Trends in intellectual property financingMonday March 14 2022
Kenya enacted the Moveable Property Security Act in 2017 that allowed intellectual property rights to be used as collateral in securing funding. However, little has been done to achieve this.
As far as I am aware, a few Kenyan financial institutions would be willing to lend based on intellectual property rights mainly because of high risk and lack of historical information on performance.
Funding has mainly been through grants, personal loans and other traditional methods. Very few lucky innovators have been able to attract equity investors.
As the world moves to an increasingly digital era, there is and will be high demand for innovations. The innovations are at different stages of development. Some are at concept stage and others at acceleration stage with few being complete innovations.
Most of today’s innovators are young people with technical know-how but little muscle in terms of financing. This leads to a quagmire where techies are unable to develop their innovations due to limited access to funding. The capital supply is generally hesitant to invest in these innovations.
This may require local innovators to think out of the box and look at global trends in intellectual property financing. I would encourage local innovators to think global as the Kenyan market warms up to innovation funding.
Other than traditional innovation funding methods such as grants and equity there are novel financing methods that are coming up.
As Kenyan innovators go global, then there is a need to seek intellectual property rights protection that is global in nature. Under various treaties and regimes, it is possible to protect intellectual property globally.
There are many new developments in intellectual property financing as reported in the World Intellectual Property Organization (WIPO) website. One method is using intellectual property rights certificate as security in borrowing.
While Kenyan law allows this, it is rarely practiced. Globally there are some financial institutions that lend in exchange for intellectual property rights. In my view, protecting your intellectual property (IP) globally would attract more lending. At the very least, it is prudent to protect your IP in the lender’s jurisdiction.
Other innovative methods as reported by WIPO include auctioning of intellectual property rights. Imagine a situation where you can sell your innovation online without having to spend so much money developing it. It is as simple as innovating for a particular sector and selling your innovation by auction to the highest bidder in the sector.
According to the WIPO website, there is a current global trend where organisations like IP Auction Inc. conduct such auctions. Technology trade exchange is a current trend where developers are able to auction their technologies to the highest bidders.
Many IP backed financial transactions are conducted. Some include sale and leaseback transactions, mortgaging and licence back transactions. In the latter, the innovator would get a loan from a lender who would then mortgage the IPR.
Revenues earned from use of the IPR are used to repay the debt and also earn the debtor some revenue. Put simply, an innovator borrows money and transfers his IP to the lender.
The lender allows the innovator to commercialise the innovation provided that the income goes towards repayment of the loan. Once the loan is fully paid, the IP reverts to the innovator.
While the Kenyan innovation environment may not be mature in so far as funding is concerned, all indications are that innovative funding may be a trend soon.
For now, innovators can participate in the global market in so far as funding is concerned.