IP Financing in Korea and its Approach to deal with challenges Presented by: KyungJin Hyung IP Financing in Korea • Government thinks IP-Financing as a Key Area for Creative Economy • Passed embryonic stage led by Public Sector institutions, but Private Sector is still wishy-washy to join the Policy IP Financing in Korea • 3.4% of Technology Financing in Korea (Korea ranks 4th in terms of Patent Application and 5th in PCT application) Estimated' Sum of Total IP Financing in Korea in 2013 Item Public Type Product(Fund) Amount(USD) Proportion Credit Guarantee KOTEC's Guarantee for Patent Value 101 10.1% KoFC On-lending 47 4.7% Loan for Commercializing IPs 453 45.3% Patent Commercialization Fund 45 4.5% KDB's Techno Banking 226 22.6% Fund for Patent Investment 38 3.8% Funds for Culture Contents (Copyright) 90 9.0% Loan Investment Private Investment IP Financing in Total 1,000 IP Financing ≠ Technology Financing • Korea has quite a long history of practicing ‘Technology Financing’ which is not same as ‘IP Financing’ (Since 1999) • Technology Financing is financing technology ventures and Technology SMEs based on Technology Business Value or Tech/Biz Rating (Which can replace Credit Rating) • KOTEC’s guarantee based on its unique proprietary rating system takes 70% proportion in total Technology Financing in Korea • KOTEC’s special guarantee product for Patent financing uses Valuation based on Income Approach ‘Discounted Future Cash Flow’ multiplied by Technology Contribution Ratio <Patent Lawyer, CPA, and Technology Experts work together>  Many Pure(?) IP experts assert that Market Approach is the best Risks in IP Financing • Beauty is in the eyes of beholder, however, Technology Value is in the hands of users as well as in the expertise of valuator • IP Value is not detachable from the Business Entity using it (If the revenue model is not based on NPE) • IP value is dynamic rather than static due to technology life-cycle (Pledge Value diminishes often not in line with accounting practice of amortization, and hard to predict its speed) • Lack of Secondary Market : The lender holding the IP right as security for repayment has no way to sell • Relying on Patent Lawyer and other experts is costly and onerous  Secured IP may turn out to be useless because the Value of UP right might be entirely contingent on other related IPs (Thicket) • Difficulty in dealing with the effect of Infringement Leakage => Buy and License Back to the original holder with Put Option prevails Korea’s Current Approach • Active, Staged, and Coercive Measure to engage Private Sector by reducing the risks • Leading Commercial Banks to be familiar with Technology Financing first (Legally Obliging Banks to accept Tech/Biz Certificate from KOTEC and two other Market Institutions (Technology Credit Bureau)) • Established Common Infrastructure, Technology Data Bureau, under Bankers’ Association to provide Technology Analysis (Understandable by Bankers) • Fund of Funds Scheme for Invention Capitals Integrating highly fragmented small IP transaction intermediaries into one IP Exchange (Open Market) to secure Critical Mass of Demand and Supply (Use of Market-based Valuation) • Incentives for private brokerages for 1:1 Match-making <Two-Track> • Reinforcing SMART3.1 to Reduce Preliminary Valuation Costs