Introduction

Intellectual Property Rights have evolved in such a manner that they give precedence to maximising private rights, while turning a blind eye to the public domain. Take, for example, a company. It has a variety of technical, managerial and skilled knowledge in the form of its employees, which is the actual valuable asset of the company, however, it's not protected by law as a "property". Copyrights, patents, trademarks etc. are all tools of intellectual property but have been designed to have different standards of protection.

The most precise benefit of an intellectual property can be seen in the fact that the owner can use it as a security. IP rights increase a company's asset value, and valuing these assets helps the company make informed investments and expenditures.

Security can be undertaken using an IP in three ways-

1. The owner can lend and license it to a borrower.
2. The owner can transfer ownership to a borrower, and simultaneously be granted interests from the borrower.
3. The revenue earned through the IP can further be used as security against a loan by the owner.

Legal View

Using IP as securities is completely different as compared to using traditional assets like mortgages and credit cards. This can be owed to the fact that IPRs are a form of personal property that can be sold, bought, licensed, or traded in the same manner as any other property. IP rights are governed by the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002, in the field of litigation. Under this Act, "property" specifically includes intangible assets (i.e., abstract, untouchable assets, unlike tangible assets like machinery and infrastructure). It also includes that a "security interest" is a right of an IP owner.

In the last decade, at least 9 different international investment arbitration proceedings related to IPR have been initiated. It is a fact that an intellectual property would be worthless as a security if it is impossible to be seen as a separate entity from the company altogether. In such a case, it would also be impossible to perform a correct valuation of the same. As of now, there is still a looming uncertainty regarding the correct method of valuation of an IP. This is mainly due to the problems that IPs are mostly inseparable from the underlying business, they have an intangible nature, and IP-related transactions are not really much abundant in the market.

Challenges posed by securitisation of IPs

Security authorities are faced by numerous challenges when it comes to securitisation of IP.

• The current laws are somewhat inconsistent. IPs, by their inherent nature, can be governed by both intellectual property laws and secured transactions laws. In some places, they are even governed by both, making it even harder to not see vagueness in the whole regime.
• Security rights need proper recognition for them to be used, however, some jurisdictions do not provide such recognition to the same. For example, trade secrets, databases, etc are not considered to be securable IPs in some places.
• There exist certain limitations as to the ownership, transfer and licensing of IPs. There are certain laws that limit the ability of an owner, licensor or licensee to use IPs as securities.

Just like the human mind, intellectual property has no bounds. However, laws governing IPs have made it very limited and have drastically narrowed their natural scope. The primary solution for this is providing basic security to IPs against copying, use and misappropriation of the same. This will help create a demarcation as to the possible uses of IPs in the ambit of business. Securitization of IP is a smart concept, in that it is an appropriate method of making money through unique products and services, by means of funding or financing. Earlier, IP rights were only conferred as protection and a measure to increase the goodwill of the IP owner, and were never used as security, in spite of having great economic value. Now, this scenario has changed, along with the perception that IP rights are mere protectors. They are now an extremely crucial source of collateral in secure transactions.

Conclusion

Use of IPs as security has increased drastically. While legal protection has been available to IP owners since a long time, steps must be taken in the direction of separating them into being a different entity than the business they are used or discovered in. There is also an emerging need for a proper valuation system of IPs, so that their owners can successfully use their brainchild as security against corporate debt. There is also a need of proper accountancy systems for all of these solutions to work, wherein accountants can properly and effectively evaluate the IPs and hence make it easier to use IPs as security.

With globalisation spreading at an all-time high, it is crucial for us to protect and secure rights of IP owners. The protection of new technologies is highly needed, and the securitization of IPs can prove to be the most effective and efficient method towards the same.