Intellectual Property as Collateral in Times of Crisis
Are you considering using your company’s IP as collateral or obtaining a security on someone else’s IP as an investor or creditor? Today’s economy and labor market are a shadow of what they were weeks ago. #Copyright, patents, trademarks and trade secrets are great vehicles to finance, continue and expand operations.
One of the advantages of using IP as collateral, especially if they are part of licensing agreements and royalties, is that the IP is directly linked to an existing flow of income. The risk of default is reduced and the loan recovery quicker. Where IP is not linked to licensing agreements it can still be used to secure loans. The lender (angel investor, capital venture, bank) should register the security interest to let everyone know that the IP is encumbered.
IP collateralization also has some disadvantages, such as obsolescence of the technology (patents and software) which does not necessarily occur with trademarks and most copyrights. Maintenance costs need to be weighed too (patents pay annuities). Enforcement costs and pre-existing exclusive licenses could limit the use of IP as collateral. Of course, each IP is inherently unique and the scope of use varies case by case. Call us to discuss options!