Introduction
It is a collection of ideas that is in the form of artistic literary or inventive works symbols names graphics addresses used in business etc. IP is more and more integrated into Finance and assessed as the value adding factor or security that can affect the company’s value. It was observed that the development of the knowledge economy continuous improvements in technology and globalisation of the financial market resulted in increased significance of IP in the financial industry.
Patents trademarks copyrights and trade secrets are some of the forms of intellectual property rights. Every one of them performs a distinct function in the shield of innovation and branding as well as the processes of trading. Although the concept of IP has commonly been attributed to industries such as pharmaceuticals technology and media it has become increasingly important in Finance in the recent past. Money companies especially financial institutions are extending the use of IP as a strategic resource and as a financial tool.
This article will discuss the connection between intellectual property and finance focusing on the importance of IP in financial markets the challenges and possibilities that the field involves and the changes in legal regulation.
What does Intellectual Property refer to?
Intellectual property or IP is a legal asset that belongs to the realm of intangible assets of the human mind. There are four main types of IP
Patents
Patents are given in order to protect inventions and patents give the owner of the patent sole legal right to use sell and licence the invention for some time usually in X number of years which can be up to twenty years.
Trademarks
Trademarks are the rights that safeguard brand names symbols phrases and other devices used in connection with the identification of goods or services.
Copyrights
Copyrights refer to the exclusive rights granted to authors in original creations that are expressed through literary and artistic works that include books music software films and even broadcast in media among others.
Trade Secrets
Trade secrets refer to trade information that is known only to the trader and which the trader has taken measures to keep from the public this includes formulas processes and business strategies.
It is important to note that most of these IP protection structures are anchored under different laws and regulations depending on the country. This paper defines intellectual property within the context of Finance and business and how it is gradually being perceived as an object of engagement that can be employed in numerous ways.
IP has therefore quickly become one of the essential classes of assets in today’s economy. These include financial institutions venture capitalists and investors who are now focusing on IP while evaluating a company and its growth prospects. Several factors explain this increasing focus
Innovation and Technological Advancements
Especially in such industries as fintech AI and biotechnology innovation is regulated by patents trademarks and copyrights. These assets are very useful in depicting the market position and future trends of a company’s earnings.
Valuation of Companies
Because of the nature of several modern and developed companies especially startups and technology companies the evaluation of these companies may in most cases hinge on their IP assets. It should be noted that in most of these occurrences IP assets contribute to a large extent to the total value of these firms.
Collateral for Financing
Businesses have been especially turning to using their IP as security for their financing structures. As we have seen banks private equity firms and venture capitalists are ready to advance money in equities or bonds on the potential of a company’s IP assets.
Due to its intangible nature it has been associated with being an Archetype of intangible assets and often regarded as a financial asset. In the financial world IP is not only a legal remedy for inventions or brands it is also a financial instrument. There are several ways in which IP is leveraged in Finance
IP Valuation
IP valuation is the process of appraising IP assets so that one can determine the worth of the IPs in question in terms of money. This might be challenging mainly because it requires evaluating the likely revenue that the IP will provide the costs of nurturing it and the competitive edge that it will provide in the market.
Valuation is of significant importance in several other financial activities such as M&A licensing contracts and bankruptcies. It is pertinent to note that the value of IP can be unpredictable based on the market forces a state of innovation in the sector and the protection of IP rights in the given firm.
IP as Collateral
A major innovation in financing/valuation and the IP interface has been the practice of using IPRs as securities in financing. IP has been accepted as collateral in financing especially among emerging firms in the technological and biotech poles mainly because tangible security may be hard to come by.
Through using an IP as security firms can borrow funds without giving out equity control or selling shares. However this also has the potential to be a negative aspect for both the lending party and the borrowing party. Whenever the borrower fails to pay the lender will have to exercise the IP rights recovered and sell or licence the IP to recover the loan this is not easy.
Securitization of IP
The securitization of IP means the process of pooling intellectual assets like patents or royalties and selling these products to investors in the market. This process is similar to the securitization of other financial assets such as mortgages or credit card debts. IP securitization enables companies to solve the problem with IP assets and find necessary funds at the same time.
However the securitization of IP poses distinct issues especially when evaluating the risk involved with IP assets and the legal recognition of the ownership of IP in various jurisdictions.
4 IP in the M&A
M&A provides important insight for institutions that especially focus on the intellectual property affecting the operations of industries that operate within the capacity of innovation and branding. Often the acquisition is driven mostly by the target’s IP portfolio or collection of owned or controlled IP assets.
For instance when a software technology firm buys a startup what it is buying is basically the IPs of the startup which include patents trademarks and trade secrets among other things. This is because the value of the announced IP portfolio makes a huge difference when it comes to the purchase price and the kind of bargain that is to be made.
Financial institutions and their Function
Today financial institutions such as banks investment firms and venture capitalists are increasingly involved in managing and exploiting intellectual property assets. These institutions have dedicated departments and services in order to evaluate the worth of the IPs design and negotiate the IPbased financing and manage the IPs.
IP Due Diligence
In any financial deal where an asset involving an IP is involved the firms usually undertake an IP due diligence. It therefore involves evaluating the quality of the IP assets and their legal risks as well as how and where the IP assets can generate future revenues.
In general IP due diligence becomes crucial in M&A transactions where the value of IP greatly determines the overall transaction.
IP Backed Financing
The IP backed financing solutions include loans and line of credit facilities which financial institutions extend to the owners of intellectual property assets. These financing arrangements are especially useful for venture backed startups and new technology based enterprises which on their part may need more tangible collaterals but hold promising I. P. rights.
Integrated Planning IP Management and Strategy
However apart from funding financial institutions have also ventured into the task of availing and enhancing the firms IP management and utilisation plans. This comprises assisting in choosing the relevant IPR protection licensing and enforcement strategies while aiding in optimising the value of the company’s portfolio of IPRs.
Disadvantages of Using Intellectual Property
Although there are many opportunities for intellectual property in the financial sector there are also many issues that can be encountered and threats involved.
Valuation Challenges
The valuation of IP however can be a complicated affair as it might involve more of an objective assessment. Unlike fixed assets where the value can be easily estimated the value of IP will always be relative to the current market trend the competition and the legal protection of the particular intellectual property right. Sometimes this value might even be expected because the owner of an IP portfolio might never intend to use it therefore estimating the risk for a financial organisation in an IP based transaction might be challenging.
Legal and Regulatory Risk
IP is in most cases controlled by laws from individual countries and treaties internationally therefore it may change from country to country. At the same time this state of affairs poses legal and regulatory risks to financial institutions especially in cross border operations. Another main issue in IP based financing is to make sure that respective IP rights are enforceable in the target countries.
Civil Rights Laws IP Infringement
Infringement and legal disputes associated with IPs and assets share essential risks for owners of and the financial institutions that invest in these assets. Litigation is expensive and often takes a lot of time when one coordinates identically the results are usually unknown. This is always a major problem because if a company’s major assets in terms of IP are discovered to be for instance invalid or unenforceable then the value of the company as well as its capacity to repay loans or fulfil other obligations will be affected.
Dynamic Nature of IP
Unlike tangible assets IPR is not some rigid lump of capital that remains as such for long periods and is also reflective of the variation in value of the same in fluctuating markets. The value that one may attach to a patent or trademark may fluctuate as a result of changes in the marketplace technological developments and shifts in consumer behaviour. This dynamism of IP can give rise to problems in managing the risk connected with IP based transactions in financial institutions.
Progression of the Legal for IP
Due to the demand for the integration of intellectual property into financial markets new laws and standards have been created in an effort to regulate IPlinked financial operations. These frameworks are developed to afford a higher level of transparency and standardisation in IP assets valuation utilisation and protection in the sphere of the financial markets.
International Treaties and Agreements
The laws of international relations require that IP rights across borders be recognized and enforced by international treaties and agreements. The most important of them is the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) which establishes minimum standards for making and enforcing IP rights in the member countries of WTO.
National Laws & regulations
Besides there are national legal systems in the countries of the world that regulate the issues of IP and its application in the financial field. These laws can significantly differ from each other especially with regard to the respective value of IP the protectability of the IP assets or otherwise and other is the utilisation of IP as security.
Licensing and Assignment of Technology
Licence and transfer agreements are a significant part of the use and exploitation of intellectual property. Such agreements are typically based on contract law and IP law and more and more are implemented in financial transactions where they are used for the sale transfer and licensing of IP assets.
Areas of Innovation in the Financing
There is one area where IP and analysis exist but have yet to be fully developed IP and Finance. With the advancement of the knowledge economy a new generation of financial products and services is coming into the market to help organisations capitalise on their intangible assets.
IP Insurance
As established above IP indemnification is an upcoming industry that enables firms to shield their IP properties from infringement and legal actions. It can also translate to increased confidence in the financial institutions in the execution of IP back financing.
Crowdfunding and IP
Specifically crowdfunding has been applied more and more frequently to financing projects that rely on intangible assets such as film software and inventions. These platforms make it easier for creators to directly make money out of their IP assets through sourcing for potential investors across the world.
Blockchain and IP
In view of this blockchain technology presents new opportunities for handling and safeguarding intellectual property assets. Basically blockchain has the potential to reduce the risks of IP theft and infringement since it will offer a transparent decentralised and tamper proof database to facilitate the ownership of exclusive rights as well as IP transactions.
Monetization of Intellectual Property
In addition to protection the intellectual property of fintech can be utilised for monetary value which is a new source of revenue. Some common ways to monetize IP in digital Finance include
Licensing
Another strategic approach that fintech firms can undertake is to offer licences of their IP to others like banks and or thirdparty service providers. For instance a fintech firm with a patented payment processing technology can offer the technology to other financial institutions to make money legally through royalties.
Partnerships
In addition licensing/share deals are a common practice when it comes to partnerships between fintech firms and traditional financial organisations. This makes it possible for both parties to reap from the IP while at the same time increasing the market for such inventions.
Legal Issues and Concerns in IP
In spite of the spillovers that intellectual property provides to the fintech companies the section carries some drawbacks to the development of this sector when it comes to the protection of these assets. Because fintech is global and evolves very quickly firms face difficult legal environments to manage.
Cross Border Issues
Fintech companies provide services across different countries and the laws that comply with intellectual property rights differ from one country to another. It is not a trivial and cheap affair to make sure that patents trademarks and copyrights are recognized and protected in foreign jurisdictions.
Regulatory Compliance
It is important to understand that fintech firms are highly regulated in fact pursuing compliance with financial laws and standards may actually run counter to pursuing strong IP strategies. For example legal requirements such as data protection laws including GDPR in the EU can affect how fintech firms collect store and protect customers data which is a form of intellectual property.
Future of IP in Finance
At New Frontiers we use best practice models to appropriately intervene in and manage the various levels of complexity that are identified in the restructured and globalised work environments.
As we move into the future intellectual property in digital Finance is set to expand even more. Quantum computing and decentralised finance (DeFi) are among the technologies that may create new opportunities and risks for IP management in Finance.
Emerging Technologies in IP
Thus emerging technologies such as quantum computing can alter the cryptography employed in fintech applications challenging the present protection measures. Thus it can lead to the race for patents for quantum resistant encryption techniques and as a result increases the significance of IPs in the fintech industries even more.
The same can be said about DeFi the platform that provides decentralised financial services situated on the distributed ledger blockchains without the presence of intermediaries. The creators of such business plans implementing blockchain protocols and dApps are to take an appropriate approach towards IP to preserve innovativeness in an area that is substantially open source and community oriented.
Conclusion
IP assets are already and more so in the future significant parts of the financial world and the creation of an integrated valuation tool will prove to be valuable and necessary for the economic analysis of IP. However with innovation set to remain at the centre of economic development in the future IP will always factor in the evaluation of companies mergers and acquisition deals and in mapping the future of the economy.
The relationship between IP and Finance has its merits and demerits. On the one hand IP has great potential for both innovations and added value. However it provides unprecedented challenges more noticeably in areas of valuation legal rights and market conditions.
This means that financial institutions investors and policymakers will have to keep on working towards the further development of new methods approaches and legal acts in this constantly changing context. As such they are able to optimize the benefits of intellectual property as a tool for economic growth and financial development.