World Bank paper on IP monetization

Today we are getting back to the theme of our short posting earlier this week on IP monetization. Specifically, let us look at a new briefing paper from the World Bank/OECD’s Innovation Policy Platform on Using intellectual property to raise finance for innovation.
The report looks at the dual role that intangibles (specifically intellectual property – IP) play in the financial system – in this case dual meaning both debt and equity financing. As a factor in debt financing, IP assets can serve four functions. IP can serve as a risk-mitigator — essentially a signally function to lenders that the business has a reasonable chance of surviving as an ongoing enterprise and therefore can pay back the loan. IP can service directly as collateral for a loan. IP can be used in a sale/lease-back arrangement with the lender that provides a secure cash flow. Finally, IP can be used in an asset-backed securitization to tap direct into the bond markets. In equity financing, IP serves as signaling function for investors (e.g. venture capital). IP can also generate direct cash flow to the company and shareholders in the form of licensing revenue and/or litigation awards.
The report goes on to cite various obstacles. From the point of view of companies, there is both a lack of awareness/capacity and barriers to access to IP in general. Markets for IP have problems with valuation, liquidity and uncertainty. Lenders and investors lack expertise and incentives to deal with IP as part of lending decisions.
The World Bank report comes to similar conclusions and recommendations as our various reports (see Intangible Asset Monetization: The Promise and the Reality, Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance, “Intangible Assets in Capital Markets”, “Intangible Assets: Innovative Financing for Innovation”, and “Building a capital market for intangibles”). It is also in line with the recent report from the UK Intellectual Property Office on Banking on IP? The role of intellectual property and intangible assets in facilitating business finance (see also earlier posting).
These include–
Policies to raise awareness and use of IP systems, such as:
 • Subsidize the use of the IP system to reduce costs of gaining a patent;
 • Build up IP awareness and business capacity in innovative firms;
 • Improve access to IP services; and,
 • Insure innovative firms against IP risks.
Policies to lower transaction costs in IP-based financing markets, such as:
 • Improve the measurement and reporting of intangible and IP assets;
 • Standardize the valuation of IP assets, such as patents;
 • Improve access to information about IP assets;
 • Remove uncertainties about patent quality; and,
 • Create marketplaces to make IP assets more liquid.
Policies to raise awareness and use of IP by financiers, such as:
 • Accept IP as collateral for lending by development banks and government guarantee schemes;
 • Develop a culture and systems that allow banks to incorporate IP assets into their lending decisions; and
 • Create incentives for banks to consider IP as collateral for loans under Basel III rules.
The briefing paper does not go into great detail about how to implement these policies. However, the discussion of them in the venue of the World Bank/OECD Innovation Policy Platform is very welcome. Let us hope that it spurs more interest and activity in further developing policies and programs to utilize intangible assets in financing activities. As I have stated before, there is a huge potential for innovation financing that remains untapped.


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