[New Wave] A Copyright Collateral System Is Needed for Artists

Even the legendary singer Jo Yong-pil had difficult times. When young Jo Yong-pil needed money, he signed a record contract with a record company, transferring the reproduction and distribution rights of 31 popular songs, including "Changbak-ui Yeoja" (Woman Outside the Window) and "Gochu Jamjari" (Dragonfly). As a result, the copyrights of his representative songs all went to the record company. Later, upon realizing this, he took legal action, but the court ruled the contract fair, and he ultimately lost the case. Jo Yong-pil’s side argued in court that "singers or composers in dire circumstances often hastily sign contracts to secure necessary funds without knowing that their creations will generate various derivative products in the future." What if there had been a system allowing loans from banks using intellectual property (IP) such as copyrights as collateral at that time?

Generally, collateral is known as a system where physical assets like real estate are pledged to secure loans. IP collateral refers to providing patents, trademarks, copyrights, etc., as security for monetary debts and receiving financing. This is a relatively recent introduction and can be a useful system to provide business funds to technology-intensive small and venture companies lacking real estate assets or to creative cultural artists. Although the legal basis for IP collateral already exists in patent law, trademark law, copyright law, and others, it had not been established in financial practice. To address this issue, the government enacted the "Act on Collateral of Movable Property and Claims" on June 10, 2010. The purpose was to publicly disclose collateral rights and registrations related to movable property, claims, and IP held by businesses and to strengthen the legal and institutional framework to facilitate business financing.

Currently, IP collateral is mainly activated around "patent rights." Starting with the Korea Development Bank in 2013, Industrial Bank of Korea and Kookmin Bank launched patent collateral loan products, and now commercial banks also offer IP collateral loan products. The Korean Intellectual Property Office fosters and supports 17 patent evaluation institutions and implements policies to subsidize part (50-90%) of the costs for small and medium enterprises to evaluate the value of patents and trademarks they hold, thereby establishing a stable foundation for operating the patent collateral system.

Collateral loans are also implemented in the copyright field. In 2008, the Korea Music Copyright Association, a copyright trust management organization, and Industrial Bank of Korea signed a memorandum of understanding (MOU) to provide collateral loans secured by claims to copyright royalties. In January 2016, singer Kang In-won took out a loan using the copyrights of 151 of his songs as collateral. However, except for a few cases, the copyright collateral system has not been as activated as patent rights. This is because a proper value evaluation system for copyrights has not been firmly established. Although copyright valuation is relatively easier than patent rights in the technology domain, it has not been established due to insufficient government support and policy shortcomings. Currently, value evaluation services are provided for investment content in five genres?games, broadcasting, movies, animation, and performances (musicals)?but not for copyrights.

President Moon Jae-in emphasized at the "2020 New Year Meeting for Cultural Artists" earlier this year that "Director Bong Joon-ho’s film 'Parasite' winning the Golden Globe for Best Foreign Language Film is a remarkable achievement demonstrating the strength of 100 years of Korean cinema," and added, "Our culture shows a level so high that the world admires it." Recently, the government expanded the scale of the creative preparation fund project, which supports artists who have completed proof of artistic activity, and newly established a living stabilization loan service to support artists’ livelihood and creation. The "Employment Insurance Act" and "Act on Collection of Employment and Industrial Accident Insurance Premiums" amendments, which add freelance artists previously outside the scope of employment insurance to the system, passed the 20th National Assembly, introducing an employment insurance system for artists.

However, the copyright collateral system was not included in the support measures for artists. Because this system has not been activated, high-interest loans still exist. It is hoped that a system allowing cultural artists to properly recognize the value of their copyrights and obtain loans from banks using them as collateral will be promptly established, providing a more stable environment for creative activities.

Son Seung-woo, Professor, Department of Industrial Security, Chung-Ang University