All businesses have Intellectual Property Rights and for many companies such rights form a valuable part of the company’s assets.
For lenders there are opportunities to fund the development of technology companies and for their existing borrowers lenders can improve their security position if the borrower has valuable Intellectual Property Rights.
Intellectual Property may be registered or unregistered. Patents, trade marks and registered designs are all creatures of statute and as such the ownership and details can be investigated in the same way as registered title to land may be checked. However, the Patent Office does not give priority periods in the same way as the Land Registry. Copyright has no registration formalities and this therefore may lead to problems for lenders who wish to lend to companies with copyright assets. This is particularly relevant to "media rich" companies such as film production companies and music publishing companies.
Under Section 25 (2) of the Trade Marks Act 1994, Section 33 (3) of the Patents Act 1977 and under Section 17 (1) of the Registered Designs Act 1949, registerable charges may be recorded at the relevant Registries. Such registration will give notice to third parties of the lender’s interests. Registered rights may therefore be the subject of fixed or floating charges or by way of a legal mortgage in the form of an assignment of the Intellectual Property Rights with a licence back to the Borrower.
Check List For Lenders Who Are Taking Security Over Registered Intellectual Property
1. Check the ownership at the Patent Office.
2. Get specialist advice on such matters as the validity and duration of the registered rights in order to check value.
3. Check that all the renewal fees have been paid on the intellectual property.
4. Check the registration for third party rights for example registered users or where licences of right have been granted.
5. Check that the Borrower is properly using the Intellectual Property Rights. For example, the Borrower should maintain the quality of products under a trade mark and police any infringements of the intellectual property. In the event that the Borrower does not protect its intellectual property, then the intellectual property may become invalid.
Lending on Unregistered Intellectual Property
For unregistered intellectual property a legal mortgage is the best option available to lenders.
Lenders may wish to lend money to companies or individuals with particular copyright works for example software companies or film producers. In the case of copyright, the best option is for the lender to take an assignment of the copyright. However, the borrower may still need to exploit that copyright and therefore it is usual for the Lender, in the charge document, to license back to the company the right to exploit the copyright. Under Section 90 (3) and Section 92 (1) of the Copyrights, Designs and Patents Act 1988 these assignments and licences must be in writing. In the event that there is no written assignment and licence back, then the lender will only have an equitable interest. If the company regularly creates new and valuable copyright, software developers and music companies are classic examples of this, then the borrower should be required to give a regular statement of its copyright library.
It is particularly important when lending on copyright works to carry out a full due diligence check on the copyright to be assigned. However, just because Intellectual Property Rights are not tangible in the same way as bricks and mortar does not mean that it is difficult or impossible to obtain effective security.
For further information please contact Gwen Griffiths, 7 Devonshire Square, Cutlers Gardens, London EC2M 4YH, Tel: 0171 655 1000
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
