Minutes - TRIPS Council - View details of the intervention/statement

H.E. Ambassador Dr Lansana GBERIE

462.   Thank you, Mr Chair and colleagues, for giving us the opportunity to share our experiences and national policies regarding this agenda item. First of all, the delegation of Japan would like to thank the Swiss delegation for introducing our concept paper. Also, we have prepared copies of today's presentation22 materials at the entrance please feel free to pick them if you like. As today's theme suggests, we consider IP financing as critically important for start-ups. Today, we would like to introduce Japan's initiatives on IP financing. 463.   The term "IP financing" usually refers to methods or techniques, such as attaching security interest in IP or collecting royalties under license agreements on IP rights, which take advantage of the value of IP rights themselves in the hopes of monetizing them. In Japan, however, those techniques have not become the mainstream in financing IP. One of the major reasons for this situation is that lenders, including banks, hesitate to make loans using IP rights as collateral, since traditional asset evaluation methods that emphasize tangible assets have taken deep root in banks - who consequently tend to find less value in intangible assets than they actually are worth. 464.   Many start-ups in Japan obtain the needed funds through loan financing from banks. Difficulties in collateralizing IP rights could bring hurdles for start-ups that do not have substantial tangible assets - particularly IT start-ups - in terms of obtaining smooth funding. Under such circumstances, the Japanese government has shifted its strategy on IP financing from simply measuring the value of the IP rights alone, to evaluating what additional value such IP rights bring to the business: in other words, evaluating the IP rights in combination with the entire business. 465.   Given that start-ups do not always have substantial tangible assets, we hope that this presentation will be useful for other Members - especially where IP rights have not been sufficiently utilized as financial assets, due to the difficulties in evaluating intangible assets. 466.   The Japanese Government's initiatives on IP financing consist of two pillars. The first is that of the efforts to ensure proper evaluation of companies' business value by investors and companies themselves. These efforts include the revision of Japan's Corporate Governance Code in 2021, which required businesses to disclose information on IP investment strategies. 467.   The second pillar consists of efforts to introduce a securitization system that allows the entire business value of a company, including IP, to be collateralized. We will not mention this today, but the overview is shown in the last page. This is also an initiative based on the idea of understanding the value of IP rights as part of the value of the entire business. Please feel free to contact us for further information in this regard. 468.   Today, I would like to introduce the Japan Patent Office's initiatives, which are part of the first pillar, in terms of facilitating the proper evaluation of corporate value by investors and companies. Many banks in Japan have conducted business feasibility assessments. The purpose is not limited to financing, but also includes aspects of business and management support for companies. 469.   The Japan Patent Office's primary initiative, "IP Financing Business", helps banks to properly assess the business value and the feasibility of their client companies by offering the perspective of the IP side, so that banks understand the actual financial state of their clients. Incorporating an evaluation from the perspective of IP will enable both investors and companies to understand a company's genuine business value and its strengths - thereby promoting the utilization of IP. This will especially help start-ups that do not have many tangible assets, but do have technological strengths, in terms of achieving smooth financing and expediting their growth. 470.   Proper value assessment can indicate a company's room for growth in terms of new businesses or new markets, for example, where financing will ultimately be necessary to realize such potential. In other words, the idea is that banks actively create their own financing opportunities. Most of the financing results in Japan have been indirectly linked to such financing. There is one barrier to including a technological perspective such as IP, especially patents, in a bank's business feasibility assessment. Generally, banks are good at understanding a company's value or status based on financial information - but they may not necessarily have such an understanding of its technological capabilities. In fact, there are very few technical personnel in Japan's banks. 471.   In order for banks to provide effective business and management support to client companies, it is essential that they understand their clients' technological capabilities which serve as the source of sales, including IP. In Japan, small and medium-sized enterprises (SMEs), including most startups, account for more than 99% of all businesses. There are many manufacturing companies with excellent technological capabilities, but at the same time, many among them have not fully made use of their skills in terms of calling for further investments. It is necessary for banks to have a proper understanding of the excellent technological capabilities of manufacturing companies. 472.   Based on this background, the IP Financing Business initiative put the focus on SMEs. Under this initiative, the Japan Patent Office provides IP business assessment reports and IP business proposals for banks and their client SMEs. These reports provide business feasibility evaluations from a technical perspective. This is done in order to complement the evaluation methods used by banks that have difficulty in understanding corporate IP activities, such as technology and knowhow. It is expected that these reports and existing evaluation methods will complement each other, so that stakeholders can understand and evaluate corporate activities more accurately. 473.   IP Business Assessment Reports cover target companies that assess the relationship between that company's entire business and its IP, such as technology and brand power, which are the sources of SME management power. This report is prepared by a research company and experts, such as patent attorneys and management consultants, who can appraise technical and brand power. IP Business Assessment reports are crafted in order to help banks properly understand the content and value of IP. The IP Business Proposal is a report on a target company. In addition to IP Business Assessment Reports, such proposals analyse the business issues and growth potential of that company, while also proposing recommended actions for the SME. Such recommended actions usually must be accompanied by management and financial support from the lender. 474.   Next, I would like to introduce an example, in the form of an actual case study, to show how the IP Business Assessment Report can actually be utilized. There was an SME that was considering starting a new business using its technological capabilities. Its bank knew that the company was seeking to develop a new business but did not fully understand the relationship between the strengths of the company's technology and its business. Therefore, the bank asked for an IP Business Assessment Report. 475.   The report from the Japan Patent Office revealed the relevance of the company's strengths and its business. In addition, through interviews conducted by experts with companies in the same industry, the report made it clear that although the basic technology was being established, there was still no prospect of commercialization. Therefore, the bank proposed that the company proceed with joint development through industry-academia collaboration with the research institution that the company was collaborating with for some time. 476.   As a result of the joint development proposed by the bank, the company was able to complete the new product and successfully launch a new business. During this period, financial institutions also provided financing for joint development. In this case the IP business assessment report played a key role in promoting financial institutions understanding other companies' business with the intent a proposal industry-academia collaboration and further support through financing. 477.   The IP Financing Business initiative has been conducted since 2014, and the results are shown on the slide. There are 216 financial institutions that have utilized the IP Business Assessment Report at least once during the 8 years from 2014 to 2021. Since there are approximately 500 regional financial institutions in Japan, this means that about 40% of regional financial institutions have used the IP Financing Business initiative. A total of 2,188 people attended IP Financing Business seminars and symposiums. In the past few years, we have not been able to hold large-scale events due to the COVID-19 pandemic—but such meetings are planned to be held this year. 478.   The IP Business Assessment Reports have led to financing 88 institutions in 189 cases, totalling approximately YEN 9.32 billion. To avoid confusion, this amount does not include direct IP financing. Although this number of cases is not considerable, we believe that the positive effect for SMEs including start-ups were greater than mere monetary figures, since in most cases, financing for the companies was provided in combination with management support from financial institutions. This brings me to the end of this presentation. We hope that today's introduction will be useful to other Members. In addition, the delegation of Japan is looking forward to other Members sharing their own experiences.

The Council took note of the statements made.
84. The Chair said this item had been put on the agenda at the request of the delegations of Australia, Canada, Chile, the European Union, Japan, Singapore, Switzerland, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, the United Kingdom, and the United States of America. These delegations had also submitted a communication on this topic, circulated in document in order to allow Members to prepare for today's discussion.
85. The representatives of Switzerland; Japan; the United States of America; Australia; Canada; Chinese Taipei; Singapore; the European Union; the United Kingdom; Chile; Hong Kong, China; Uruguay; Mexico; Switzerland; South Africa; India; China; and Indonesia took the floor.
86. The Council took note of the statements made.
IP/C/M/106, IP/C/M/106/Add.1

22 Circulated as dcument RD/IP/50