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May 15, 2021

Comment: Legislative Lacuna and Government Policy on IP Securitization

Author: Shreya Kunwar

Intellectual property (IP) is a form of intangible property and therefore outside the ambit of the conventional definition of a property. Nevertheless, the role of IP rights in the growth of a business concern is indisputable. While the modern business world realizes the importance of IP, its scope as a business asset is usually limited. Traditionally, businesses used financing tools such as licensing or assignment of IP rights to build a steady revenue stream. The modern business community has found new ways to exploit their IP rights and raise funds. IP is increasingly being used by companies as a collateral against loans taken from financial institutions. Unlike tangible assets, whose value depreciates with time, IP rights are intangible assets the value of which could potentially even increase with time. They also indicate a business’s capability to generate value in the future. While use of IP as a security is not commonplace, it has gained traction over the years, with more and more institutions and businesses realizing its significance.

The Department of Industrial Policy and Promotion had released the National IPR Policy of 2016 to outline the roadmap for the future of IPRs in India. [1] This vision document of the Government highlighted the necessity for the valuation and the securitization of IP rights as one of its main objectives.

While securitizing IP rights can be a complex process, it proceeds on the same principles as with other asset-based securities. Courts in India have, however, not been particularly favorable towards the use of IP as a collateral. This was brought to light in a 2018 decision of the Supreme Court in Canara Bank v. N.G. Subbaraya Setty, [AIR 2018 SC 3395] [2] wherein the Court held that a trademark cannot be assigned to the bank by a borrower/defaulter. Further, the bank cannot generate royalties from third parties through the use of such a trademark as the same would be outside the scope of legally defined banking practices. The judgment runs contrary to the government’s IPR policy and is also detrimental to subsequent endeavors towards securitization of IP.

In light of the prevalent practices, creation of a legislative framework for enabling the securitization of IP rights can prove to be beneficial for providing credit to all IP holders and owners thereby enhancing the overall value of IP rights as a collateral against loans.

References:

[1]https://dipp.gov.in/sites/default/files/national-IPR-Policy2016-14October2020.pdf , last assessed on May 12, 2021.

[2] Canara Bank v. N.G. Subbaraya Setty [AIR 2018 SC 3395]

Disclaimer: Views, opinions, interpretations are solely those of the author, not of the firm (ALG India Law Offices LLP) nor reflective thereof. Author submissions are not checked for plagiarism or any other aspect before being posted.

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