Bank of America, JP Morgan Chase and Morgan Stanley are the currently leaders in patent-based lending, according to a recent update of a 2015 study.
Relecura, Inc., a California patent research and analysis company, reports that Bank of American had 60,093 transactions for a total market share of 16.87%. JP Morgan Chase had 45,304 transactions for a 12.72% market share. Morgan Stanley, which was number 11 on the 2015 list, came in at third in 2017 with 24,244 loans and 6.80% of all transactions.
The total number of transactions between 2011 to 2016 were 947,907, consisting of 356,287 applications.
There is along history of IP-backed bank financing. Businesses of all sizes and types have used it to raise money using patents, copyrights and trademarks as collateral. Distressed businesses tend to use it the most, perhaps when other sources of capital dry up.
Strategic patents are sometimes used as “additional” collateral to enhance a loan or line of credit — more of a deal sweetener than a single source of collateral. Revenue-generating patents, which can be readily modeled, as in the case of semiconductors or pharmaceuticals, are preferred sources of collateral.
In 2015, the key companies securing loans using patents include General Motors, Avago (now Broadcom Limited), Alcatel Lucent and Kodak.
JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Wilmington Trust, and Deutsche Bank were the top banks doing IP backed financing deals. GE Capital also was an active lender.
Several governments have been major IP lenders, including the China Development Bank, which in 2014 pledged the equivalent of $1.3 billion USD agains a portfolio of 134 patent and 34 trademarks. Korea and Singapore have also been active IP lenders.
Most Active Borrowers
Key sectors doing the borrowing include software and hardware companies. Other active sectors employing IP backed financing include digital data processing, digital communication, IT methods for management, telecommunication, semiconductors, and television & video transmission.
An excellent infographic summary of bank lending on patents can be found, here.
For the full May 2015 presentation, go here.
Image source: Relecura, Inc.
There’s a semantic trap in using of the terms “patent-based lending” and “IP-backed loans” to refer to situations where patents are included in the total bundle of assets securing a loan as “boot collateral,” without the lender having anyone look at the patents, let alone valuing them separately.
Typically, when a bank makes a secured loan, particularly to a business, the borrower is required to execute a UCC-1 Financing Statement, which is filed at the state level. The UCC-1 recites that, along with a list of tangible assets, the pledged collateral also includes patents, either specifically or via a reference to “general intangibles.” In addition to the UCC-1, most sophisticated lenders also record a security interest in the specified patents and applications with the USPTO’s assignment database.
While technically this may be an “IP backed” loan, use of that term suggests that the patents were the only collateral, or at least an important part of the collateral to the lender, which is seldom the case. Based on my experience in the area of patent collateralization, I would say that a miniscule part of these PTO recordals represent a situation where the lender paid any attention to the patents in qualifying the borrower, e.g., in meeting the bank’s applicable “loan to value ratio” or any other lending criteria.