IP Securitization is a financing technique for monetizing intellectual property. IP securitization allows right holders to obtain financial benefits in return for the right to receive royalties from their innovations over a predetermined time.
When a client comes to the office with a request for IP securitization following steps have to be followed:
Step 1: Signing of the non-disclosure agreement between ITAG and the client.
Step 2: Documentation and information related to all the patents in possession of the client to be collected.
Step 3: Due diligence of IP to be conducted by ITAG
For conducting due diligence investigation, the following checklist to be followed:
- Understand the IP being commercialized, and the obligations of ITAG towards the buyer or seller.
- To confirm information validity, search should be conducted on the ownership of IP, IP history and renewal fees to ensure that rights are still in force.
- Information related to other assets which are required for exploitation of an IP shall be collected from the client.
- Copyright implication to be checked as to who owns the literally and artistic works.
- To determine if any mortgage is there on the IP.
- To collect details related to any improvement in patents that might exist.
- To determine whether the IP is the subject of any litigation or infringement suits.
- Understand and request details such as the duration of the license if any and all significant timeframes involved with the IP.
- Details related to safeguards to capture the new developments in the technology may be collected from the client as in the technical scenario patents become outdated very quickly.
- Request details on significant third parties that may have some kind of right in the IP asset and ensure whether seller is entitled to sell the IP.
Step 4: List of assets that can be securitised should be sent to the client
Step 5:IP Valuation of the patents to be predicted.
IP Valuation can be done mainly by three methods. They are
- Cost Approach
- Market Approach
- Income Approach
It is always advisable to follow the methodology depending upon the conditions. Also a comparison should always be done between the methodologies to verify the findings.
Step 6: Sending valuation report to the client.
Step 7: Finding suitable investors for the patents.
Step 8: Signing of non-disclosure agreement by the investor.
Step 9: Signing of securitization agreement between the client and the investor.
Step 10: ITAG to act as an issuer of the securities based on the receivables from the client.
Step 11: Debt or equity to be issued to the investors from the clients.
Step 12: ITAG utilises the proceeds from the investor to pay the client.
Step 13: Debt issued to the investors to be serviced by the client.
Step 14: Equity interests issued will be utilized in passing through the revenues produced by the receivables.
Step 15: In case of default property may be seized and proceeds to be transferred to the investors.
Step 16: After maturity, rights to be transferred back to the client.