The Narendra Modi-led central government has decided to draft a strategic blueprint and action plan for promoting and institutionalising intellectual property financing in India. Being seen as a big move, the Centre feels intellectual property rights are a way forward to improving the country’s finances.
According to the government documents accessed by News18, intellectual property rights (IPR) are intangible assets and can help with financial innovation, easy availability of credit, and increasing capital base.
“IP financing is an emerging business option that may offer an opportunity for companies with valuable IP assets seeking alternative sources of raising capital,” the document states.
The act of using IPR to gain access to financial benefits, credit and generating revenue is referred to as IP financing and its use as collateral in business transactions is known as IP financing transactions. In the recent past, there has been a paradigm shift in the working and functioning of business corporations and companies where finances and revenue are generated from IP, which acts as intangible assets, the document states.
The government is planning to explore plausible ways to devise a uniform system of valuation of an IP as an intangible asset, which will ensure a better evaluation of assets by financial institutions and derive a mechanism to recognise and appoint IP evaluators.
This will mean involving the insurance sector in protecting against the rise of financial losses faced by an IP to minimise monetary risks. Measures and policies undertaken by other countries in successfully endorsing IP financing will also be analysed and adopted.
Despite great potential, however, IP-backed financing or use of the IP base for financing or raising loans in India is quite dismal and at a nascent stage. The government has identified the major reason behind this as being lack of awareness, where either the owner is unaware of the value of their intangible assets or banks and financial institutions do not wish to undertake the risk of lending against IP assets.
Also, tangible properties are a more established form of collateral in the financial sphere and companies still rely on traditional tangible asset-based financing. “This is on account of lack of clarity and uniformity in the methods adopted for IP valuation and the complexity of applicable rules and procedures,” states the document.
Major benefits of the move
Financial innovation – creation of new financial instruments and financial technologies, new derivative contracts, corporate securities, or new forms of pooled investment products for financing or raising loan – if claimed as IPR will become an alternative to crucial economic and financial tools, thereby ensuring maximum economic benefits.
Hence, IP as intangible assets needs to be protected and regulated so that the ecosystem of IP financing and insurance is nurtured in India. The move could help in valuation of an IP asset and assessing the value of IP holdings, including its market resale value, by companies.
An advantage of IP-backed financing is the increase in value of IP (intangible) assets over a period of time as against the value of tangible assets, which tend to depreciate, providing a better alternative to traditional financing.
With US$19 trillion, or nearly 85 percent of the value of the S&P 500, represented by intangible assets, investment in intellectual property has changed the global landscape across industries, the government document states.
The new strategic blueprint and action plan will be prepared under the department for promotion of industry and internal trade (DPIIT), which is the nodal department for administration of laws related to IPR.
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