When the idea of promoting the use of IP as collateral in debt finance as a solution to the R&D external finance problem comes into mind, the most intuitive concerns and practical difficulties are about the commercial and legal risks, and the resulting high transaction costs. With the overall purpose of exploring the main research question, i.e., “what is the preferred legal framework to optimize the use of IP as collateral in debt finance, in order to solve the problems in funding R&D activities and to foster innovation?”, this dissertation adopts a law and economic analysis into the in-depth examination on the impacts of these risks and transaction costs from different aspects.
Firstly, for further exploring the economic reasons for promoting IP collateralization, it goes back to the basic theories of debt finance and recalls the role of collateral in solving the informational asymmetry problems between debtors and creditors. It shows that some characteristics of IP actually make them good collateral. The signaling role of IP in the ex ante selection process and the disciplinary role of IP in the ex post lending relationship can help the lenders to reduce the overall default probability in the first place. This finding offers new insights concerning the collateral selection criteria for IP, and provides plausible reasons to advocate further research on IP collateralization.
Then, this dissertation moves on discussing how we should design surrounding laws to support IP collateralization. It re-examines the main law and economic theories regarding secured transaction law in the context of IP collateralization, and shows how the legal framework governing IP collateralization directly determines the transaction costs, contracting time, certainty of the transaction result and the incentives of relevant parties. By discussing some potential conflicts in the legal rules for IP collateralization, it establishes a conceptual assessment framework. The assessment criteria allow us to have a comparative study on the general legal frameworks for IP in China, the US, and the international efforts done by the UNCITRAL. The comparative examination shows the difficulties in coordinating secured law and IP law and sheds light on our understanding of how to build up an efficient legal regime for IP collateralization, especially for China. This might be the first study having a comprehensive critical discussion on the legal framework for IP collateralization in China.
After the discussion of the general legal framework, the dissertation addresses a specific legal issue in practice to illustrate and further explore the divergences between IP law and secured transaction law. It looks into the enforceability of anti-assignment or anti-attachment clauses in the IP licenses in the case of IP collateralization. It is an excellent way of illustrating why the divergence in the economic objectives and rationales under the two different legal protection systems and different ways of exploitation determine the need for a more specific law and economic analysis into the consequences of legal rules. The comparative analysis shows how different legal rules can change the time of negotiation and the bargaining powers among parties, consequently change the equilibrium of the lending decision, and eventually have impacts on investment decisions. It demonstrates why we cannot simply assume that the legal rules working well for ordinary assets would also work for IP, and why simply prioritizing the objectives of IP law may not be the best solution to solve the conflicts between IP law and secured transaction law.
The study calls for a re-examination on the boundaries of IP protection and an evaluation about whether the current legal regime for IP is still suitable for more advanced exploitations of all potential social and economic value in IP

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M.G. Faure (Michael) , T. Eger (Thomas)
Erasmus University Rotterdam
Rotterdam Institute of Law and Economics