We hope you have enjoyed our: "Everything you wanted to
know about PPSA but were too afraid to ask," series. With the
upcoming end of year festivities soon upon us, we will be taking a
short break following today's alert, and recommencing the
series in early 2012. We will of course keep you updated regarding
details on Registration Commencement Time when it is released.
Securing the future - using intellectual property as
Last week we considered some of the issues that might arise
where numerous PMSI interests have competing claims to a fund
created by the sale of co-mingled goods. This week, we discuss
tricks and traps when taking security over intellectual
William Fences, founder of Microhard Pty Ltd (Microhard), is a
prolific inventor. William has developed an innovative new personal
computing device integrated into a pair of sunglasses, which in a
stroke of genius he dubbed the "eyePatch". While
Microhard has an impressive portfolio of patent and trade mark
rights, it has very few other assets and, thanks to all the patent
attorney bills, cash flow is usually pretty tight.
The Bank of Innovation and New Kitsch (BINK) has developed a
niche market in providing finance to technology-based start up
companies. BINK is excited that the PPSA reforms have now made
intellectual property assets more attractive as collateral. It
loans a considerable sum to Microhard to fund further product
development, in return for security over Microhard's IP
portfolio and the handful of physical assets in William's
BINK promptly records its interest on the PPSA Register
(correctly recording the individual serial numbers of each secured
patent and trade mark right), and sits back to wait for the
eyePatch to take the world by storm and its loan to be repaid.
Has BINK done everything necessary to secure its interest and
protect the value of its collateral?
Unfortunately BINK fails to register its security interest in
foreign countries, where local laws provide for public registration
of security interests over IP rights, or govern the enforceability
of the security interest against successors in title. BINK may find
itself unable to enforce its security interest over IP rights in
key foreign markets against third party purchasers.
If BINK had recorded its security interest on the Australian
Patents Register, it would have had to approve an amendment to the
specification of Microhard's key patent rights, which were
prompted by a dispute with its competitor Giggle Inc. This
amendment has significantly reduced the scope and commercial value
of those patent rights, and accordingly, their attractiveness to
BINK as collateral.
BINK has also failed to require Microhard to provide notice of
new patent and trade mark rights it or William acquires. In a
moment of absent-mindedness, William instructs his patent attorney
to obtain patent rights for the new and improved eyePatch2 in his
own name, rather than Microhard's. BINK finds that the value of
its collateral is now significantly less than the outstanding
balance of the loan.
Lesson: When taking security over valuable intellectual property
assets, ensure your security agreement contains appropriate
obligations and that these are complied with, and consider whether
any interest should be recorded on registers in addition to the PPS
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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