IP Financing - Implications of the UNCITRAL Process

• Author: Ben Goodger
• Position: International Head of IP Commercialization

The little-noticed UNCITRAL process may have a significant effect on businesses which rely on commercializing IP assets, from the movie industry to franchisors to pharmaceutical companies. Liberalizing the ability of enterprises to acquire finance is a worthy aim. The concern is that this initiative will have the unintended consequence of severely impacting IP commerce - now one of the most economically significant global business activities, worth an estimated US$300 billion worldwide annually. The complexities arise from the fact that IP activities, which essentially involve intangible assets, are being forced into an approach and language based on tangible asset concepts.

UNCITRAL Legislative Guide - Highlights of IP financing issues

Should the secured creditor be permitted to acquire the benefit of a license on default with no further documentation required?

An IP owner who has licensed an IP asset to a licensee expects to receive a royalty income stream from that transaction. The licensee may in turn sub-license the IP and thus receive royalty from the sub-licensee. The licensee may also wish to raise finance by using the future income to be received from sub-licensing as collateral for security. Commonly, the original IP owner will provide in its head license that the licensee may not do this without the IP owner's prior consent. This gives the owner some control over the situation, for example where it is suspected that the licensee is in a fragile financial position. The Legislative Guide appears to remove that right from the IP owner, granting the lender 'the benefit' of the license automatically, notwithstanding any contrary terms in the license. This could impact on sub-licensees as well as IP owners since the lender could dictate to sub-licensees courses of action which might result in a short-term increase in revenue but which might over the long term devalue the licensed IP. For...