Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-06-02
2001-12-11
Trammell, James P. (Department: 2761)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
Reexamination Certificate
active
06330547
ABSTRACT:
TECHNICAL FIELD
The subject invention relates generally to a method for assessing and improving the creditworthiness of an asset and, more particularly, to a method for establishing a value for an intangible intellectual property asset such as a patent, a trademark or a copyright.
BACKGROUND OF THE INVENTION
Failure rates among emerging small businesses average between 70% and 80% within the first five years, with about half of those failures occurring within the first year. High tech businesses experience even higher rates of failure within the first three years of startup. Of all the reasons for these excessively high failure rates, the lack of access to adequate funds for initial capitalization, follow-on growth and business expansion is a primary factor. Historically, the lack of sufficient operating capital for cash needs has limited emerging companies expansion potential. A business failure in the world of high technology incrementally limits economic growth and means that valuable technologies and services may not ever reach the market. Drugs to treat diseases, telecommunications technologies to move greater amounts of data utilizing less bandwidth and new internet solutions can be stagnated or permanently paralyzed due to the inability to develop the business at the right time. Estimates suggest that small business failures account for billions of dollars of losses in potential sales, jobs and tax revenues annually.
Conventional emerging company financing involves raising funds through various sources including friends and family, angel investors, venture capital and other equity investors. Integral to these approaches is the dilution of ownership of emerging companies by the very persons upon whom success or failure of the venture lies. Faced with the potential loss of control, as well as the economic reality that growth requires capital, many owners of emerging companies would prefer debt financing. However, accessing debt capital from conventional banks, as an emerging company, has several intrinsic problems including lack of negotiable collateral, limited business performance history of the debtor, offering of a product which is non-traditional, hence untested, and which may be directed to an undeveloped or as yet nonexistent market.
As a result, commercial banks have viewed the emerging company market, especially the high technology arena, as very risky and have avoided significant participation. Due to an increased interest in small business development on the national and regional level, this business segment has become one to which banks would like to provide services. Unfortunately, they are not well suited to develop debt-financing products for this market due to their inability to establish an asset value for intellectual property and to establish predictive models to provide adequate risk management analysis as well as the absence of both a basis for reviewing operational/management structures and a liquidation strategy in the event of a loan default.
Although computer-aided and standalone systems are known to have been used for general risk evaluation, risk allocation and risk transfer purposes, for example in the insurance, real estate and financing industries, they have not typically been employed to enable intellectual property to be used as loan collateral, to establish maximum values and amortization schedules for such assets or to examine their transferability or viability. Therefore, in order to provide broader access by emerging technology companies to traditional lending sources such as banks, there exists a need to value intellectual property both as to its financial worth and credit risk and to make such loans as attractive as possible to lenders.
SUMMARY OF THE INVENTION
The present invention relates to a computer-assisted method and system for ascertaining and enhancing the creditworthiness of and establishing a value for intellectual property assets used as collateral for loans made primarily to emerging companies. When a lender is approached by an applicant seeking to use one or more forms of intellectual property (IP) as collateral for a loan, the lender typically has no way to assess the transferability, viability and value of the proposed collateral or to evaluate its creditworthiness or the risk associated with making such a loan. The process of this invention establishes a way not only to evaluate IP collateral risk but also to enhance the creditworthiness of the loan application to a lender by producing a collateral purchase price which may be used by a third party acting as a surety for the borrower. The third party contracts with the lender to purchase the IP collateral from the lender at a fixed price in the event that the applicant defaults on the loan and the lender is forced to repossess the IP collateral. This arrangement enhances the creditworthiness of the applicant by reducing the risk to the lender through provision of a known minimum recovery amount in the event the applicant fails to meet its loan repayment obligations or otherwise fails to abide by lending covenants.
The method of this invention is divided basically into two stages. The first stage involves validation of basic information about the applicant and the proposed collateral, such as ownership, transferability and viability. Unsatisfactory information provided in the first stage may result in either outright rejection of the collateral or intervention at various points by a system user to determine whether the particular information warrants rejection allowing for an override in the event that it does not. In any case of rejection, the applicant is informed of the fact of and reasons for the rejection. In some instances thereafter, remedial action may be possible by the applicant leading to resubmittal and reexamination of the collateral followed by eventual acceptance. The second stage involves the calculation of an asset liquidation value, also referred to as a purchase price, for the loan collateral. Determination of the asset liquidation value requires not only an examination of historical data but also demands an evaluation of prospective product, competitive and market projections based on market research, user experience, statistical data developed through use of the present invention and use of heuristic rules. Where there is insufficient historical or statistical data available, estimates based on the user's experience are used until adequate experiential data has been developed and stored in databases available to the computer system implementing the preferred embodiment of the invention. Once calculated, in the preferred embodiment the asset liquidation value is communicated to a third party which is to act as a surety for the loan. The third party provides a guarantee to the lender that, in the event of a default by the applicant, it will pay to the lender an amount equal to the liquidation value adjusted downward over time according to a depreciation schedule. Due to the mixture of historical and prospective analyses which occurs in the method of this invention, the asset liquidation value may be an amount less than, equal to or even greater than the loan amount. This surety aspect of the present invention enhances the creditworthiness of intellectual property when used as collateral for a loan.
It is a primary objective of this invention to enhance the creditworthiness of intellectual property when used as collateral for a loan.
An additional objective of this invention is to provide a method for calculating a liquidation value for specific intellectual property used as collateral for a loan based on analyses of historical and prospective market and competitive factors derived from research, user experience, statistical data and the application of heuristic rules.
It is a further objective of this invention to provide a method for determining whether specific intellectual property is suitable and available for use as collateral for a loan.
It is still another objective of this invention to provide a method for assigning a customized purchase
Elisca Pierre E.
Mosaic Technologies Inc.
Rosden Peter E.
Trammell James P.
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