Investors' Prospective on Intellectual Property Financing

Abstract

The intellectual property system is generally considered to be a legal system that promotes innovation. However, the ways through which it achieves this goal are still not entirely clear. Conventional intellectual property theories tend to describe the system’s role in promoting innovation as providing creators with incentives to create and commercialize intellectual products, as well as disseminating knowledge to potential users. What is lacking in the literature is theoretical research that explains the role of the intellectual property system in facilitating investors to finance innovations.

To fill this gap, this Article approaches the intellectual property system from the perspective of investors, and examines its role in facilitating them to finance innovative firms. The Article demonstrates that while investing in these firms, investors face the challenges of high risk of loss, information asymmetry, and inadequate channels. The intellectual property system helps investors handle these challenges by (1) securing their returns, (2) providing signals that assist in their decision making, and (3) coordinating various parties to form relationships that facilitate investments. While the intellectual property system promotes innovation by facilitating financing, two inherent features of the system constrain its function: the uncertainty in intellectual property rights and the non-inclusiveness of disclosure.

To reduce the constraints on the financing function of the intellectual property system, this Article inform policymakers by presenting several reform options. On the theoretical aspect, it proposes that scholars, policymakers, and lawyers examine the intellectual property system from the perspectives of investors or other parties who are not directly involved in the creation and use of intellectual products. These perspectives not only allow them to reflect on, and even critique, the conventional intellectual property theories, but also assist them in developing a more comprehensive understanding of the intellectual property system.