Prospects for Using Intellectual Property as Collateral in Indonesia

The consequence of Indonesia’s participation as a member of the World Trade Organization (WTO) is to take essential steps, including harmonizing the legal regulations in the field of Intellectual Property (IP) with the provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement.

This includes following developments in global regulations, where IP is one of the accesses to obtain banking credit internationally. It is noted that IP, such as Copyrights, Patents, and Trademarks, have become a common source of banking financing in foreign countries. This makes it easier for business people with products and/or services protected by IP law to access bank credit for capital to develop their business.

Regulation v Implementation in Indonesia

Since 2022, the Government has stipulated Government Regulation Number 24 of 2022 concerning Implementing Regulations of Law Number 24 of 2019 concerning Creative Economy. This confirms that IP can be pledged as collateral for financing from banks and non-bank financial institutions. This regulation has only been implemented since July 12, 2023.

However, Melly Goeslaw, a singer and songwriter who has composed more than 600 songs, in her interview with Najwa Shihab, an Indonesian Senior Journalist, on the Mata Najwa podcast, which was released on the YouTube channel on January 16, 2024, admitted that her songs still cannot be applied for as loans at the bank. With the popularity of her songs, such as “Bunda” (1997) and “Ayat-Ayat Cinta” (2009), she still feels worried that she will not be able to support her children and provide them with a promising future if she is no longer productive. That’s why she proposed herself as a legislative candidate for the 2024-2029 House of Representatives of the Republic of Indonesia, hoping that existing regulations can be implemented comprehensively.

The same thing was expressed by Mira Lesmana, producer of blockbuster films such as “Petualangan Sherina” (2000) and “Ada Apa dengan Cinta?” (2002). Her work as Intellectual Property has indeed been recognized, but it cannot be used as collateral to the bank. It is easier to sell than to be used as collateral. Luckily, non-bank funding institutions already understand the value of a film, so they don’t need to sell or relinquish ownership of their old IP to get fresh funds to make new films because quality films cannot be made with a low budget.

The Concept of IP as a Collateral Object in the Fiduciary Guarantee System

In Article 1, paragraph (1) of Law No. 42. 1999 concerning Fiduciary Guarantees, Fiduciary means transferring ownership rights to an object based on trust, provided that the object whose ownership rights are transferred remains in the control of the object’s owner. Meanwhile, a Fiduciary Guarantee is a security right for movable objects, tangible and intangible, and immovable objects, especially buildings that cannot be burdened with Mortgage Rights.

From a legal aspect, Intellectual Property as Fiduciary Guarantee is regulated by the following legislation:

Copyright Law Article 16 Paragraph 3

Patent Law Article 108

Patent rights can be used as an object of fiduciary guarantee.

For Industrial Design, the regulations are still in the form of an amendment, where Article 62 of the Industrial Design Bill states that Industrial Design can be used as an object of fiduciary guarantee. However, just like Trademarks, Trade Secrets, and other IP regimes, which are identifiable intangible assets, they can be categorized as objects of fiduciary collateral.

Conditions for IPs as Fiduciary Guarantee

For Intellectual Property to be used as collateral or fiduciary guarantee, 2 (two) conditions must be met, namely:

Has been recorded or registered with the Directorate General of Intellectual Property (DGIP) as indicated by possession of a Certificate of Recordation for Copyright or Certificate of Registration for other Intellectual Property;
It has been managed independently, and/or the rights have been transferred to another party, as indicated by proof of use or a License Agreement document.

Obstacles in the Field

Seeing the high growth in IP recordation and registration, if this regulation is implemented, interest in applying for IP as collateral will also be increased. However, as stated at the beginning, rejection still occurs a lot. Why?

Because if we talk about providing bank credit to debtors, there is always the potential for bad credit/failure to pay. So, to anticipate this risk, banks generally require debtors to provide credit collateral with a definite execution value to get the total return value. In practice, collateral such as land or buildings with much potential interest takes work to get buyers at the expected value. As a result, without further understanding the economic value of IPs, calculating the credit that can be granted becomes increasingly complex, and IPs are only considered as additional collateral guarantees.

Considering that there are still many other factors that are pretty complex in assessing an IP, it is felt necessary for these institutions to collaborate with other institutions that are not only able to calculate the valuation of IP assets but also legal audits that must understand the validity period, cancellation status and ownership (who is suitable to be given credit), as has been practiced abroad, including Singapore.

Solutions for Intellectual Property Valuation

Even though there is no particular institution for valuing IP assets in Indonesia, there are already institutions that can be further empowered to assess and even help with payments in the event of bad credit. Here are some examples that can be applied:

- Empowering National Collective Management Organization (LMKN) for Copyrights

To facilitate the assessment of Copyright, especially music and songs, the Government and bank and non-bank financial institutions need to maximize the role and function of the LMKN, which has been established since 2014. By involving LMKN, bank and non-bank financial institutions can increasingly be confident in making music and songs as fiduciary guarantees.

So far, LMKN has been tasked with collecting and distributing royalties for music and song publications by any party to songwriters and performers in the music sector. Royalties are distributed yearly to songwriters and performers so that there is a regular record regarding the number of royalties distributed. LMKN also collects royalties from users after being authorized by the Creator, Copyright Holder, and related rights owners who have become members or have yet to become members of an LMKN.

Furthermore, by collaborating with LMKN, financial institutions can use these records to assess how large a loan can be given to songwriters or performers based on the amount of royalties they receive each year. If a payment default occurs, the financial institution can agree with LMKN so that the royalties that should be distributed to the songwriter or performer, the bank’s debtor, will be paid directly to the bank to pay off the loan.

However, of course, before becoming a debtor, the Creator or Copyright Holder is also required to register themselves as a member and give authority to LMKN to withdraw royalties and give the royalties to the bank if they later experience a failure to pay.

- Public Appraiser for Trademarks and Other IPs

Trademark and any other IP value determination is based on a regulation issued by the Association of Public Appraisers, bound by the Indonesian Appraiser Code of Ethics (KEPI) and the Indonesian Appraisal Standards (SPI). SPI 320, which regulates the rules for assessing intangible assets, states that the basis for evaluating intangible assets is the number of sales, protection period, assets owned, and goodwill, namely the prediction of the asset’s value in the future.

Apart from that, the National Research and Innovation Agency (BRIN), as a research institution that has a lot of contact with IPs, in December 2023, held a “Kick Off on the Role of Intellectual Property Valuators in Utilizing Research and Innovation Results.” This action can synergize with the Government’s efforts to encourage banks to expand the scope of providing credit to creative industries, including IP-based businesses. It is not impossible that all existing obstacles can be resolved in 2024.

Should you need further information regarding Intellectual Property as a collateral object of fiduciary guarantee, don’t hesitate to contact us via [email protected].

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