- Intangible asset finance
Intangible Asset Finance is the branch of
financethat deals with intangible assetssuch as patents(legal intangible) and reputation(competitive intangible). Like other areas of finance, intangible asset finance is concerned with the the interdependence of value, risk, and time. Some people refer to this field as "IP Finance."Fact|date=July 2008
In 2003, one estimate put the
economic equilibriumof intangible assets in the U.S. economyat $5 trillion, which represented over one-third or more of the value of U.S. domestic corporationsin the first quarter of 2001. [ [http://books.google.com/books?id=RmFLUk7NydQC&printsec=frontcover&dq=Intangible+Assets:+Values,+Measures+and+Risks,&sig=W2d87NPMzvfWlTDrmUNijOziu-8#PPA28,M1 "A Trillion Dollars A Year In Intangible Investment," Leonard Nakamura in Intangible Assets: Values, Measures and Risks at 28, Hand & Lev, Oxford University Press (2003).] ]
One of the goals of people working in this field is to unlock the "hidden value" found in intangible assets through the techniques of finance. Another goal is to measure how firm performance correlates with intangible asset
Intangible assets include
business processes, patents, trademarks, reputations for ethicsand integrity, quality, safety, sustainability, security, and resilience. Today, these intangibles drive cash flowand are the primary sources of risk. Intangible asset information, management, risk forecastingand risk transferare growing services as the economic basedivests itself of physical assets.
A number of intangible asset business models have evolved over the years.
*Patent Licensing & Enforcement Companies ("P-LECs"): These are firms that acquire patents for the sole purpose of securing licenses and/or damages awards from infringing parties. Perhaps the most famous P-LEC is
NTP, Inc., which has successfully asserted patents related to email push technology. Another name for a P-LEC is " patent troll," although this is viewed as a pejorative reference. Recently, hedge fundshave raised capital for the specific purpose of investing in patent litigation. One such hedge fund is Altitude Capital Partners, which is based in New York.
*Royalty stream securitizers: These are firms that are engaged in the buying and selling of what are essentially specialized
asset-backed securities. The assets that are securitized are typically intellectual properties, such as patents, that have been bearing royalties for a period of time. Royalty Pharma is a well known firm that uses this business model, and which has done by far the largest and most high-profile deals in this space. [ [http://www.thedeal.com/newsweekly/features/a-seller's-market.php#bottom "A seller's market," The Deal, September 5, 2008] ] Royalty Pharma handled what many consider to be the first pharmaceuticalpatent-backed securitization to be rated by Standard and Poors, which involved a patent on the HIVdrug Zerit. [ [http://books.google.com/books?id=rESRFPqSKzQC&pg=PA487&lpg=PA487&dq=zerit+patent+securitization&source=web&ots=sN9S5ZWcrM&sig=LhlE-nYfxXddjCKeoGql6ap5KxM&hl=en#PPA487,M1 "Avoiding Transaction Peril," Heller et al., in From Ideas to Assets: Investing Wisely in Intellectual Property at 487, Bruce Berman, John Wiley & Sons, 2002] ] The other parties involved in the Zerit transaction were Yale(the owner of the patent) and Bristol Myers Squibb.
*Reinsurers: These are firms that use the techniques of
reinsuranceto mitigate intangible asset risks. In the same way that some firms issue Cat bondsto mitigate the risks associated with extreme weather, earthquakes, or other natural disasters, firms exposed to substantial intangible risk can issue "intangible asset risk-linked securities" that transfer intangible risk to hedge funds and other players in the capital markets with a sufficient appetite for risk. Steel City Re, which is based in Pittsburgh, is a thought leaderregarding the use of risk transfer techniques to protect and recover intangible asset value. [ [http://www.steelcityre.com/accelerating_innovation.shtml Steel City Re] ]
*Market makers: Firms that are working to provide more
liquidityto the market for intellectual property. Early market makersoffered on-line intellectual property exchanges where buyers and sellers could exchange rights in licensed intellectual property, usually patents. In 2008, Ocean Tomo launched [ [http://www.patentbidask.com/ Patent Bid Ask] ] , which it styled as "the first and only public marketplace that allows buyers and sellers to place and receive offers for their intellectual property in a completely transparent fashion." Patent Bid Ask now complements Ocean Tomo's experience in providing multi-lot, live auctionsfor intellectual property. The next Ocean Tomo auction is scheduled to take place on June 25-26, 2008 in Amsterdam. On April 22, 2008, Ocean Tomo reported [ [http://www.oceantomo.com/press/Europe_Auction_Catalogue_Release_4.22.08.pdf Ocean Tomo Press Release April 22, 2008] ] that it had transacted approximately $70 million in its IP auctions across Europeand the United States. In 2009, The Intellectual Property Exchange International (IPXI), headquartered in Chicago, will begin operations as the world’s first stock exchangewith an intellectual property focus.
*Investment Research Firms: Companies that provide specific advice to investors on intellectual property issues. Recently, hedge fund managers have been hiring patent
attorneysto follow and handicapoutcomes in high stakes patent cases. IPD Analytics, which is based in Miami, is known for is research reports on patent litigationpending in the United States district courtas well at the United States Court of Appeals for the Federal Circuit.
David Bowiesecuritizes the future royalty revenues earned from his pre-1990 music catalogue by issuing Bowie Bonds.
*2000: BioPharma Royalty Trust completes the $115 million securitization of a single Yale patent with claims covering
Stavudine, which is a reverse transcriptase inhibitorand the active ingredient in the in the drug Zerit. This was the first publicly rated patent securitization in the U.S. At the time of the deal, Bristol Myers Squibb had the exclusive rights to distribute Zerit in the U.S. Not long after closing slow sales of Zerit along with an accounting scandalat Bristol Myers Squibb triggered the accelerated and premature amortizationof the transaction. Many observers believe that this deal was ultimately unsuccessful because of a lack of diversificationas it involved a single patent and a single licensee.
*2005: UCC Capital Corporation securitization of BCBG
Max Azria's royalty receivables generated from worldwide intellectual property rights worth $53 million. This transaction is recognized as the first "whole company securitization" involving primarily intangible assets. UCC Capital Corporation has since been acquired by NexCen Brands, Inc., which is currently helmed by Robert W. D'Loren. NexCen is a vertically integratedglobal brand managementcompany focused on assembling a diversified portfolioof intellectual property-centric companies operating in the consumerbranded products and franchise industries. On May 19, 2008, NexCen issued a press release in which it stated that there was substantial doubt about its ability to continue as a going concern. [ [http://www.nexcenbrands.com/press_release93.html NexCen Press Release, May 19, 2008] ]
*2005: Ocean Tomo holds its first live IP auction. Although proceeds from the first auction were unremarkable, the relative success of the Ocean Tomo auctions that followed showed that the live auction is a reasonably viable business model for monetizing intellectual property.
Marvel Entertainment's film rights securitization in conjunction with Ambac Financial Groupto provide a triple-A financial guarantee on a credit facilityfor Marvel backed by a slate of 10 films to be produced by Marvel Studios and intellectual propertyrelated to some of Marvel’s most popular comic bookcharacters. [ [http://www.ambac.com/pdfs%5CDeals%5Cmarvel.pdf Ambac's press release, 2006] ]
Government, societies, think tanks, and other non-profits
On June 23, 2008, the
United States National Academieshosted a one-day conference in Washington, D.C.entitled "Intangible Assets: Measuring and Enhancing Their Contribution to Corporate Value and Economic Growth." The Intangible Asset Finance Societyprovides a forum for finance, innovation, legal and management professionals to discover better ways to create, capture and preserve the value of intangible assets.
The Athena Alliance is a non-profit organization dedicated topublic education and research on the emerging global information economy. On April 16, 2008 it published [ [http://www.athenaalliance.org/pdf/IntangibleAssetMonetization.pdf "Intangible Asset Monetization: The Promise and the Reality"] ] a widely-circulated working paper on the topic of intangible asset finance.
* [http://books.google.com/books?id=jCLqq80CpwwC&dq=rembrandts+in+the+attic&pg=PP1&ots=XpvuUlYAtv&sig=UkrpK3Dt_bFbI8Hcix46iZIQGhU&hl=en&prev=http://www.google.com/search%3Fhl%3Den%26q%3Drembrandts%2Bin%2Bthe%2Battic%26btnG%3DSearch&sa=X&oi=print&ct=title&cad=one-book-with-thumbnail#PPR7,M1 Rembrandts In the Attic: Unlocking the Hidden Value of Patents]
* [http://www.nytimes.com/2007/09/09/business/09frame.html?ei=5124&en=f04ad9659c3221fa&ex=1346990400&adxnnl=1&partner=permalink&exprod=permalink "When Balance Sheets Collide With the New Economy," New York Times, September 9, 2007]
* [http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/200804291343DOWJONESDJONLINE000826_univ.xml "IP-Focused Hedge Funds Launch Amid Market Volatility", Dow Jones, April 29, 2008]
* [http://www.law.com/jsp/article.jsp?id=1178701483131 "Hedge Fund Spies in the Courtroom, IP Law & Business, May 10, 2007]
* [http://www.iam-magazine.com/blog/default.aspx Intellectual Asset Management Magazine Blog]
* [http://www.iafinance.org/ Intangible Asset Finance Society]
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