​​To seize the opportunity of leveraging IP assets financially, top management should involve R&D managers, IP managers, and financial managers and motivate them to proactively identify leveraging opportunities. There are a number of options by which the IP assets could generate finance. Generally, the IP’s original owner gets the finance from the public sector, banks or private sources. Loans, mainly by financial institutions (especially banks), are extended on IP assets while holding the intangible assets as collaterals. These deals, involving the securitization of intangible assets, have enabled owners of IP rights to borrow money more easily and safely from adequately secured lenders. From Intellectual property assets, significant revenue may be generated through licensing agreements. Non-core patents of a technology company could be sold out to generate finance. Licensing and commercial sale are the simplest means of monetizing an IP asset. Auction houses & IP brokers specialized in the field of direct sales and licensing are enabling IP owners to sell or license-out their intangible assets faster to gain access to rapid liquidity. The public sector is more inclined to allocate funds in the form of grants on the basis of R&D activities and projects taken up by a technology company. One key measurement of R&D is the number of patents in the possession of the technology company. Another option for generating revenue is mortgaging of IP Assets. A legal mortgage is one of the safest forms of security transaction and requires that the IP be assigned to the lender with a license being granted back to the debtor. As an example, in 2010, Avago Technologies had mortgaged more than 2000 patent assets to Deutsche Bank. From review of Avago’s annual report, it appears that the patent assets were mortgaged for a term loan of $4.6 billion. Further, in mortgage, the lender becomes the IP owner, and has control over the IP rights. Once the debtor pays back the loan to the lender, the IP rights are granted back by the lender.


One of the options for revenue generation is ‘Sale and Leaseback’ which has not been well explored when it comes to field of IP. In this financial transaction, one sells an asset and leases it back for the long term. Using this option, one continues to use the asset without owning it. This is a short-term financial instrument for obtaining immediate liquidity. In sale and leaseback, the IP owner transfers the ownership of an IP asset to a specialized leasing company for a lump sum amount. At the same time, the specialized company leases back the same asset to its former owner under payment of fees, which correspond to the loan interest. So, basically in this option - two transactions take place one after another. At the end of the leasing contract period, the lessee has the option to buy back the ownership of the asset at a fixed price, by exercising a buyback option. The buyback option is a part of the license agreement and a value mechanism is in place to facilitate the buyback arrangement.  During our research, a patent transaction was identified that reflects the IP sale & leaseback agreement between two parties. As part of this transaction, Certis Cisco Security Pte. Ltd. assigned its patent assets to Ensign Infosecurity (Cybersecurity) Pte. Ltd. Simultaneously, Ensign Infosecurity licensed back the same patent assets to Certis Cisco Security. Sale and Leaseback provides clarity, transparency and accountability, and clearly demonstrates the link between the secured assets and the ability of those assets to contribute to secure short-term funding.


On the whole, leveraging intellectual property assets to generate alternative sources of revenue may strengthen a company's overall profits, improve the company’s liquidity position and diversify its risk. With a focused business strategy and clearly defined goals, creating value from the IP assets by monetizing them may help an entity's overall productivity and growth.

innovate  |  protect  |  monetize 

The development of IP assets is not just essential for innovation, technology growth and competitiveness, these assets can also be leveraged as a financial instrument for source of revenue. Earlier, by many, IP assets were perceived as more of an ornamental asset than an asset which can be used to increase the value of the firm. Lately, IP Assets such as Copyright, trademarks, design rights and patents have received increased attention from investors due to the relatively stable risk/return characteristics associated with these assets.


The commercialization and monetization of IP Assets offers a number of credit alternatives for borrowers, especially for businesses which are light on the other resources. IP financing practices provide alternate means to raise capital which may be invested in projects that are expected to have a higher return than the cost of financing. Further, monetization of IP for small businesses and start-ups may be vital as it gives the firms immediate access to short term finance.

References:


[1] http://metispartners.com/2016/07/22/sale-and-leaseback-a-model-for-increasing-trust-in-ip-assets-2/
[2] https:///www.iprhelpdesk.eu/sites/default/files/newsdocuments/Fact-Sheet-IP-Assets-for-Financial-Advantages.pdf
[3] https://www.heerlaw.com/monetizing-intellectual-property
[4] https://leewardcapitalmgt.com/wp-content/uploads/2019/02/intagible-asset-finance-leeward-march-2019.pdf
[5] https://united-kingdom.taylorwessing.com/en/insights/lending-focus/taking-security-over-ip-counting-the-cost
[6] https://en.wikipedia.org/wiki/Leaseback

[7] https://www.wipo.int/wipo_magazine/en/2008/05/article_0001.html

[8] https://assignment.uspto.gov/patent/index.html#/patent/search/resultAssignment?searchInput=024802-0054&id=24802-54
[9] http://www.annualreports.com/HostedData/AnnualReportArchive/b/NASDAQ_AVGO_2014.pdf

[10] https://assignment.uspto.gov/patent/index.html#/patent/search/resultAbstract?id=20170228658&type=publNum​

IP Monetization – ‘Sale AND Leaseback’ Option

Jan 27, 2020