In the latest issue of World Trademark Review – available to subscribers here – there is a feature taking a deep-dive look at Singapore’s IP Financing Scheme (IPFS) and its implications for trademark owners. After the approval of the first patent-backed loan under IPFS was announced in June, the IP Office of Singapore (IPOS), which administers the scheme, announced that it would be extended to include trademarks from July 1. Reportedly, a number of brand-backed IPFS loans are already in the works.
World Trademark Review recently spoke to Sharmaine Wu, director, IP Management and Markets, at IPOS. Some of her comments are included in the magazine feature, but below is an extended transcript of the interview for WTR blog readers.
Wu is generally positive about the way in which participating banks in Singapore have received the scheme, with AFC Merchant Bank added to the group of official lenders, bringing the total number to four (the others being DBS Bank, OCBC and UOB). Nevertheless, Wu indicates that impetus on the part of local governments will be needed to ensure that IPFS, and other initiatives like it, are able to get off the ground in the future.
What were the main driving factors behind Singapore’s introduction of the IPFS?
Singapore is a small country with little in the way of natural resources, so we have had to focus our energies on building intellectual capital and driving economic growth through innovation. With the development of a more advanced economy and growing investments in R&D, more companies are placing greater emphasis on protecting and monetising their IP. Close to 90,000 SMEs in Singapore own at least one Singapore-registered patent or trademark. Intellectual property assets will become increasingly significant in companies’ balance sheets as sources of financing, which will in turn encourage further investments in innovation. This initiative is part of IPOS’ mission to help businesses and entrepreneurs take their brands, content and technology to the global market.
Brand valuation and IP collateralisation are still generally considered to be ‘uncharted territory – so how much confidence can we have in schemes like IPFS?
For many companies in advanced economies, intangible assets like intellectual property makes up the majority of their value – just look at the top 25 companies on the NYSE or FTSE. Yet there is still much confusion and inconsistency around the world on how to value these intangible assets. More often than not, a company’s value is still thought of in terms of tangible assets such as land, factories and inventory. This valuation gap presents an opportunity, and Singapore wants to be at the forefront of efforts to finance and value intangible assets and intellectual property.
The IPFS has kick-started the development of the IP financing ecosystem in Singapore. It has initiated the process of educating lending institutions that were unfamiliar with IP, and encouraged companies to utilise their IP assets for loans. The next phase of development will involve progress at the macro level, for instance, the building up of an active market for IP transactions and standards for IP valuation. The IPFS has successfully brought together the lending institutions, companies and IP valuers as a community to act on IP collateralisation, which will in turn drive innovation and economic growth for Singapore.
What are the particular challenges faced in valuing trademarks?
Valuing intangible assets, like trademarks, requires deep professional expertise. To this end, IPOS has appointed a panel of valuers for IPFS to extend their proven expertise and prepare valuation reports for companies seeking to apply loans under the IPFS. From what we understand from our industry partners, one of the key challenges in valuing intangible assets lies in establishing the valuation opinion. For instance, given that each IP is unique, there are often limited or no comparable transactions to base the valuation opinion on. It is also difficult to reliably determine the cash-flow attributed to the intangible asset.
What does the future look like in terms of wider expansion and adoption of similar schemes, locally and worldwide?
Studies indicate that most companies’ asset distribution includes roughly 20% tangible assets and 80% intangible assets. Interest in IP-backed financing will likely grow as companies all around the world explore new ways to unlock the full value of their assets. The ambition to develop a robust IP financing ecosystem can only materialise when local efforts to offer IP financing take place. It is our hope that the uptake of such schemes globally would lead to an international momentum in establishing internationally-recognised standards and best practices for efficient IP-backed financing.
Taking a broader economic perspective, IP-backed financing drives the innovation cycle. The flourishing of such schemes generates progress in related areas, such as IP valuation, treatment of IP as an asset class and IP transactions. IP’s value as a strategic business asset would, in turn, be better appreciated and become a central consideration in companies’ business plans. Enterprises adept at utilising IP as part of their business strategy for innovation and future growth are set for success both locally and internationally.
How do you think banks and investors have responded to the IPFS and similar initiatives?
Valuing IP as an asset class is a recent and novel concept for banks. As the global economy becomes increasingly innovation-driven, some banks have become receptive to schemes such as IPFS, and in the case of Singapore, the inclusion of trademarks and copyrights as valuable asset classes have enabled banks to offer loans to more innovative companies, especially those in the gaming and retail sectors.
As for investors, the venture capitalists and private equity investors are accustomed to considering IP rights as assets of a company, and some have undertaken steps to start providing IP-backed equity financing.