IP & Art

In the case of an intellectual property financial contract, what characteristics are there from the existing financial contract, and what legal points should be taken into account?

First, it is necessary to specify the intellectual property. When providing financial support for intellectual property as collateral, what kind of intellectual property is and how much value must be determined in advance. For this purpose, IP Due Diligence is usually an important procedure. That is, through this, it is necessary to carefully review the existence of intellectual property rights, current status, duration, existence and contents of a license agreement, and the existence of other reasons for restrictions such as collateral setting.

That is, the ownership relationship of the relevant intellectual property, the validity of the right, the licensing status, etc. should be thoroughly reviewed. In particular, since the patent invalidation trial rate is high in Korea, thorough verification of the validity of rights is emphasized. In addition, the issue of valuation is key.

This is because valuation is the basis for determining lending limits and conditions. In order to increase the credibility of valuation, a market approach rather than a mere abstract profit approach would be a more realistic method. The problem is that the intellectual property trading market is not frequent, and the data on specific actual transactions are absolutely insufficient, causing many difficulties. Considering this, the preparation of technology credit ratings system and subsequent liability immunity are suggested as alternatives, but the reliability of the valuation is a task that must be prioritized anyway. In that sense, the reliability of credit rating in the market will have a significant meaning.

And the first thing to be considered in composing the contents of the actual intellectual property financial contract is the provision for compensation for possible intellectual property disputes. For example, if intellectual property, such as a patent, is later denied, it is necessary to take precautionary measures against damage to financial institutions that trust it. In preparation for difficulties in proving the actual amount of damage, it is desirable to prescribe the expected amount of compensation in the text of the contract at the time of concluding the contract. This has the advantage of avoiding the burden of proving the actual amount of damage otherwise in case of a dispute over damages.

And since intellectual property is rapidly improving, it is necessary to expand the scope in advance so that the security right extends to the improved and expanded intellectual property rights. In addition, it is necessary to have a foreclosure right to dispose of the intellectual property as collateral, and further, it is necessary to designate a specific transferee at the time of disposal from the time of the contract. This is because, due to the nature of intellectual property, it is difficult to find a buyer.

Also, if possible, it is one way to specify the specific disposal amount in advance. Of course, for its effectiveness, it is necessary to activate a specialized intellectual property management company that will play the role of transferee at the time of disposal. In other words, more patent management companies should come out in the future. And in the case of exclusive rights such as moral rights in the copyrights, it is necessary to take restrictive measures, such as preventing them from being exercised without the prior written consent of financial institutions.

Fundraising in utilization of intellectual property is a big stream, and even conservative financial institutions need to get away from the passive attitude that is to just wait and see it. Rather, it is necessary to actively respond to this with a concept of preparing for a new alternative market. In this context, it is expected that more active research and more detailed legal review should be made on the intellectual property financial contract.