encourages the development of expertise further and raises the standard of decision-making.
What is WIPO’s suggestion related to IP financing?
The WIPO Arbitration and Mediation Centre opened an office in Singapore in May 2010, making it its first location outside Geneva. The collaboration between Singapore and WIPO enables businesses to settle IP disputes using alternative dispute procedures. Instead of going to court, this potentially cut down on the time and cost associated with the process. It is more advantageous for IP activities to occur in Singapore when businesses can resolve their IP disputes properly and expeditiously.
Potential financiers can learn vital information about the value of IA/IP by recognising a financial asset inside a company’s reporting. Singapore has strong ties to global standards for financial reporting and accounting. Within the Association of South East Asian Nations (ASEAN), the nation was among the first to support the International Financial Reporting Standards (IFRS). The Singapore Financial Reporting Standards (SFRS) now incorporate the main IFRS requirements. Since 2003, SFRS has been the standard for financial statement preparation and presentation for all Singapore-based and Singapore-incorporated businesses. Listed firms may also adopt IFRS for financial reporting needs with the securities regulator’s consent. As a result, Singapore’s financial reporting standards are understood and accepted globally.