Saturday, June 1, 2013

IP Financing for IP based Economic Growth

As a way out of the current worldwide economic depression, a new business model for exploiting hidden value in IP (Intellectual Property) is under development globally. For example, as a part of the Europe 2020 Strategy for jobs and growth, European Commission’s Innovation Union launched several initiatives to encourage IP ‘valorisation’ through IP-backed finance ( The basic model of Innovation Union’s IP-backed finance is to explore the role of IP as boosting not only business financing for innovation but IP transactions (*Traditional IP-backed financing models are IP securitization, IP loan, and IP sale & lease back).

Another example for IP ‘valorisation’ through IP-backed finance can be found in East Asian reason such as China, Japan, and S. Korea. Financial Services Commission in S. Korea recently announced that it will form an IP investment fund for IP acquisition and monetization. Initial funding amount will be around $100 M, and various IP investment models will be adopted. Korea Development Bank also formed $100 M IP investment fund specifically for SMEs. Industrial Bank of Korea also announced its plan for forming $2400 M IP investment fund for investing in not only patents but also other types of IP. It also expressed its plan for collaborating with global investment bank such as JP Morgan.

In addition to the public IP fund, many private sector investors such as venture capitals and private equities also entered into the IP Investment fund market, as the newly started president Park’s government insisted the important of IP for the sustainable economic growth of S. Korea and its commitments to support the formation of IP ecosystem. It is expected that the total amount of IP investment funds in S. Korea will reach $1 B in a few years.

These initiatives for exploiting hidden value in IP through IP finance could create a virtuous cycle that can accelerate the formation of fully evolved IP ecosystem as described in the insightful IP book “The Invisible Edge:” Financing for IP transactions will increase the volume of IP transactions. The increase in IP transactions will make available more transaction data, and thus, increase in transparency. The increase in transparency will lead to low transaction costs, and thus, increase in liquidity. The increase in liquidity will induce more capital for IP finance.

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