In the modern global economy, intellectual property rights are a potential source of revenue for businesses all over the world. They are often more valuable to companies than physical assets integrated throughout operations. With that said, the UN Commission on International Trade Law and the World Intellectual Property Organization have been working since 2003 to modernize procedures around using intellectual property as a security for business financing, according to Managing Intellectual Property.
While using intellectual property as a security can be confusing, it presents opportunities for businesses to obtain more financing than would be available to them with assets as collateral. A well-maintained patent portfolio, for example, may be worth more than all of a business' physical assets and allow it to obtain a larger loan or one with more favorable terms.
There are three ways to undertake this kind of security. In the first, the lender takes ownership of the intellectual property itself and licenses it to the borrower. Transferring ownership of intellectual property to the lender does not need to change a borrower's operations if the licensing is set up properly. In another way to use intellectual property as a security, the borrower retains ownership but grants an interest in the intellectual property to the lender. This gives the lender the right to take ownership of the intellectual property if the borrower defaults on the loan. Finally, a borrower can use the revenue from its intellectual property as security on a loan. This takes the form of a pledge or lien over the product the intellectual property protects, such as blueprints.
Different options are available in different jurisdictions, and companies should be sure to weigh costs and benefits of each available route carefully.