An option available to companies seeking to leverage their patents, copyrights or trademarks rests in the securitization market. Unlike an IP based loan, where the intellectual property serves as the primary collateral, an IP securitization is supported by either the guaranteed payments under a license agreement, or by future cash flows generated by projected royalty streams.
With the total annual value of patents in the U.S. estimated to be in the billions of dollars, there is a tremendous opportunity for both issuers and investors to exploit the untapped capacity inherent in this asset class. From an issuer’s perspective, such structures allow for a lower cost of capital, as the securitized assets are legally separated from the credit structure of the sponsor. Investors are attracted to these vehicles as it obviates ancillary management and operational risks, narrowing the credit decision largely to one centered on the commercial/technological viability of the secured IP asset.