malaysia
1 September 2013PatentsOon Yen Yen and Lim Eng Leong

Where's the money? innovation in Malaysia

Innovation generates wealth but wealth is needed to generate innovation. Malaysian innovators are no strangers to this Catch 22 scenario.

Innovation generates wealth but wealth is needed to generate innovation. Malaysian innovators are no strangers to this Catch 22 scenario. As any innovator would attest, the financial hurdles involved in taking an innovation from laboratory to market are not for the fainthearted.

As a nation, Malaysia is briskly moving towards being a knowledge-based economy and its funding infrastructure, within which innovation is so carefully nurtured, is a strong testament to this. Funds have been made available throughout the length of the innovation value chain, from conception to commercial fruit.

Besides the Ministry of Finance’s (MOF) Cradle Investment Program, funding for innovation is primarily made available through the Ministry of Science, Technology & Innovation (MOSTI) and the Malaysian Technology Development Corporation (MTDC). Funds have also been made available via other channels such as the Ministry of Higher Education, Ministry of Communication and Multimedia and the Ministry of Agriculture.

MOSTI encourages commercially viable innovation and nurtures its evolution from laboratory to marketplace by funding short-term applied research projects in priority technology clusters. IP, specifically patents, is a prerequisite for funding with proof of patentability a must, and procurement of a granted patent a key milestone.

"Recent and proposed ammendments to Malaysia's IP laws include provisions for monetisation and securitisation of IP, paving the way for innovators to obtain downstream funding from financial institutions."

MOSTI’s Science Fund provides grants of up to MYR 500,000 ($154,000) for lab-scale research to institutes of higher learning and research institutes.

Grants of up to MYR 3 million ($920,000) are available for pre-commercial activities such as development of prototypes and pilot plants, and clinical trials through its Techno Fund. Individuals or small (and micro) enterprises involved in grass-roots innovation may obtain grants of up to MYR 500,000 ($154,000) through its Inno Fund.

While MOSTI mainly funds pre-commercial technology, MTDC on the other hand is tasked with turning newly commercial innovation into income generators. Registered IP is an eligibility benchmark for funds under MTDC stewardship.

Fund recipients are carefully nurtured by MTDC for a period of up to five years beginning from the early stages of commercialisation. The commercial progress of the recipients is closely monitored throughout the duration of the project and if needed, guidance and consultation services are readily available from MTDC.

Partial funding is provided by MTDC either by way of a match-funding model or a hybrid-financing model. Under the match-funding model, funds of up to MYR 4 million ($1.2 million) are provided for early-stage technology in the form of non-repayable grants through the Commercialization of Research and Development Fund (CRDF) or the Technology Acquisition Fund (TAF).

The TAF was established by MTDC solely to facilitate acquisition of foreign technologies by Malaysian companies. Further up the innovation value chain, hybrid financing in the form of repayable funds of up to MYR 5 million ($1.5 million) are available to companies through the MTDC’s Business Growth Fund (BGF) or the Business Start-Up Fund (BSF).

After a concerted decade-long government effort in promoting IP, many Malaysian innovators are now proud IP owners who place much importance on the vigorous enforcement of their IP rights. However, at present, there is still a lack of awareness among local IP owners about the value or investment IP assets can command and the income they can generate, which is equally crucial in the competitive global arena.

After procuring sufficient funds to attain, realise and successfully commercialise an IP asset, what is next? Government funding can only carry local businesses thus far and hence, there has to be a financial plan B to preserve, if not increase, the value of IP assets for continued growth and success of local innovators.

The legal picture

Recent and proposed amendments to Malaysia’s IP laws include provisions for monetisation and securitisation of IP, paving the way for innovators to obtain downstream funding from financial institutions. The idea of monetising and securitising IP in the same manner as personal or moveable property has been lobbied for many years in Malaysia. The objective is to generate capital for IP owners to finance downstream business growth.

The first IP legislation in this regard is the Industrial Designs (Amendment) Act 2013. With effect from July 1, 2013, a registered Malaysian industrial design may potentially be the subject of a security interest in return for funding from a financier. Similar amendments have been proposed and are expected to be made to the Trade Marks Act and Patents Act in the near future.

The ultimate goal is to effectively translate statutory provisions from paper into action, but the road is not yet clear of challenges. Due to the intangible characteristics inherent in IP assets, local banks are unsurprisingly hesitant to put any money on the table unless a national IP valuation model is agreed to and the value of the IP collateral is carefully appraised within the agreed-to model.

There are many IP valuation approaches (market, cost, income) and methods (premium pricing, royalty savings, pay-off, etc) from different schools of thought currently being considered.

The cross-industry impact of such IP transactions will change not only IP practices but also local banking and accounting practices. It is vital that stakeholders find common ground and agree on a shortlist of methodologies suitable for the local market, as choosing the right IP valuation model can determine the success or failure of this national venture.

The Intellectual Property Corporation of Malaysia (MyIPO), Ministry of Finance, Bank Negara (National Bank) and other stakeholders are presently working hard toward a national IP valuation model in which IP practitioners are poised to play a key role. MyIPO has commenced national-level training of a core group of practitioners who will form the nucleus of local IP valuation analysts.

Clear direction from the government on how to put valuation, monetisation and securitisation of IP into good practice is very much needed and keenly anticipated. Although IP owners eager to put up their IP assets as collateral in exchange for funds will have to hold their horses in the meantime, the general consensus amongst Malaysians is that the country is moving in the right direction toward becoming an innovator-friendly nation.

Oon Yen Yen is the business development manager and patent manager at Henry Goh & Co. She can be contacted at: yen@henrygoh.com

Lim Eng Leong is in-house legal counsel at Henry Goh & Co. He can be contacted at:
 engleong@henrygoh.com

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