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Case study:

Intellectual Property


Intellectual property and royalty management has become a Luxembourg specialty. Indeed Luxembourg is an extremely favourable legal and fiscal environment for artists, writers, companies, inventors and engineers to domicile their royalty income.

The rationale for securitisation lies in the opportunity of obtaining the NPV (net present value) of future income streams today; in transforming future income streams into an immediate cash flow.

Investors achieve this future income stream by buying securities issued by the securitisation vehicle and, therefore, ensuring the right to potential future returns. The beneficiary discounts the immediate payment in order to allow investors to obtain a yield, taking into consideration the uncertainty of receiving future income streams.

As such investors buy the future income streams, the yield and the risk associated with the returns.


Types of Intellectual Property

Below we have highlighted  a few examples securitisation and intellectual property, but the applications can be numerous:

  1. Patents: A patent is a protected right to exclusive use of an invented item; such as a new machine or brand new product. Restricted over time, the inventor may wish to capitalise on his patent by selling it to a securitisation vehicle.

  2. Brand, trademark: Companies and individuals can securitise the use of a brand or trademark, and separate it from the company/owner owning this brand or trademark. The company then rents the use of the brand and trademark from the securitisation vehicle. This also applies to web URLs, for example.

  3. Artists' and writers' royalties: The royalties received can be securitised and  shared with investors, family members, or a closed group.



In most cases the income derived from the securitisation of royalty income is recurrent; therefore investors will usually expect a regular coupon. Depending on the fiscal treatment of income as opposed to capital gain, the future value can also be capitalised and will provide investors with capital gain payments, i.e. dividends.

The securitisation vehicle buys the income associated with the intellectual property from the owner, either for a specific period or for an unlimited time. The securitisation vehicle issues shares or bonds to investors, who will receive capital gain or coupon income. The offering memorandum of the securitisation vehicle also defines the conditions under which investors can redeem their investments.

Securitisation vehicles are also used to share the revenue between the members of a band, group of inventors, etc. Each individual can thereby clearly identify his share in the income and also evenly participate in the costs associated with maintaining the flow of royalty income.



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