IP ASSETS
Multi-jurisdictional considerations
“DUE DILIGENCE WOULD HAVE TO BE DONE NOT ONLY ON THE TITLE OF THE TRADEMARK; IT IS ALSO NECESSARY TO EVALUATE THE DISTINCTIVENESS, USE AND REGISTRABILITY OF THE TRADEMARK.”
to transfer the full title in case of default or to have a pre-executed assignment agreement, which could recorded in case of default, is recommended.
A second option would be to let the lender have the right to sell the secured IP, either by executing a power of attorney in favour of the lender or by way of a receiver with or without the need to institute formal court proceedings.
Tere could be restrictions on any future third- party rights to be created on the IP assets on which the security has been created by the borrowing IP owner, especially by way of further security interest or alienation by way of sale or assignment. Licensing of the said IP assets could be considered only with the prior approval of the lender with a first charge on the licence fees/royalties.
Special purpose vehicle
In recent times, the more popular system is to create a special purpose vehicle (SPV), which is normally an entity especially created to take over all the IP assets on which the security is to be created, including surrounding rights such as the licences granted to third parties, the right to collect royalties on such IP assets, etc. Te creation of the SPV would not only not affect the ownership of the secured IP but also retain first and sole charge over the IP assets even if the borrower becomes bankrupt.
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Te structure, lifespan and other mandates of the SPV are to be tailored by the lender and the borrower to include provisions in case of default or repayment of the loan.
Post-transactional mandates: recording of security interests
With the signing of a security agreement, charges on the IP assets have to be recorded before the appropriate authorities, to ensure notice to potential or subsequent purchasers, assignees or licensees without which devastating consequences of conflicting interest may be created.
While the Indian patent and design statutes provide specifically for registration of a mortgage, licence or other instrument to any interest apart from an assignment, no such specific provision is available under the Trade Marks Act. One could possibly address a letter citing the loan as a limitation.
Repayment and defaults
Te whole structure of arrangement chosen would be put to a real test only upon default on the part of the lender, which would automatically trigger sale of the secured IP assets, as contemplated, either to proceed through a liquidator in a bankruptcy proceeding or taking over the SPV and satisfying the claims by sale of the SPV, or the IP assets held by the SPV.
IP assets being invariably multi-jurisdictional, it is necessary to carefully consider the laws in each jurisdiction regarding the scope and nature of the IP asset, the nature of loan which can be created over each asset, the ability and requirement to record such security interest, and the cost of each recorded asset and of enforcement of the securities created in case of default.
Given the likely surge in dependence on intangible assets and its capitalisation, it is time that there were fresh laws or amendments to existing ones to facilitate, govern, administer and enforce the securitisation of IP assets, balancing the interests of the IP owners and the lenders.
M S Bharath is a partner at Anand and Anand. He can be contacted at:
bharath@anandandanand.com
M S Bharath has led Anand and Anand’s Chennai City Office practice since June 2009 and has more than 12 years of experience. His practice includes IP litigation before Indian High Courts, opposition, cancellation and other related proceedings before the Trademark Office, Intellectual Property Appellate Board (IPAB), Copyright Board and Geographical Indications Office. He has been the lead counsel in numerous appeals, rectification and original proceedings before the High Courts of New Delhi, Chennai and IPAB with several reported decisions to his name.
World Intellectual Property Review Annual 2014 95
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