In the context of the Global Innovation Index 2020 theme “Who Will Finance Innovation?”, this article explores Intellectual Property (IP)-backed financing in the Republic of Korea as a vehicle for capitalizing on IP as a key source of value added for funding technology-led economic development. IP-backed financing is the deployment of intangible assets (patents, trademarks, industrial designs, and copyrights) as collateral to gain access to credit. This is particularly relevant for the Republic of Korea as it remains the 4th-largest filer of patent applications worldwide under WIPO’s international patent system.
In 2019, the total amount of transactions for IP financing in Korea reached KRW 1.34 trillion, equivalent to US$ 1.11 billion (up by 77% from KRW 763.2 billion in 2018). Categorically, there has been KRW 433.1 billion in the amount of IP-collateralized transactions, KRW 724 billion in the amount of guaranteed loans based on IPRs, and KRW 193.3 billion in the amount of IP-based investments. In 2019, IP collateralization increased 4.9 times from KRW 88.4 billion of the previous year. KIPO Commissioner Park Won-joo expressed that a new milestone has been marked for the IP-backed financing in the Republic of Korea.
Despite this, according to the Korean Intellectual Property Office (KIPO), the economy still experiences limited use of IP-backed financing for SMEs, largely due to banks’ dependence on mortgage and credit loans, insufficient public awareness of IP, and the lack of legal infrastructure. More recently, because of the COVID-19 pandemic, KIPO asserts that local firms have also faced additional liquidity risks.
To address these issues, as part of its mid-term plans, KIPO’s target for IP-backed financing is to reach KRW 2 trillion by 2022, to benefit up to 2,960 firms from 741 in the same period. The goal is, however, expected to be achieved early in the end of 2020, according to KIPO.
These aspirations mirror an increasing trend in public interest for IP-backed financing supported by robust government policies, which include the following:
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First, unlike in the past when IP-backed lending was mostly operated by state-run banks, five major commercial banks including Woori, Shinhan, and KEB Hana, have newly engaged in IP-backed financing since 2019.
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Second, another contributor to the sharp rise is the establishment of a recovery institution of IPR collateral, which is co-funded by the government and commercial banks. The recovery institution of IPR collateral will purchase the defaulted IPRs for up to 50% value of the default amount from the banks where the loan has been defaulted, and will make a profit by liquidating or repossessing purchased IPRs through licensing or disposal.
In July 2020, KIPO announced complementary plans to increase its IP financial investment market to KRW 1.3 trillion by 2024 to help firms deal with liquidity issues triggered by the current pandemic, and generate up to 20,000 new jobs. It aims to establish platforms for individuals and firms to directly invest in IP and profit from royalties, sales and incubation of IP-based Start-Ups. “IP is the new type of asset in the 21st century which allows anyone with a new idea to acquire it,” KIPO Commissioner Park Won-joo said.
Representatives from government, its affiliates and Korean commercial banks commemorate the establishment of a recovery institution of IPR collateral. (Source: KIPO, 2019)
Ilgyu Kim is Director for Intellectual Property Utilization Division at the Korean Intellectual Property Office (KIPO).
How does the Republic of Korea perform in the Global Innovation Index 2020?
Find out on September 2, 2020.