Small- and medium-sized enterprises (SMEs) that do not have sufficient tangible assets have a high demand for IP direct collateral. Despite attempts worldwide, few countries have successfully implemented IP direct collateral mechanisms due to difficulties in infrastructure development.

The Republic of Korea ranks fourth globally in patent applications. It has the most patents applied per GDP and per population in the world. Even so, the Republic of Korea has an immature IP market. To facilitate growth, the Korean government actively promotes IP finance, by allowing entities to utilize intellectual property rights as a separate financing method and pledge IP rights. Despite obstacles, this initiative facilitates cash flow for SMEs, demonstrating the Republic of Korea’s commitment to overcoming challenges in intangible asset finance.

In practice, the Financial Services Commission (FSC), the Korean Intellectual Property Office (KIPO), and commercial banks collaborate to establish infrastructure recognizing the importance of IP direct collateral for SMEs with competitive intangible assets.

There are increasingly more examples of SME growth and corporate rehabilitation through IP direct collateral. Current policy assistance aims to build a stable market mechanism for IP direct collateral, ensuring its significant role in the market through government and private sector cooperation.

I. Introduction Republic of Korea ranks fourth in the world for number of patent applications [1] and has the most patents applied per GDP and per population [2]. This shows that Republic of Korea is one of the most active countries in patenting globally [3]. The Korean government is quick to respond to this dynamic situation and promotes IP Finance. IP Finance is a financing method that leverages intellectual property rights which are independent from the company’s credit rating to help entities realize their intrinsic economic value [4]. According to a press release issued by the Korean Intellectual Property Office (KIPO), the balance of IP Finance exceeded KRW 6 trillion (KRW 6.09 trillion) for the first time in 2021, and the new supply was KRW 2.504 trillion for the year, a 21.3% increase compared to the previous year (KRW 2.064 trillion in 2020) [5]. IP Finance in the Republic of Korea can be categorized into IP direct collateral, securitizations, and investments. Among them, IP direct collateral had the most noticeable growth. Globally, traditional loan products are set up for tangible assets, and most conventional finance participants, like commercial banks, have no incentive to shift to intangible asset financing. However, the reality is changing rapidly in that companies are adding both tangibles and intangibles into their asset mix.’ The problem is that small- and medium-sized enterprises (SMEs) in particular hold more value in what they invented rather than tangible assets [6]. Accordingly, SMEs have to overcome many obstacles to access bank capital. It helps SMEs if their intangible assets are turned into direct collateral to support a loan. This allows SMEs to pledge their IP rights and use their core intangible assets for loans. Nonetheless, it is still difficult for most lenders to even imagine using an intangible collateral to determine a patentee’s ability to repay a loan. In the Republic of Korea, the Financial Services Commission (FSC), the Korean Intellectual Property Office (KIPO), and the Korea Invention Promotion Association (KIPA) have been collaborating on IP Finance since 2020, and many commercial banks have loan services where patents serve as security for the loans. The KIPO and the KIPA have been encouraging commercial banks for years to set up IP Finance, primarily IP direct collateral. Despite the many obstacles in the way of IP (patents) loans, the KIPO and the KIPA have made it possible for patents to be turned into collateral in the Republic of Korea, and this cash flow helps many SMEs. This paper outlines the IP (patents) direct collateral landscape in the Republic of Korea. It shows how the FSC, the KIPO, and the KIPA deal with the main obstacles regarding intangible asset finance. II. Legal Basis of IP Direct Collateral in the Korean Patent Act and the Act on Security over Movable Property and Claims 1. Article 121 Article 99 Abstract 2 of [continua..]