It's imperative to acknowledge that intellectual property promotes innovation thereby leading to growth in financial opportunities. Over the years, the increasing relevance of intellectual property as intangible assets has propelled a number of institutions to invest in the same as a tool for economic growth around the world. A number of countries, with strict planning, enforcement, and valuation of intellectual property have been truly successful in contributing to the financial upswing of their nation promising more opportunities and credit facilities.
Lately, India's Department for Promotion of Industry and Internal Trade (DPIIT) is also eyeing to devise a system for the valuation of intellectual property in India to facilitate wealth through other financial instruments. IP valuation is a way to determine the worth and value of intellectual property such as trademarks, copyrights, patents, designs, and trade secrets. Whereas, IP Financing means using intellectual property assets to achieve credit, and financial benefits and generate income. IP Financing is becoming a common collateral for obtaining credit or loans from financial institutions.1
This system will prove to be advantageous to micro, small and medium enterprises and start-ups who possess valuable intellectual property as it will help them raise capital, thereby aiding their businesses.
National Intellectual Property Rights (NIPR) Policy also encompasses the 'commercialization of IP' as one of its objectives. In particular, Objective 5 of the Policy mentions that "The value and economic reward for the owners of IP rights comes only from their commercialization. Entrepreneurship should be encouraged so that the financial value of IPRs is captured. It is necessary to connect investors and IP creators. Another constraint faced is valuation of IP and assessment of the potential of the IPRs for the purpose of marketing it. Efforts should be made for creation of a public platform to connect creators and innovators to potential users, buyers and funding institutions."2
Further, Objective 5.11.1. mentions that a step should be taken by the DPIIT to support commercialization of IPR as intangible assets through formulation of "appropriate methodologies and guidelines; facilitating securitization of IP rights and their use as collateral by creation of enabling legislative, administrative and market framework."3
In order to develop a system for IP valuation and financing in India, DPIIT intends to study the guidelines and steps taken by other countries including the United Kingdom, Singapore, South Korea, Malaysia, Japan, Thailand, Canada and many others who have successfully developed a systemized plan and are running IP related financial transactions in the country. It also plans to appoint a specialist to take care of data and statistics in respect of, existing applications and registrations in India, estimated IP valuation and financing as required, as well as their compliance with accounting standards and principles, legal repercussions thereof and appropriate government policies backing IP financing in India.4
As per DPIIT, formulating guidelines for IP financing will boost economic growth in India and shall also prove to be a medium of easy lending of capital to small and big businesses; micro, small and medium enterprises as well as start-ups. It shall enable creation of new financial instruments, inviting newer investments as intellectual property has the potential to become an alternative form of economic and financial tool to raise capital and loans.
Analysis
It goes without question that intellectual property holds enormous value and financial power. Given that DPIIT has lately decided to formulate guidelines and an action plan to devise a mechanism for IP financing, businesses will recognize the value of intellectual property as an intangible asset. Moreover, the stigma surrounding intangible assets in the minds of financial institutions and banks will be raised enabling them to release credits to businessmen all across India.
Formulation of a mechanism shall offer an opportunity to businesses to capitalize on their intellectual property, in turn also enhancing the reputation of intellectual property across all domains inviting more applications and registrations thereby uplifting the intellectual property sector in India.
Footnotes
1. https://www.wipo.int/wipo_magazine/en/2008/05/article_0001.html
2. Objective 5 of National Intellectual Property Rights Policy, 2016, https://dpiit.gov.in/sites/default/files/national-IPR-Policy2016-14October2020.pdf
3. Objective 5.11.1 of National Intellectual Property Rights Policy, 2016, https://dpiit.gov.in/sites/default/files/national-IPR-Policy2016-14October2020.pdf
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