Operational importance of IP as collateral

We generally think of using collateral for a loan as solely a financial matter–something to be sold off in the case of default on the loan. But it may also have a strong operational purpose. As part of its clean energy production loan application, the Department of Energy has provided suggestions on how to make application stronger. They include following:

Access to IP in a default scenario. Where proprietary technology is essential to the operation of a project, a willingness to assign those intellectual property rights to the DOE as collateral in the event of default also strengthens the application. The purpose of providing DOE access to the company’s IP is to allow DOE to continue operating the project in a default scenario.

In other words, DOE is not looking to recoup funds but to finish the project. Obviously, in that case control of the IP would be essential. It is a good sign that DOE has built this in to its process. I don’t know how standard this is for other lenders/funders. I would assume that potential operational control in the case of default is standard for VCs — another way of recouping their investment rather than liquidation.

By the way, the regulations also require a “listing and description of assets associated, or to be associated, with the project and any other asset that will serve as collateral for the Guaranteed Obligations, including appropriate data as to the value of the assets . . .” Given that DOE encourages the applicants to assign the IP as collateral to DOE for operational purposes, it would be interesting in see how the applicants value that IP collateral.

One thought on “Operational importance of IP as collateral”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s