Survey Shows New England Businesses Don't Capitalize on Intellectual Property
By Jody Record, Campus Journal Editor
September 26, 2007
When most businesses find themselves in need of financing, they use their
real estate or capital assets as collateral for debt or equity financing.
But what happens when a company’s primary assets are intangible—such
as patents, trademarks or copyrights? How do you borrow against an idea?
A recent survey conducted by UNH’s Enterprise Integration Research
Center at the Whittemore School of Business and Economics reveals many
small and medium-sized New England firms don’t use their intellectual
property (IP) assets to secure financing.
“It’s very complicated to use IP as collateral,” says
A.R. Venkatachalam, professor of Information Systems and director of the
Enterprise Integration Research Center. “Businesses where ideas are
the primary strategic assets may not have the traditional capital assets
typically used as collateral.”
The survey, conducted between Nov. 9, 2006 and April 24, 2007, was sent
to 694 companies around New England. The firms were chosen based on the
likelihood of being involved in developing and/or using patents, trademarks
and copyrights. Targeted industries included high tech, biotech and manufacturing
Seventy-eight percent of the companies surveyed either held title to patents
or had patent applications or provisional patent applications pending at
the time the survey was taken.
Only 18 percent of the companies reported using their patents as collateral
to secure financing while 61 percent had not.
The survey concluded that for, a majority of small firms—those with
sales of less than $20 million—IP is perceived as a tool to enhance
competitive advantage. Although the use of patents as collateral to secure
financing has not been a popular practice, many small firms expressed an
interest in doing so in the future. A major obstacle to using IP as collateral
is the inability of investors and lenders to assess the risk associated
with collateralizing IP.
“When you use a building as collateral for financing, the bank has
an interest against what you own and the transaction is registered with
the state. If you go to a second bank, they will find the first lien. But
when you use intangible assets, how do banks find out who the owner is
and whether there are any pre-existing encumbrances against that asset? “The
process of registering IP ownership rights is more complicated than for
capital assets,” Venkatachalam says. “Because the due diligence
process is so complex, some lenders and investors may hesitate to invest
in companies with a lot of IP assets. This can put a damper on innovation
over the long run.”
The survey is part of a 3-year pilot project funded by the United States
Patent and Trademark Office to find a way using innovative, web-based technology
to make it easier for inventors, entrepreneurs and small businesses to
leverage their intellectual assets. For more information about the project,
visit http://wsbe2.unh.edu/enterprise-integration-research-center or contact
Venkatachalam at email@example.com.