New Regulation In Indonesia Focuses On IP Financing.

(September 21, 2022) The Government of Indonesia recently issued an implementing regulation for the Creative Economy Law that seeks to support business actors in the creative economy including through IP financing.

Government Regulation No. 24 of 2022 regarding the Implementation of Law No. 24 of 2019 regarding the Creative Economy (“GR 24/2022“) was promulgated on July 12, 2022, and is scheduled to come into force on July 12, 2023. With GR 24/2022, the government has moved to support those in the creative economy with their intellectual property (“IP“)-related business.

One of the key points of the new regulation is IP financing. This article provides a general overview of IP financing as regulated in GR 24/2022 and looks at some of the things business actors and the government must do to attain or provide IP financing.

General Overview

GR 24/2022 is not the first regulation in Indonesia to allow IP, or at least certain types of IP, to be used as collateral. Law No. 28 of 2014 regarding Copyright (“Copyright Law“) and Law No. 13 of 2016 regarding Patent (“Patent Law“) regulate that copyrights and patents can be encumbered with fiduciary securities. These two laws, however, merely stipulate that copyrights and patents can be subjected to fiduciary securities. Further provisions on the fiduciary securities over these IP rights were to be regulated in implementing regulations. However, no implementing regulation for the Copyright Law or the Patent Law was issued to address this topic, so in a way, GR 24/2022 can serve that purpose. 

Article 1(1) of GR 24/2022 defines the creative economy as an embodiment of added value from IP originating from human creativity based on cultural heritage, science, and/or technology. And Article 1(2) of GR 24/2022 defines creative economy actors as individuals or groups of Indonesian citizens or business entities in the form of legal entities or non-legal entities established under the laws of the Republic of Indonesia.

Applying for IP Financing

According to Article 4(1) of GR 24/2022, the government facilitates IP-based financing schemes through financial institutions in the form of banks and non-banks. Article 7(2) of GR 24/2020 governs the requirements that creative economy actors must fulfil when applying for IP financing. These requirements are to:

1. provide a financing proposal;
2. have a creative economy business;
3. have an agreement related to the IP of a creative economy product; and
4. have a certificate of registration or recordation of IP.

The elucidation of Article 7(2)(c) of GR 24/2022 stipulates that an agreement related to the IP of a creative economy product includes a license agreement related to the IP which is used as collateral for the IP-based financing.

As an illustration, a university student may not be able to apply for IP financing based solely on the copyright vested in the thesis she has created. However, she may apply for IP financing based on the copyright over a book that she authored for which the publishing right has been licensed to a publisher.

Although copyright does not arise from registration and vests automatically once her literary work is embodied in a tangible form (i.e., once the idea in her head has been written on paper forming the book), the Directorate General of Intellectual Property (“DGIP“) at the Ministry of Law and Human Rights (“MOLHR“) provides a system for recording copyrights and related rights. Such recordation would serve as prima facie evidence of ownership over the copyrighted work or related rights product until proven otherwise. Such recordation is also a prerequisite for a creative economy actor to apply for IP-based financing, as stipulated in Article 7(2)(d) of GR 24/2022.

Providing IP Financing

In granting IP financing, financial institutions shall:

1. verify the creative economy business;
2. verify the recordation or IP certificates that are used as collateral and can be executed in the event of a dispute (i.e., when the creative economy actor breaches the provisions in the financing agreement) or non-dispute (i.e., execution carried out to fulfil the provisions of the financing agreement);
3. perform a valuation of the IP used as collateral;
4. disburse funds to the creative economy actors concerned; and
5. receive the repayment of the financing from the creative economy actors according to the agreement.

In relation to the IP used as collateral, Article 10 of GR 24/2022 requires the IP to be recorded or registered at the DGIP and managed independently and/or by other parties. The recordation requirement shall apply to IP rights that do not arise from registration, namely copyrights and related rights that vest automatically once works or related rights products are embodied in a tangible form. To evidence the recordation of IP, the DGIP will issue certificates of recordation of the IP rights.

Trade secrets also do not require registration as protection is given perpetually to information in the technology or business fields for as long as the economic value of such information persists and the confidentiality of the same is maintained. However, recordation of trade secrets is not necessitated by the DGIP and only the licensing or assignment of trade secrets requires recordation.

In contrast, registration requirements apply to those IP rights that arise from registration, such as trademarks, patents, industrial designs, layout designs of integrated circuits, and plant variety protection. The DGIP will issue certificates of registration for each of the rights if it deems the applied IP registrable according to each law and regulation for each type of IP. Further, the elucidation of Article 10 of GR 24/2022 explains that managed IP means that such IP has been commercialised by the owner or other party based on the agreement. Therefore, having lawful proof of ownership over such IP would not suffice for the creative economy actor to obtain IP financing. They would also have to commercialise such IP rights that they own.

Article 11 of GR 24/2022 further stipulates that the MOLHR shall provide financial institutions access to data on IP used as collateral. To date, the DGIP has provided a publicly accessible database of IP for trademarks, patents, industrial designs, and copyrights, called Pangkalan Data Kekayaan Intelektual. However, the information incorporated in the database is limited. To accommodate the provisions of Article 11 of GR 24/2022, the DGIP will have to provide more comprehensive information, including information regarding the assignment and license of IP rights used as collateral, that can be accessed by financial institutions.

Aside from the recordation and registration of IP used as collateral, as applicable, creative economy actors should also record the IP-based financing granted by financial institutions in the creative economy financing system maintained by the Ministry of Tourism and Creative Economy (“MOTCE”).

Valuation of IP Used as Collateral

Article 12(1) of GR 24/2022 governs that the valuation of IP used as collateral shall be done using the following:

1. cost approach;
2. market approach;
3. revenue approach; and/or
4. other valuation approaches according to the applicable valuation standard.

Article 12(2) of GR 24/2022 stipulates that IP valuation shall be carried out by an IP appraiser, valuation panel, or both. Article 12(3) stipulates the following criteria for an IP appraiser:

1. holds a public appraisal license from the Ministry of Finance (“MOF“); 
2. has competency in the field of IP valuation; and
3. is registered with the MOTCE.

Nia Niscaya, a Deputy for Strategic Policy at the MOTCE, in a webinar hosted by the Financial Services Authority (Otoritas Jasa Keuangan or “OJK“) on September 1, 2022, titled “Prospect of IP as Collateral,” said that there are currently 743 appraisers qualified to perform business and property appraisals, and only 110 of them are specifically qualified to appraise business. It is unclear how many appraisers have competency to appraise IP. Article 12(3) of GR 24/2022 suggests that appraisers with competency in IP shall also be registered at the MOTCE. There are as of the writing of this article no appraisers registered at the MOTCE.

Competency in IP valuation must be demonstrated by obtaining competency certification according to the provisions of laws and regulations. Such competency is essential to equip IP appraisers with the skills necessary in conducting:

1. valuation of IP used as collateral;
2. market analysis of the IP used as collateral; and/or
3. review of the analysis report on the utilisation of IP that has been used in industry. 

GR 24/2022 also recognises valuation panels, which is a group of people appointed by a financial institution to appraise the IP of creative economy actors applying for IP financing. The elucidation of Article 12(6) of GR 24/2022 explains that a valuation panel shall be made up of credit or financing appraisers and/or an experts appointed by a financing institution. Unlike IP appraisers, members of a valuation panel are not required under GR 24/2022 to have competency in IP.

Next Steps for Stakeholders

In light of the general overview above, there is some work to do for the relevant stakeholders before the effective date of GR 24/2022, including:

As of this article, no appraisers with IP competency have been identified. This is a problem because appraisers expert in the peculiarities of IP will be required to provide accurate valuations of IP used as collateral. 

IP rights as intangible and movable assets are rather niche compared to other types of assets. IP appraisers must have a good understanding of the nature of each type of IP, how the protection of the specific type of IP arises and vests to the objects in question, the term of protection, what kind of rights are given to the owner or holder of such IP, how such right can be assigned or licensed partially or in its entirety, and the unique goodwill attached to the IP, to give an accurate valuation of the IP used as collateral, analyse the relevant market, and review the analysis report of IP that has been utilised in industry.

1. IP Appraisers

2. IP Appraiser Competency Certification

Article 12(4) of GR 24/2022 stipulates that competency in IP valuation must be demonstrated by obtaining competency certification according to the provisions of laws and regulations. Therefore, the relevant stakeholders, e.g., the MOTCE, MOF, and/or DGIP, will have to prepare an implementing regulation on competency certification for IP appraisers.

3. IP Appraiser Registry

Article 12(3)(c) of GR 24/2022 suggests that IP appraisers shall be registered at the MOTCE. In that case, as a continuation of the IP Appraiser Competency Certification, the MOTCE will have to prepare an IP Appraiser Registry.

4. Access to Data on IP Used as Collateral

Currently, the DGIP only provides limited information in its publicly accessible IP database. It will have to provide more comprehensive information related to IP used as collateral to support financial institutions.

5. Recordation System for Creative Economy Financing

The MOTCE will have to set up a creative economy financing recordation system to comply with Article 13 of GR 24/2022.

Aside from the above, the relevant stakeholders, e.g., the MOTCE, DGIP, and MOF, should also consider the authorised party and the method to execute IP used as collateral if creative economy actors fail to repay their loans. 

It will also be important to assess the possible buyers or markets for executed IP so the acquisition of said IP will not result in monopolistic and unfair business competition practices.