IP Finance in Japan: Challenges and Potentials

July 7, 2022

A WIPO event highlighting preliminary findings of the Japan report on Unlocking IP-backed Finance

Small and medium-sized businesses drive our economies, contributing to more than half of global employment, but many of them lack access to a key ingredient for their survival – cash. Lacking hard assets, traditional avenues of finance may seem unattainable. This finance gap puts a roadblock in the path towards achieving sustainable economic development. For businesses whose value lies in what they invent and create, a new option is emerging to narrow the divide.

A growing number of players – from governments to the private sector – are turning to intangible assets to provide comfort for lenders and inventors. The World Intellectual Property Organization (WIPO) aims to move intangible asset finance from the margins to the mainstream. WIPO’s work in this space includes highlighting best practice and the challenges involved. This includes developing a report series, Unlocking IP-Backed Financing, Country Perspectives, to reveal steps the governments and financial institutions are taking to help enterprises leverage their intellectual property and other intangibles as a financial asset. Beyond sharing what is happening on the ground, the reports identify hurdles in each country that are a barrier to making this type of financing more widely available.

Highlighted findings from Japan’s report were shared in June 2022 at an event supported by the Japan Patent Office and with financing from the Funds-In-Trust Japan Industrial Property Global. One of the remarkable features of Japan’s case shared was the local efforts supporting small and medium-sized businesses develop their main business in conjunction with improving their access to finance. According to Mr. Tomoki Sawai, Director of the WIPO Japan Office, “In the age where intangibles are becoming increasingly important, SMEs can and should thrive upon intellectual property (IP).” He further described the growing emphasis on intangibles within Japan, including in the country’s recently approved Action Plan for New Form of Capitalism.

A number of policy initiatives have paved the way to expand intangible asset finance, as highlighted by Mr. Naoto Koizuka, Chief Researcher, Mitsubishi UFJ Research and Consulting Co., Ltd., who is the contributor to the Japan’s report. For example, the Government of Japan provides support for business valuation from the perspective of IP. These IP Business Valuation Reports facilitate communication in the lending process, as well as in gaining understanding about the borrower’s business strategy around intellectual property. Second, the recent revision of Japan’s Corporate Governance Code in June 2021, as applicable to companies listed on the Tokyo Stock Exchange, is changing the way companies strategically think about intellectual property. It clearly states that, in light of the importance of investments in human capital and IP, a corporate board should effectively supervise such and other management resources and the implementation of strategies related to the business portfolio to help ensure the sustainable growth of companies. This milestone sets the stage for companies and their investors to better understand the importance of the role IP plays in a sustainable business. Finally, the report highlights engagement to raise awareness and the profile of IP financing, as well as in vitalising domestic economy.

Japan’s efforts paid off for Spiber Inc., a Yamagata-based company developing next-generation biomaterials. Spiber’s Brewed Protein™ is produced through a fermentation process of sugar-powered microorganisms and is expected to be used in various industries including apparel and fashion, transportation, cosmetics and health care. Using plant-based biomass rather than petrochemicals as the primary raw material, according to the company Brewed Protein™ materials have better environmental degradability in the ocean and soil than petroleum-derived materials such as polyester and nylon. Animal fibers, such as cashmere, which are widely used as high-end materials in the apparel industry, have been considered as an issue due to the large amount of methane gas emitted during the animal breeding process. However, according to the company’s life cycle assessment which is currently under review by a third party, it is assumed that Brewed Protein™ fibers will emit significantly less greenhouse gases than cashmere in the future. The company built a 100+ patent portfolio to protect the fruits of their research and development. Using the intellectual property generated by the firm, Spiber initially secured JPY 25 billion (around USD 183 million) in financing, and further leveraged these assets to secure additional capital for a total of JPY 40 billion (around USD 311 million) raised on the strength of their IP. The company used the funds to expand its operations, building new factories abroad to expand the availability of its products.

Spiber
Photo: Courtesy of Spiber Inc.

To secure the financing, Spiber needed to show how their intellectual property delivered value for their business. According to Mr. Junichi Sugahara, Director and Executive Officer of Spiber Inc., “Our pitch succeeded because we had a story of business potential that is built on IP. We illustrated that intangible assets and business visions combined, can generate future cashflow.” He continued, to highlight the benefits of this type of financing, “One of the reasons to use securitization was to avoid stock dilution, as well as being able to use intangibles as well as tangibles.”

Intangible asset finance can be a game changer for innovative companies like Spiber. “Momentum is building, with more deals happening in intangible asset finance and opportunities for SMEs as a result,” said Allison Mages, Head of IP Commercialization, IP for Business Division, IP and Innovation Ecosystems at WIPO. To make it a viable option for more companies, efforts need to be made in both political and technical dimensions. “Building an evidence base that explores what governments and commercial actors are doing in this area is essential,” explained Ms. Mages. The Unlocking IP-Backed Financing, Country Perspectives report series provides critical insights how the field of intangible asset finance is unfolding.

Making progress will take some effort. As Guy Pessach, Director of WIPO’s IP for Business Division pointed out, it may “require us to rethink access to finance. A rising number of innovative SMEs are confronted with difficulties in obtaining funding, simply because of a mismatch with traditional banking practices.” Facing these challenges, is imperative for economic growth. Which is why, continued Mr. Pessach, “WIPO is taking an action-oriented approach in bringing together the relevant stakeholders to find solutions.”

A key component of WIPO’s approach is to convene stakeholders across disciplines to make progress. On November 1, 2022, WIPO will hold a high level conversation between senior leadership in the fields of finance, business, and intellectual property from the public and private sectors. The Conversation aims to raise awareness amongst the global community in this space and showcase its potential.

Watch the Event

Opening remarks

Video on demand

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SAWAI Tomoki
Director, WIPO Japan Office

WIPO’s Roadmap on IP finance

Video on demand | Presentation pdf

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Allison MAGES
Head, WIPO IP Commercialization Section

Briefing on Japan report

Video on demand | Presentation pdf

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KOIZUKA Naoto
Chief Researcher, Mitsubishi UFJ Research and Consulting Co., Ltd.

Observation on international IP finance frameworks (US and China)

Video on demand | Presentation pdf

Martin BRASSELL
Chief Executive, Inngot

Observation on international IP finance frameworks (European examples)

Video on demand | Presentation pdf

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Alfred RADAUER
Head, Institute of Business Administration and Management, IMC University of Applied Sciences Krems

Value Securitization case study

Video on demand | Presentation pdf

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SUGAHARA Junichi
Director and Executive Officer, Spiber Inc.

Comparison with other country reports

Video on demand | Presentation pdf

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Guy PESSACH
Director, WIPO IP for Business Division (IPBD)

Read more about WIPO’s work in intangible asset finance.