IP Financing in Indonesia

Introduction

By transferring rights to the cash flows resulting from these assets or by pledging intellectual property rights, finance can be obtained. As an alternative, a company’s intellectual property may serve as a gauge of its worth and aid in funding choices. Intangible assets may only make up a small fraction of a company’s total value for some businesses. Others may derive the majority of their worth from their intellectual property. These businesses must explain to lenders and investors the worth of their intellectual property and other intangible assets.

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When issuing a loan in debt finance, lenders frequently demand that borrowers pledge their assets as security. In the event of a default by the borrower, the lender may be able to recoup part of its losses by seizing and selling these assets. Loans with collateral may be less expensive and simpler for a company to get than loans without collateral. Collateral is frequently utilised with tangible assets owned by a firm, such as equipment and buildings. More and more loans are being supported by certain intellectual property assets, such as copyrights, designs, and patents, or revenue streams connected to these assets. Ownership of intellectual property (IP) used as collateral often belongs to the borrower. A lender may, however, impose restrictions on how the IP may be used in the future. The ability to licence the IP or transfer it to others may be impacted by this.

Governments are becoming more aware of the need for businesses to actively preserve, manage, and commercialise intangible assets, especially intellectual property (IA/IP), in order to maximise benefits for businesses and the economy as a whole.

The government anticipates that this will promote the sector and make it a significant future driver of Indonesia’s economy by GR 24/2022. In 2021, the creative economy produced 6.98 percent of the overall GDP, up slightly more than four percentage points from the year before. E-commerce and a consumer class that is increasingly favouring leisure over products have contributed to this ongoing growth. However, there remains a significant amount of unrealized potential because many companies in this industry are micro, small, or medium-sized and have limited access to the funding and technologies they need to grow. Additionally, most people are unaware of the usefulness of intellectual property rights for their businesses.

Applying for IP Financing

When applying for IP finance, creative economy actors must meet the following criteria:

• Provide a funding proposal,
• operate a business in the creative economy,
• have a relationship with the IP asset being pledged as security, and
• have documentation of an IP certificate on hand.

Before disbursing the funds, banks and other non-bank financial institutions must confirm the creative economy company and its IP certificates. A value of the IP being used as collateral must also be done by the bank.

The valuation of the IP that is used as collateral must be done using the following approach:

• Cost approach;
• Market approach;
• Revenue approach: and/or
• Other valuation approaches.

Collateral between the investor and the creative economy actor can be in the form of:

1. Fiduciary guarantee of intellectual property;
2. A contract for creative economic activities; and/or
3. Receivables from the creative economic activities.

The IP valuation is to be done by an IP appraiser who must be licensed by the Ministry of Finance. However, it is still unclear how many appraisers in Indonesia have the competency to appraise IPs since the majority are specifically qualified to appraise properties and businesses.

The Regulation stipulates that IP assets that can be used as collaterals are those that have been:

• Recorded or registered at the DGIP; and
• Commercialised, e.g., generating royalty.

This clause is not restrictive in the sense that it does not preclude the encumbrance of IP assets with a fiduciary security or render the fiduciary security ineffective if the IP assets do not meet the aforementioned standards. The Regulation further stipulates that a public database of IP assets with encumbrances would be made available by the Ministry of Law and Human Rights. To ensure that the fiducia security over IP assets can be effectively enforced, this public database for encumbered IP assets is required. The DGIP has not been able to record or register a new owner of an IP asset based on an underlying document related to the enforcement of auction minutes up until this point in practise and based on a verbal conversation with a DGIP official.

The Regulation also stipulates that, in the event of a dispute involving IP-based financing, the OJK, Indonesia’s financial services regulator, must approve any out-of-court settlement before it can be implemented.

Conclusion

The Regulation succeeds in its overall goal of encouraging the expansion of IP-based financing from local banks and other financial institutions that are under the OJK’s supervision. As was already indicated, the DGIP has yet to recognise the registration of IP assets as security, and the Regulation itself contains no information regarding how to enforce encumbered IPs. As a result, it is likely that lenders will still face challenges in the enforcement of encumbered intellectual property, such as the inability to sell IP certificates in an auction. However, the Regulation represented a major improvement in Indonesia’s IP policy. The Regulation recognises the significance of recording or registering IP assets by providing creators, inventors, and business owners with a new method of obtaining financing, even though it makes no changes to any existing provisions on encumbering IP assets via fiducia security as governed by the Fiducia Law, Copyright Law, and Patent Law. However, the government must provide clearer regulations and direction, particularly on registration and enforcement, to ensure that lenders are operating under the same norms.

Author: Tanya Saraswat, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.