Australia: Security Over Registered Designs

A "design" is the original visual appearance of an article. Examples of registered designs include Ken Done sheets and Speedos. Designs may be protected through registration under the Designs Act 2003 ("2003 Act"), which replaced the Design Act 1906 ("1906 Act") with effect from 17 June 2004. The repealed legislation continues to apply in certain respects to designs registered, or applications made, prior to its repeal however the following discussion will focus on the 2003 Act.

The stated purpose of the Commonwealth Government in introducing the new legislation was to streamline the registration process and to provide for better enforcement and dispute resolution procedures, stricter eligibility and infringement tests and, finally, clearer definitions.

A design will be registrable on the Register of Designs if it is both new and distinctive (see section 15(1) of the 2003 Act), which should be contrasted with the 1906 Act which required the design to only be either new or original. Registration is not compulsory (see section 21 of the 2003 Act) but does provide certain protections (see for example section 10, which sets out the exclusive rights which an owner has and Chapter 6 which deals with infringement proceedings). Registration may continue for a period of up to 10 years (see sections 46 and 47). The validity of registration may be challenged (see Part 3, Division 4 of Chapter 4 and Chapter 5 of the 2003 Act) and accordingly registration of a design should not be seen as conclusive evidence of ownership.

When considering whether it is possible to take security over any form of asset, the first question which needs to be asked is whether it is possible to assign that asset. If an asset is incapable of assignment, it is very unlikely that you could take security over that asset or, if taking security was possible, it would be of little value (other than as a defensive mechanism) as it would not be possible to dispose of the secured "asset" on enforcement.

The interest of an owner in a registered design is personal property and assignment of that interest is possible. An assignment may be of all or part of the owner's interest and may also be limited to a particular place (see sections 10(2), 11(1) and 11(3) of the 2003 Act). An assignment must be in writing signed by the assignor and the assignee (see section 11(2)).

It is possible to grant a legal mortgage of a registered design by complying with the assignment requirements prescribed in the 2003 Act. As in the case of other intellectual property rights, it is necessary to examine whether this is appropriate as if the design is to be used on an ongoing basis by the mortgagor, it will be necessary for the mortgagee to grant a licence back to the mortgagor to provide for this. A charge or equitable mortgage, which it is possible to grant, may (subject to the discussion below) better suit the interests of the parties.

It is useful to contrast the provisions of the 1906 Act and the 2003 Act when considering registration requirements and priorities of security interests. Section 38A of the 1906 Act required security interests to be registered as it provided:

"Where a person becomes entitled as mortgagee, licensee or otherwise to an interest in a registered design, he shall apply to the Registrar to register his title, and the Registrar shall, on receipt of the application, and on proof to the satisfaction of the Registrar of the title of the applicant, cause notice of the interest to be entered in the register, together with particulars of the instrument creating the interest."

The consequences of failure to register were not specified except that section 38B of the 1906 Act provided that if an instrument or the interest it created was not registered then, unless the court otherwise directed, that instrument or interest would not be admissible in evidence as proof of title or to an interest in a design.

The 1906 Act also did not contain express priority rules. Instead section 25C(2) of the 1906 Act provided that general law ownership rules would apply in the same way as to other choses in action. Section 279(5)(b) of the Corporations Act provides that the Corporations Act priority rules do not affect the operation of the Designs Act. The view could be taken that the 1906 Act was silent on priorities and therefore the Corporations Act regime was applicable or that section 25C(2) of the 1906 Act expressly incorporated the general law priority regime (as part of the laws applicable to ownership generally) and therefore caused the priority provisions of the Corporations Act to be ousted.

The 2003 Act provides a different regime. The first point of difference in that, interestingly, no express reference is made to the registration of security interests.

Instead section 114(1) provides that the owner of a registered design, or an assignee, may request the Registrar to record the assignment of an interest in the design. This will be broad enough to permit a request for registration of a mortgage. Arguably charges do not involve the assignment of an interest as such and therefore may not be able to be registered under section 114(1). If registration of a charge is not possible, given the operation of section 12 of the 2003 Act (described below), it would be preferable to take a legal mortgage over the relevant design.

Although not compulsory, a failure to register under the 2003 Act has significant consequences. In particular:

• under section 119, if an instrument is not registered it will not be admissible in court in evidence of proof of title to a design or an interest in a design except if the court otherwise directs or in an application for rectification of the Register; and
• section 12 of the 2003 Act, which had no equivalent in the 1906 Act, will apply. Section 12 states that the registered owner of a design may deal with that design free from all interests other than as registered on the register, subject to a number of exceptions. The exceptions are that protection is not provided to a person who deals with the registered owner otherwise than as a purchaser in good faith for value and without notice of any fraud on the part of the owner and also equities in relation to the design may be enforced against the owner (except to the prejudice of a purchaser in good faith and for value).
  
  Accordingly, section 12 offers protection (in certain circumstances) to the holder of a registered security interest as against an unregistered, but prior, transferee of that design it also protects that holder in relation to subsequent dealings with the design. In light of the terms of section 12 (which mirror provisions contained in the Patents Act 1990), it will be no surprise that it is recommended the holder of a security interest over a registered design registers this under the 2003 Act.

As in the case of trade marks and patents, section 262(1)(e) of the Corporations Act requires the registration of charges and mortgages over registered designs granted by companies. Therefore the holder of such a security interest will be required to register under the Corporations Act regime.

As noted above, section 279(5)(b) of the Corporations Act applies to the Designs Act. As a result, all disputes involving priority between interests (whether those interests are security interests or not), where at least one of those interests is obtained or purported to be obtained from the registered owner under the Designs Act, would be dealt with under the Designs Act. In any event, a dispute between the holder of a security interests and the holder of another type of interest could only be dealt with under the Designs Act as the Corporations Act regime deals only with priority between competing security interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.