"Bank on your IP for Credit" by Amanda J.D. Quest. *Image credit: Amanda J.D. Quest and Acrocreates.
Copyright © 2022 Amanda J.D. Quest.
Over two decades ago, Mark Getty, the founder and Chairman of Getty Images, famously described intellectual property (IP) as “the oil of the 21st century”. According to Mr. Getty, “…the richest men a hundred years ago…all made their money extracting natural resources or moving the around…” whereas “[a]ll today’s richest men have made their money out of intellectual property…” This prescient observation foreshadowed a monumental shift in the perception of IP within the commercial sphere. Indeed, IP is now among the most lucrative assets on the balance sheet of a business today. This is especially true for Micro, Small, and Medium-Sized Enterprises (MSMEs), which comprise approximately 90% of businesses worldwide, and “contribute up to 40% of the Gross Domestic Product globally” (World Bank, 2022).
Due to the connections between IP and a business’ commercial viability, there has in recent times been a discernible trend toward pledging IP assets such as patents, trademarks, and copyright as collateral to secure loans from banks. By leveraging their IP assets in this way, businesses can stimulate growth, innovation and increase their competitiveness in the market. For IP assets to be collateralized, they must be monetized, and accurately valued. Monetizing IP assets involves “generating revenue or monetary value” from them, which is achieved through commercializing the IP assets. Monetization will require the execution of an effective IP monetization strategy which should enable businesses to sell their IP assets, legally enforce rights over their IP assets, license their IP assets, and sell products and services that are protected by those assets.
Finally, the IP assets have to be valued. According to Module 11 of the IP Panorama—a publication that was “designed to help SMEs utilize and manage IP in their business strategy,”-- IP valuation is the “process by which the monetary value of subject IP is determined.” Accurately valuing IP assets helps banks to better assess the risk involved in accepting the same as collateral thereby making it easier for MSMEs to effectively leverage those assets as collateral, and secure much needed credit to grow, innovate, and increase their competitiveness commercially. There is no universal method by which IP assets may be valued as the suitability of any method utilized during the valuation process will depend upon the IP asset in question since each IP asset has its own unique risks and characteristics (Owens-Richards, 2016).
However, in the final analysis, the success of any IP collateralization initiative will critically depend upon the existence of a “secondary market”, which will enable banks to successfully liquidate the IP assets pledged by MSMEs as collateral should they default on the loan.
Collateralization of IP in the Jamaican Context
Over the past 9 years, important steps have been taken by stakeholders legislatively and institutionally to facilitate the collateralization of IP assets by MSMEs, which currently account for approximately 97% of businesses in Jamaica. In this regard, a noteworthy development was the passage of the Security Interests in Personal Property Act 2013 (the SIPPA). The SIPPA makes provision for “the creation and registration of security interests in personal property, and for connected matters. It came into effect on January 2, 2014, and expanded the range of property that could be used as collateral to secure loans to include movable personal property, like IP.
The operationalization of the SIPPA is buttressed by the National Security Interests in Personal Property Registry (the NSIPP Registry), and the Jamaica Intellectual Property Office (JIPO). The NSIPP Registry is the official repository for the registration of security interests in all personal property, except real property. The NSIPP Registry is administered by the Companies Office of Jamaica, all registrations are done electronically through its website. JIPO has been working to promote the collateralization of IP through various initiatives, including its recent launch of a collaborative project to “strengthen…the Intellectual Property Ecosystem to increase innovation, competitiveness, and growth in Jamaica.” The “JIPO project” will see JIPO working alongside consultants and local stakeholders to ‘explore challenges and opportunities locally to prepare stakeholders for better participation in the digital economy, better use of digital IP assets, and identify how financial systems can support this…’ It will support the incremental establishment of appropriate frameworks to facilitate the acceptance of IP assets as loan collateral thereby empowering MSMEs that usually face formidable challenges in accessing more traditional forms of collateral such as land, real estate, and equipment.
Phase 1 of the JIPO-led project will focus on “IP monetization and capacity building to build a culture of IP monetization and to increase awareness of the benefits of IP Registration”. Phase 2 of the project will focus on the IP valuation framework, and phase 3 will focus on “designing and testing a financial product that will be able to work for [both] MSMEs and…financial institutions.” In executing phase 1 of the “JIPO project”, JIPO last year conducted a training session that introduced about 340 individuals to IP valuation, and more recently partnered with the Jamaica Banker’s Association (JBA) on a pilot project intended to create an “IP collateral framework” that will enable the “island’s banks to leverage the earning potential of IP.”
While some banks do accept IP assets as collateral, IP collateralization has not yet been mainstreamed in secured lending locally. Indeed, at present, only about 1% of the assets registered in the NSIPP Registry are movable assets like IP. As such, continue to
encounter difficulties in leveraging their IP assets to secure the credit they need to grow,
innovate and increase their competitiveness commercially. To address this issue (and incidental ones), institutional actors and other stakeholders within the Jamaican IP labyrinth should, among other things, move to establish—with reasonable alacrity—a framework that will promote and eventually mainstream the collateralization of IP in secured lending locally. At a minimum, that framework should include a mechanism through which IP can be properly valued.
Targeted efforts should also be made by the Government, and other key stakeholders, to strengthen JIPO’s capacity to promote the collateralization of IP in Jamaica by endowing it with the necessary human (in the form of valuation and other relevant experts), and material resources to do that important work. Finally, the Government should consider incentivizing banks’ acceptance of IP assets as loan collateral by implementing programs to subsidize the cost of IP valuation as is done in Korea, and absorbing even a fraction of the monetary risk borne by banks involved in the business of IP-backed financing.
The MSME sector accounts for approximately 80% of jobs within the economy, thereby contributing considerably to the nation’s GDP. Promoting and (eventually mainstreaming) the collateralization of IP in secured lending locally should therefore be prioritized as an essential avenue for stimulating economic growth and ultimately making Vision 2030 a reality.
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