Subject: Holy Cow!
From theInformer
PostID 497081 On Friday, August 11, 2006 (EST) at 1:08:56 PM
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IP-backed securitisation: realizing the potential
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Nigel Jones and Ann Hoe
Linklaters
IP assets are increasingly being recognized as key business assets. Their management, including to fund business activities, is now said to be “a pillar of corporate strategy”. In addition, there is an increasing desire on the part of most IP owners to turn them from being a cost to a profit centre.
Figures quoted to support this thesis are impressive. Ninety per cent of worldwide corporate net worth can be attributed to intangibles and intellectual property. The total asset value of patents alone is about US$1 trillion, with the value of total global intellectual property estimated to be between US$4 trillion and US$7 trillion. IP licensing revenue worldwide is expected to exceed US$500 million (compared with an estimated US$18 million for 1990) - IBM alone receives between US$1.5 billion and US$2 billion in annual licensing revenue. In addition, recent changes in accounting standards mean that increasingly companies have to carry out regular valuations of their IP assets, which obviously increases their visibility. Therefore, there is clearly no lack of encouragement for companies and their financial advisers to use these key assets in their financing.
Securitisation and its benefits
Securitisation is one way in which the originator (usually a company, but in some cases an individual) can raise finance. Securitisation can be defined as “a device of structuring financing where an entity seeks to pool together its interests in identifiable cashflows over time, transfer the same to investors either with or without the support of further collateral, and thereby achieve the purpose of financing”.
Therefore, a fundamental requirement is that there be an asset or asset pool that generates a cashflow, and ideally a regular and predictable cashflow. It is this cashflow that forms the basis of the securitisation loan or the asset-backed security (ABS). Essentially the originator sells a stream of cashflows that would otherwise accrue to it. Typically, and put simply, the originator sells its rights in the cashflow-generating asset(s) to a bankruptcy-remote special purpose vehicle company (SPV) in return for a lump-sum payment. The SPV funds the purchase of the assets by issuing the ABS debt to investors. The SPV then repays the ABS debt to the investors with the cashflows generated by the asset(s).
Securitisation has the following advantages:
• immediate cash;
• more cash available;
• higher rating/cheaper finance;
• broader class of investor; and
• improved debt/equity ratio - surplus cash is passed back to the originator as profit.
Underlying assets typical in ABS transactions are those which generate stable and predictable income streams (eg, real estate, mortgage portfolios and aircraft leases). However, in recent years the ABS asset class has widened and investors have shown increasing interest in intellectual property as an asset class for this purpose.
Basics of IP assets and how they can be securitised
The term ‘intellectual property’ refers to a set of rights conferred through statute or common law. These rights vest in the creators of original concepts, brands, products and inventions and, broadly speaking, allow the IP creator to prevent others from using the intellectual property outright or taking substantial parts of it. The main sets of IP rights that lend themselves to IP securitisation are patents, copyright and trademarks. It is useful to examine each of these rights to illustrate how they can generate cashflows.
Patents
A patent is a monopoly right that enables the proprietor to prevent others from using the technology developed by it without its license. A patent lasts for a fixed period (20 years). Therefore, by licensing third parties to use the underlying technology of the patent, the proprietor can generate regular cashflows in the form of royalty payments. Patents with several years of proven licensing revenues or patents relating to technologies that form part of industry standards will provide good opportunities for ABS investors....
Conclusion
IP-backed securitisations present unique challenges as compared to securitisations based on more established asset classes. However, past successes have shown that no challenge is insurmountable and, with increased experience in dealing with IP rights, the consequently greater familiarity with them and how best to structure deals on which they are based, the challenges should become easier to meet in future. Combined with the substantial value of IP assets on company balance sheets and the increased awareness of their true value, these developments suggest that the deal flow for IP-based securitisations is likely to become stronger in the coming years.
http://www.buildingipvalue.com/06Global/063_066.htm
Using the $260B figure of products sold annually, which infringe the jointly owned MMP Portfolio:
Nine years (Patents valid through 2015) multiplied by $260B = $2.34 Trillion.
A conservative 2% royalty of $2.34T = $46.8 Billion divided by 2 (50/50 Moore-TPL & PTSC) = $23.4 Billion per joint owner.
In the event the Moore-TPL / PTSC coadunation should broker an IP backed securitisation in regard to the MMP Portfolio of digitally fundamental Patents; IMO - with Court validation, the MMP Portfolio is worth (in the absolute ridiculously most conservative of estimates) no less than 5 Billion per joint owner.
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