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Intellectual Property Interests as “Substantial Capital” for U.S. E-2 Investment Visa

Intellectual Property Interests as “Substantial Capital” for U.S. E-2 Investment VisaU.S. E-2 investment visa: value is high, but so is the cost

Investing in a U.S. business venture can be exciting and highly lucrative. The E-2 investor visa is one of the best options for German citizens and businesses seeking to expand or start a new venture (and be able to live and work) in the U.S. However, this will require a substantial investment, one which can vary depending on the type of venture you plan to make. The Immigration and Nationality Act (INA) § 101(a)(15)(E)(ii) states that

“an alien entitled to enter the United States [under an applicable treaty, such as between the U.S. and Germany]…and the spouse and children of any such alien if accompanying or following to join him;…(ii) solely to develop and direct the operations of an enterprise in which he has invested, or of an enterprise in which he is actively in the process of investing, a substantial amount of capital.”

What is a “substantial amount of capital”?

The amount to qualify as a “substantial amount of capital” under this law has no specific number, which means there’s no legal minimum. However, the investor must place the capital investment at risk and must be trying to make a profit. U.S. Customs will determine if the amount is substantial relative to the type of business and may conclude it is insufficient to sustain the business, and accordingly deny the E-2 visa application. Typically, an investor should contemplate cash or other assets in value ranging from $75,000 to $250,000 to satisfy this requirement.

Intellectual Property Interests instead of cash as “substantial capital” to invest in your U.S. business venture

If a business prefers not to commit cash or other “tangible” assets to invest in its U.S. venture, it may be able to use their Intellectual Property (IP) ownership rights. Examples of Intellectual Property rights include patents, trademarks, copyrights, trade secrets, and other unique ideas, which can include pans, designs, or strategies. IP rights will be most likely be qualified as capital for an investment if it is closely tied to the business activity and sources of income.

Software companies, online service companies or other tech related business thus may be best positioned to do this, however this could also apply for business selling specially patented products that have a proven market value or strong history of sales. But the difficult part is determining what the actual value of an IP right is.

How do you value an Intellectual Property right?

Using IP rights as a form of capital to invest will require showing that the rights have a determinable value. Intellectual Property is a form of intangible property, meaning it has no “physical substance,” which can mean that its value is speculative. A clear determination of the value of IP rights relies on finding solid evidence of its worth, which can be difficult to do, especially because IP rights are often speculative. Speculative value based on business plans or future contingency typically would not suffice to qualify an IP interest as having a substantial value.

Showing that there is a market for the IP rights is usually the strongest evidence you have to demonstrate their value. If there is no market value available on the IP interests, then other market indicators such as contracts and sales generated by the IP rights could be used, including offers to purchase or license the IP rights. In the absence of any solid evidence on market value of IP interests experts opinions and assessments of the IP interests might be acceptable evidence for U.S. Customs to accept an E-2 visa application.

As there are generally no restrictions on what kind of evidence you can show, using all documented information you can provide is ideal, so long as it is helpful. The weight of any evidence submitted, including its accuracy and credibility may be considered against evidence contradicting your valuation (e.g. expert opinions stating an IP interest has less or no value) as well. Accordingly, providing as much evidence as possible will likely increase the chances an E-2 visa supported with IP interests as substantial capital will be accepted.

Investments must be put “at risk of loss”

The rules for the E-2 visa require that the investment of substantial capital must be put at a “risk of loss” in the market (as opposed to assets that will always be in the visa holder’s possession, and hence never “invested” in the U.S. economy). A strong argument against using IP interests as a capital investment is that they may never really be at risk in the commercial sense. This is because IP interests like patents, trademarks, licenses and copywrites survive and remain valid even when an underlying business venture fails, and thus are never truly at risk of being lost.

It is possible to structure an investment and busines venture to show that IP interests will be at risk of loss, however this is difficult to demonstrate. Structuring models and projections for the potential for loss of IP rights is a sort of a nuance but may later be a required component of using IP rights as such.

Is there advantage to using IP rights as capital?

The underlying goal of the treaty investor visa is to create jobs for U.S. workers, so a capital should establish a U.S. company that is actively engaged in commercial activities, and not just a means to support the investor visa holder. Applying the use of IP rights and interests into monetization and prospective job creation could theoretically be better suited to IP rights than with cash. As IP relates specifically to development, licensing, expansion, sale and trade it can be an effective methodology to use IP as part of a businesses capital in lieu of tangible assets. There are many instances of successful filings in this regard, however what has yet to be seen is how U.S. Customs will begin to follow up on approved visas, including “Request for Evidence,” especially with challenges to the “at-risk” nature of the capital as is required by law.

WINHELLER supports your e-2 visa application and helps your business succeed

Using IP rights as substantial capital to invest in the U.S. as part of an E-2 visa is a novel concept that has seen some success in the last few years. IP rights may even be one of the most desired parts of a business’s assets when you consider the important nexus IP rights have to market productivity (and presents a stronger source of capital and potential income than a business without any IP assets).

When including intellectual property as part of the E-2 investment, the investor should still strive to make additional capital expenditures to include in the total investment, as this will only strengthen the chance of getting approval. But we would be interested to discuss how you might use IP rights for your business to expand in the U.S. under the E-2 visa. Approval of an E-2 visa will only be the first step, and you must prepare for what follow up inquiries and assessments will happen after you bring your venture. There will be some challenges with your business and structuring your investment, and we look forward to helping you succeed!

Continue reading:
E-2 Investor Visa for the U.S.
U.S. Visa – Legal Support for your U.S. Project

Paul Bess

Attorney Paul Bess is associated with WINHELLER as U.S. legal counsel. Being part of our U.S. desk, he advises Germany-based companies in U.S. and international commercial, corporate and business law, including structuring, enterprise expansion and development, national and international contracting, intellectual property, patent and trademark registration, and legal support for regulatory compliance with U.S. government agencies.

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