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WIPO Information Meeting on IP Financing Geneva, Switzerland

10 March 2009

IP Financing in the Field of Trademarks

Case Study of Malaysia

Presented By:Jern Ern CHUAH

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Agenda

-Introduction

-An overview of Malaysia and its Economy

-The National IP Policy

-Trademarks in Malaysia

-An overview of financing in Malaysia

-Trademark Financing in Malaysia

-Conclusion and Summary

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Malaysia – An Overview

• Located in South East Asia

• 27 million people

• Newly Industrialized Country

• Top 30 largest economy in the world

• GDP between 5-7% average

• Export oriented

• 91% of businesses are SMI-SME

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Malaysia – An Overview

• Private Enterprise and Ownership are encouraged

• Government influences economic direction through the Malaysia Plan (9th to date), the Economic Planning Unit and Sovereign Wealth Funds

• The Malaysia Plans target specific sectors and industries for accelerated growth

• To bolster this, Malaysia developed the National Intellectual Property Policy (NIPP)

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The National IP Policy (NIPP)

• Launched in April 2007

• Main Purpose – the harnessing of IP as a new engine of growth in Malaysia

• Transformation to a knowledge based economy

• Promotes the development of a proper financial infrastructure for IP transactions

• Supported by a RM5 billion fund

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The National IP Policy (NIPP)

• Development of IP financial infrastructure includes:-

– the review of current laws and regulations in company law,securities regulations, banking and finance law

– development of IP-based banking and financial instruments for the mortgaging of IP assets

– promoting the use of IP as collateral and security;

– the creation of an IP exchange to stimulate the trading of IP and develop a more liquid market for IP trading

– setting up a specialised IP Financing house.

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The Malaysian TM Regime

• Fairly Conservative

• No specific provisions which allow for the specific use and recordal of IP as an asset in financial transactions

• IP Office will not record nor receive a trust

• Historically, local ownership falls very much behind foreign ownership (2.5 to 1), but this may change.

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The Malaysian TM Regime

• Out of 184,612 registered trademarks, only 52860 are owned by locals

Year Application Registration

Malaysia Foreign Total Malaysia Foreign Total

1983 – 1999 77,415 99,122 176,537 14,037 46,371 60,408

2000 6,303 12,500 18,803 449 1,328 1,777

2001 6,525 10,078 16,603 1,570 5,341 6,911

2002 7,661 8,785 16,446 4,056 7,072 11,128

2003 8,327 9,439 17,766 3,014 9,108 12,122

2004 10,406 10,337 20,743 3,243 8,473 11,716

2005 10,479 11,668 22,147 3,683 7,771 11,454

2006 11,209 12,840 24,049 5,651 10,108 15,759

2007 12,289 13,605 25,894 8,108 17,382 25,490

2008 12,562 13,472 26,034 9,049 18,798 27,847

Total 163,176 201,846 365,022 52,860 131,752 184,612

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An Overview of Financing in Malaysia

Family & Friends

Banks

Venture Arms

Government &Government-BackedGrants & Incentives

IP financing is well in its infancy, and not yet developed.

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TM Financing in Malaysia: Government and Govt-backed Grants

• The primary means of recognised external financing for trademarks in Malaysia

• Case #1– MATRADE Brand Promotion Grant– For development of local brands outside Malaysia– Eligible only to marks identified by the Brand Grant Committee – Steep evaluation curve– Large grant by Malaysian standards for brands– 50% reimbursable grant up to max of RM2 million per company per

brand – 100% reimbursable grant up to max of RM1 million per company per

brand for SMI-SMEs

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• MSC Malaysia – an initiative to springboard Malaysia through ICT into a knowledge economy

• Case #2 – MSC Malaysia IP Grant Scheme– Open to local MSC Malaysia Status companies– Very few requirements to obtain– Designed to subsidize up to 70% of initial costs incurred in filing IP

whether locally or overseas– Relatively small sum of RM17,500 per applicant per annum

TM Financing in Malaysia: Government and Govt-backed Grants

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TM Financing in Malaysia:Banks

• Banking industry in Malaysia very conservative and prudent, with strict credit culture

• No specific limitations to TMs being used as collateral, but actual acceptance of TM as sole collateral for a loan is almost unknown

• Corporate Guarantees for loans a known pre-requisite

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TM Financing in Malaysia:Banks

• Confluence of factors leading to non-use of TM as sole collateral by banks in Malaysia:- – lack of awareness of IP in the local banking industry– reluctance to accept intangible assets except as part of a larger

collateral base;– insufficient manpower to execute non-traditional sales;– illiquid nature of trademarks as an asset; – lack of a local marketplace for the trading of IP;– large discounts in the determination of value and in loan figures which

make it pointless for trademarks to be considered as sufficient collateral

to stand by itself;– no history of transactions;

[Cont’d…]

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TM Financing in Malaysia:BanksCont’d…

– inability to establish proper trademark valuation;– insufficient local resources and experts providing acceptable

valuations;– high cost of overseas trademark valuations;– relatively small pool of local owned trademarks (numbering under

53,000 only) – relatively new pool of local trademarks and local owners most of

which are SMI-SMEs – local pool of trademarks not yet properly established in the local and

foreign marketplace; [Cont’d…]

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TM Financing in Malaysia:BanksCont’d…

– lack of a proper infrastructure for the recordal of trademarks as

collateral and security; and

– ease in the near past of obtaining easy offshore financing.

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TM Financing in Malaysia:Securitization

• Very rare and always customized, few recorded transactions

• Applicable mainly to medium sized private companies with a pool of known trademarks established in local market

• Normally open only to private investors.

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Conclusion

• Malaysia expects a surge of IP related activity in the near future.

• With the amount of focus provided to IP, IP related financing is also expected to arise.

• As trademarks form the largest component of registrable IP in Malaysia, it is expected to play a large role in financing activities.

• The need to convert IP assets from an unnoticed asset to a front runner in terms of security and collateral is critical.

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Conclusion

• The development of a proper IP financing structure as proposed by the NIPP must take root, and the government and its related agencies must take advantage of their position to champion such initiatives as well as other private initiatives.

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Conclusion

• The fundamental issue now is to alter the perception and conservatism of the local banks that IP, and TMs in particular, cannot form the basis of “safe” collateral.

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Summary

-An overview of Malaysia and its Economy

-The National IP Policy

-Trademarks in Malaysia

-An overview of financing in Malaysia

-Trademark Financing in Malaysia

-Conclusion

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