Email: in_sk_verma@Journal of Intellectual Property Rights Vol 11, January 2006, pp 22-32Financing of Intellectual Property: Developing Countries’ ContextS K Verma†Faculty of Law, University of Delhi, New Delhi 110 007Received 26 September 2005Converting a creative idea into a financial asset is the essential feature of financing intellectual property (IP). IP can be sold, licensed, used as a collateral or security for debt finance. Valuation of IP is also important to secure loans or finances for business. Whereas in the developed world, IP is treated as an asset and a part of the company’s portfolio, this is less prevalent in developing countries because of the level of their development and very meager IP portfolio in general. Financial constraints and lack of infrastructure are also hurdles creating and maintaining IP in developing countries. Capacity building for innovation is a very significant requirement in IP infrastructure. The industries in developing countries need to appreciate that a good portfolio makes good business sense.Keywords: IP financing, securitization, IP infrastructure, capacity buildingThe basic premise of financing intellectual property is – how to convert a creative idea into a financial asset. Financial assets are the possession of an entity, which are held for purposes of producing revenues. Intellectual property rights (IPRs), like other financial assets, be they manufacturing plants, bonds, or goodwill, cost capital to produce or acquire, and are owned for purposes of generating a cash return. That is because, they exist to give their owners rights to future cash flow, as patents, brand trademarks, copyrighted text, or industrial designs. They are principally economic or commercial rights and would not be maintained and defended with such vigour and resources by their owners unless they have financial value.Likeanyotherproperty,IPRcanbe transferred, sold or gifted. But as economic rights, they are generally held by companies rather than by an individual creator of the right. Many companies treat proprietary IPRs as patents, copyrights and trademarks as a discrete asset. In recent years, there has been a growing awareness that IP assets can be monetized. IP can be sold, licensed, used as collateral or security for debt finance, or it can provide an additional or alternative basis for seeking equity from private investors, venture capitalists, specialized banks and some times even from regular banks. IP assets may help a companytoobtainbusinessfinancefrom investors/lenders. The investor/lender, in undertaking an appraisal of the request for equity assistance or____________ †loan, will assess whether the new or innovative product or service offered by a company is protected by a patent, a trademark, an industrial design, or copyright or related rights. Such protection is often a good indicator of the potential of a company for doing well in the marketplace. IP ownership is thus important to convince investors/lenders of the market opportunities open to the enterprise for the commercialization of the product or service in question. Ownership of IP rights over the creative output or innovations related to the products or services that an enterprise intends to market, guarantees a certain degree of exclusivity, and thereby, a higher market share if the product/service proves successful among consumers. Though the investors/lenders may attach different degrees of importance to IPRs in investing or lending money, there is a clear trend emerging towards an increasing reliance on IP assets in the developed economies as a source of competitive advantage for firms. The investors/lenders are increasingly focusing on firms with a well-managed IP portfolio, even though many problems are yet to be resolved in perfecting security interests in IP.Securitization of Intellectual Property Assets The trend of securitization of IP assets started in developed economies during the mid-1990s. Securitization is the process of using the cash flows generated by an asset or pool of assets to support the issuance of debt. Collateralizing commercial loans and bank financing by granting a security interest inVERMA: FINANCING OF INTELLECTUAL PROPERTY: DEVELOPING COUNTRIES’ CONTEXT23IP is a growing practice, especially, in the music business, Internet-based SMEs and in high technology sectors. Securitization normally refers to the pooling of different financial assets and the issuance of new securities backed by those assets. In principle, these assets can be any claims that have reasonably predictable cash flows, or even future receivables that are exclusive. Thus, securitization is possible for future royalty payments from licensing a patent, trade secret, or from musical compositions or recording rights of a musician, feature films, and trademark licensingreceivabletransactions.Indeveloped countries, factoring of trademarks and music royalties and feature film receivables are already being done. R。