Intellectual Property as Business Loan Collateral: A Taxonomy of Institutional and Economic Determinants

Abstract

Abstract As a promising strategy to secure debt financing, firms can use their intellectual property rights (IPR) as collateral. Despite an ongoing shift to a more technology-based economy, the collateralization of IPR is still trailing behind the use of more traditional asset classes. In this paper, we address the challenges and opportunities of using IPR as collateral from a legal and economic angle by also exploring the role of and consequences for IP law. We develop a new taxonomy, i.e., a classification of the key determinants of using IPR as collateral. The taxonomy defines two pillars that govern the use of IPR collateral that distinguish between institutional and economic determinants. The institutional determinants cover contract law, IPR registries, and banking regulations. The economic determinants constitute the influence of IPR characteristics on the trade-off between the economic costs and benefits of collateralizing IPR. We apply the derived taxonomy to the legal and economic status quo in several industrialized economies to identify potential impediments to IPR-backed debt financing. Taken together, our taxonomy can be viewed as providing guidance for future research in the fields of law and economics on IPR as loan collateral for businesses.