IP ASSETS
SHOW ME THE MONEY! USING IP ASSETS AS SECURITY
Numerous companies in India and across the world have raised millions of dollars pledging their IP assets to secure an injection of funds. M S Bharath dissects the pros and cons of putting your rights up as part of a loan agreement.
T 94
he Indian economy, like those of many other developing nations, is increasingly driven by intangibles, with many
companies listing intellectual property as their key asset. Te financial sector has innovated over the years by advancing loans with IP as their sole or partial security. Te lender and the borrower have to go through many pre- and post- transactional exercises, including due diligence, recording of security agreements, maintenance of IP and the measures to be taken should there be a default on the money advanced.
Due diligence
It is vital for comprehensive due diligence to be conducted to ascertain exact ownership, validity, conflicting rights and valuation of the IP, and the nature of the loan to be created.
Trademarks in India are protected under common law and statute law. A simple trademark search of the register may not reveal the accurate ownership, given backlogs at the Trade Marks Registry, lack of mandate to record the assignment of registered trademarks, etc. Te due diligence would have to be done not only on the title of the trademark; it is also necessary to evaluate the distinctiveness, use and registrability of the trademark.
In India a copyright need not be registered to be protected and may be protected when the author and the first owner separate in cases of work that has been commissioned or was created when the author was employed. Further, even when works are assigned, they may revert back to the author by operation of contract or law. Patents and industrial designs are solely protected under statute, so details of ownership, assignments, licences and validity can be ascertained relatively easily.
However, other forms of IP such as confidential information, trade secrets and know-how are protected only under common law, with no
World Intellectual Property Review Annual 2014
mandates or obligations to register before any authority,
parties dealing or conveying them.
No matter the type of IP asset, the lender advancing money against it should rely on its own intelligence through inspections, investigations and due diligence.
Valuation of the IP
Valuation of IP assets is more an art than a science. Te oſt-ignored but essential factors would be to monitor the competitive landscape, including the levels of infringements and competing patents, and the actions taken by the IP owner, which could easily eradicate the bottom line of an IP asset or, in fact, the entire portfolio surrounding it.
Also to be considered are the expenditure on research and development, marketing, present and projected revenue, through direct sales or through licensees, both present and prospective.
Nature of loan, security agreement
Te traditional form of securing a loan is a mortgage or fixed or floating charge, without transferring the title of
the IP asset but with
the lender acquiring a simple equitable interest thereon. A guarantee on the part of the borrower
www.worldipreview.com the contractual agreements between
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