IP FINANCE ENHANCING THE IP ASSETS XUAN-THAO NGUYEN GERALD L. BEPKO CHAIR IN LAW DIRECTOR, CENTER FOR INTELLECTUAL PROPERTY & INNOVATION INDIANA UNIVERSITY MCKINNEY SCHOOL OF LAW XUNGUYEN@IU.EDU

CORPORATIONS SPEND TRILLION IN RESEARCH AND DEVELOPMENT In trademarks and patents filing fees alone, businesses spend more than $3 Billion (USPTO earned revenue for 2018 fiscal year was more than $3 Billion)

If Intellectual Property Assets are So Valuable … Why Banks and Other Lenders Refuse to Accept Trademarks, Patents and Copyrights as Security in Lending?

IN THE AGE OF MANUFACTURING INTELLECTUAL PROPERTY ASSETS How to Extract Value from Intellectual Property Assets?

IP FINANCE IN CHINA In 2017, RMB 72 Billion (about $10B USD) in total loans with patents as collateral; 65% increase from 2016. Expect in 2020: RMB 180 Billion (about $25B USD) in total loans with patents as collateral In July 2018, Bank of Beijing and the Beijing Municipal Science & Technology Commission formally signed the Strategic Cooperation and Promotion of IP Pledge Loan Agreement to launch IP finance products. 1. Established the State Intellectual Property Valuation and Certification Center in February 2017 2. Established 24 similar centers throughout China in October 2017 3. The Beijing Method: Banks provide loans directly to enterprise using their patents, copyrights and trademarks as collateral 4. The Shanghai Method: Banks provide loans guaranteed by the government (state-owned) enterprisers who serve as co-signers 5. The Wuhan Method: Banks provide loans guaranteed by a private company and the borrower pledges the IP as security

IP FINANCE IN CHINA IP Financing in China – Copyrights and Trademarks IP Pledges Require IP Valuation Copyright and Trademark (future royalty stream, pre-sale contract as collateral) pledges are more common than patent pledges http://en.naipo.com/Portals/0/web_en/Knowledge_Center/Feature/IPNE_161128_0701.htm

IP FINANCE IN CHINA : A. The Beijing IP Office and the Bank of Communications signed an agreement on IP Pledge loan: the Bank agreed to offer a 2 billion Yuan fund for loans to SMEs, with IP as collateral. B. The IP Office collects the pledge applications submitted by companies and then selects qualified companies to recommend to the Bank. C. The Bank examines the applications and decides whether they would recommend appraisers to study/valuate the IP. D. The Bank then decides whether to lend against the IP or not. E. The IP Office subsidies the interest (50%) to reduce the high rate Policy/Pilot was adopted by six sites across China.

IP FINANCE IN KOREA At the end of 2018, the South Korean Government announced plans to increase IP-based lending (risk sharing programs, cost sharing in IP disputes, and sharing up to 70% of IP insurance premium to enhance the IP Assets for financing) The Korean Intellectual Property Office (KIPO) and the Financial Services Commission (FSC) announced their policy initiative to incentivize banks to lend against IP assets. KIPO approves valuation institution for IP-based lending. Loans are up to 60% of the IP value Korean Development Bank provided $100 Million USD in loans to 80 IP-rich companies In 2019, commercial banks like Woori Bank, Shinhan Bank and KEB Hana Bank began to accept IP-backed lending for startups and VC firms.

SOLUTIONS ADOPTED IN THE UNITED STATES. 1 SOLUTIONS ADOPTED IN THE UNITED STATES? 1. Revision of banking/lending law to accept Patents, Copyrights, Trademarks… as “Collateral”? 2. A Uniform System of IP Valuation? 3. Treating IP as An Asset Class for Accounting Purpose? 4. Enhancing IP as an Asset under Insurance Law and Practice to make IP Assets Attractive to Lenders?