New Regulation for IP Financing in Indonesia

On September 21, 2022, an implementation regulation for the Creative Economy Law was been issued by the Indonesian government, and it aims to assist corporations in the creative economy, especially via the financing of IP.

On July 12, 2022, Government Regulation No. 24 of 2022 (“GR 24/2022”) was published, and on July 12, 2023, it is expected to go into effect. This regulation is aimed at implementing Law No. 24 of 2019 regarding the Creative Economy. The government has taken action to aid individuals in the creative sector with their intellectual property (IP)-related businesses via GR 24/2022.

IP financing is one of the new regulation’s main topics. This article gives a broad overview of IP financing as it is defined by GR 24/2022 and examines some of the procedures that businesses and the government must take to obtain or offer IP financing.

The Indonesian legislation GR 24/2022 is not the first to legalize the use of intellectual property, or at least some categories of it, as collateral. The ability to encumber copyrights and patents with fiduciary securities is governed by Law No. 28 of 2014 regarding copyrights (the “Copyright Law”) and Law No. 13 of 2016 regarding patents (the “Patent Law”). However, these two statutes only provide that patents and copyrights may be the subject of fiduciary securities. In implementing rules, further requirements on the fiduciary securities over these IP rights were to be regulated. However, since neither the Copyright Law nor the Patent Law has an implementing rule that addresses this subject, GR 24/2022 might potentially fill that gap.

The creative economy is described as an embodiment of added value from IP arising from human creativity based on cultural heritage, science, and/or technology in Article 1(1) of GR 24/2022. Additionally, creative economy actors are defined as individuals or groups of Indonesian citizens or commercial enterprises constituted as legal or non-legal entities in accordance with the Republic of Indonesian law in Article 1(2) of GR 24/2022.

Requirements for applying IP financing

The government enables IP-based financing schemes through financial institutions, including banks and non-banks, in accordance with Article 4(1) of GR 24/2022. The requirements that creative economy participants must follow in order to be eligible for IP financing are governed by Article 7(2) of GR 24/2020. These requirements include:

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 clarification of Article 7(2)(c) of GR 24/2022 states that a licensing agreement associated with the intellectual property (IP) of a creative economy product includes the IP used as collateral for the IP-based financing.

The Directorate General of Intellectual Property (“DGIP”) at the Ministry of Law and Human Rights (“MOLHR”) offers a system for recording copyrights and related rights, even though copyright does not eventuate from registration and is protected automatically once the literary work is expressed in a tangible form (i.e., once the idea has been written on paper forming the book). Until disproven, such recordation would be considered evidence of ownership of the copyrighted work or associated rights product. According to Article 7(2)(d) of GR 24/2022, such recordation is also required before a creative economy business can apply for IP-based financing.

When providing financing for IP, financial institutions must:

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 fulfill 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.

Article 10 of GR 24/2022 stipulates that any intellectual property (IP) used as collateral must be recorded or registered at the DGIP and handled independently or by third parties. IP rights that do not arise from registration, such as copyrights and related rights that are automatically protected whenever works or related rights products are embodied in a physical form, are subject to the recordation requirement. The DGIP will provide certificates of recordation of the IP rights as confirmation of the recording of IP.

Trade secrets do not need to be registered either since they are protected perpetually in the commercial and technological industries as long as their economic value endures and their confidentiality is upheld. The DGIP, however, does not mandate the recordation of trade secrets; only the licensing or transfer of trade secrets necessitates recordation.

The IP rights that derive from registration, such as trademarks, patents, industrial designs, integrated circuit layout designs, and plant variety protection, are subject to registration requirements. If the applied IP is determined to be registrable under each applicable law and regulation for each type of IP, the DGIP will issue certificates of registration for each of the rights. Additionally, according to the clarification of Article 10 of GR 24/2022, managed IP refers to that which has been made commercially viable by the owner or another party in accordance with the contract. Therefore, the creative economy actor would not be able to receive IP financing even with legal evidence of ownership over such IP. They would also need to make their IP rights available for sale.

The MOLHR is required by Article 11 of GR 24/2022 to give financial institutions access to information on intellectual property that is used as collateral. Pangkalan Data Kekayaan Intelektual, a database of intellectual property (IP) for trademarks, patents, industrial designs, and copyrights, is now available to the general public via the DGIP. However, the database only contains a small amount of data. The DGIP will have to give more comprehensive data, including data on the assignment and licensing of IP rights used as collateral, that financial institutions can access in order to comply with the requirements of Article 11 of GR 24/2022.

In addition to recording and registering any intellectual property used as collateral, the Ministry of Tourism and Creative Economy requires creative economy participants to record any IP-based funding provided by financial institutions (“MOTCE”).

Valuation of Intellectual Property Used as Collateral

According to Article 12(1) of GR 24/2022, the criteria must be utilized to value intellectual property (IP) used as collateral:

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

According to GR 24/2022’s Article 12(2), IP valuation must be done by a valuation panel, an IP appraiser, or both. The following requirements are listed in Article 12(3) 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.

In accordance with the requirements of laws and regulations, proficiency in IP valuation must be proven by acquiring competency certification. Such proficiency is vital to provide IP appraisers the abilities needed to carry out:

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 utilization of IP that has been used in the industry. 

GR 24/2022 also acknowledges valuation panels, a committee of individuals chosen by a financial institution to evaluate the intellectual property of creative economy organizations requesting IP financing. A valuation panel must include of professionals chosen by a financing institution as well as credit or financing appraisers, according to the clarification of Article 12(6) of GR 24/2022. Members of a valuation panel are not needed by GR 24/2022 to be competent in IP, in contrast to IP appraisers.