The Securitization of Intellectual Property Assets - A New Trend
Lending partly or wholly against intellectual property (IP) assets is a recent phenomenon even in developed countries. Collateralizing commercial loans and bank financing by granting a security interest in IP is a growing practice, especially in the music business, Internet-based SMEs and in high technology sectors.
Securitization normally refers to the pooling of different financial assets and the issuance of new securities backed by those assets. In principle, these assets can be any claims that have reasonably predictable cash flows, or even future receivables that are exclusive. Thus securitization is possible for future royalty payments from licensing a patent, trademark or trade secret, or from musical compositions or recording rights of a musician. In fact, one of the most famous securitizations of recent years involved the royalty payments of a rock musician in the USA, namely, Mr. David Bowie.
At present, the markets for intellectual property asset-based securities are small, as the universe of buyers and sellers is limited. But if the recent proliferation of Intellectual Property Exchanges on the Internet is an indication, then it is only a matter of time before all concerned will develop greater interest and capacity to use IP assets for financing business start-ups and expansions. As more cash flows are generated by intellectual property, more opportunities will be created for securitization.