The PPS Register and how it affects Intellectual Property
1. What does intellectual property encompass under the PPSA?
Under the PPSA, a person can record a security interest over intellectual property. Intellectual property refers to intangible property that is derived from intellectual or creative effort including:
trade marks (words, logos, other signs);
patents (inventions, methods and products);
designs (for the shape or appearance of a product); and
copyright (literary, artistic and musical works).
Intellectual Property Licences
The PPSA defines “intellectual property licence” as an authority or licence to exercise rights comprising intellectual property. Whilst an IP licence is not itself a security interest, it is personal property over which a security interest can be taken. So, an IP licence by the owner of the IP to a user is not registrable on the PPSR, but a charge by the user of that licence to a financier is registrable on the PPSR.
Once a security interest in an IP licence is registered on the PPSR, any successor in title to the original licensor of the licensed intellectual property will be bound by the licence.
In light of the PPSA, if you are a licensor of intellectual property you should consider restricting the licensee’s ability to charge or create a security interest in relation to the licensed intellectual property.
If you are a licensee of intellectual property, the licence agreement should contain provisions restricting the licensor’s ability to grant a security interest over the intellectual property to a third party.
2. Record your IP Security Interest on the PPS register now!
Previously, security interests in relation to trade marks, patents and designs in Australia, were recorded on the Australian Trade Marks Register, Patents Register and Designs Register (IP Australia Registers). For other types of intellectual property, such as copyright, there was no Australian register, so these types of intellectual property could only be recorded when the grantor was a corporation and the security interest was recorded in the Register for Company Charges.
The new PPS Register now functions as the only register in Australia on which security interests must be recorded to be enforced or have priority over other security interests.
Securities over intellectual property registered with IP Australia Registers will not automatically be migrated to the PPS Register.
If you have recorded a security interest on the Australian IP Registers or your security interest was not previously registrable, then you need to arrange for those security interests to be recorded on the PPS Register. For such security interests, there is a two year transitional period from 30 January 2012 for these security interests to be recorded to the PPS Register.
If these security interests are not registered within this transitional period the security interests will lose their priority and enforcement status. It is wise to register sooner rather than later in order to move wholly into a post PPSA world.
3. Importance of registration on the PPS register
When a security interest is recorded on the PPS Register, it will generally be enforceable against a third party.
For example, if a financier records its security interest over a debtor’s trade mark on the PPS Register, it will be generally enforceable against a third party.
If a financier does not record its interest and the debtor becomes insolvent, the financier will most likely lose the trade mark as an asset because the liquidator may seize the trade mark as part of the debtor’s assets. In this situation, the financier would at best, stand as an unsecured creditor.
It is possible to register a security interest against intellectual property without specifying a serial number for commercial property, but serial numbers are required for consumer property (property held by a natural person which is not used for carrying on an enterprise to which an ABN has been allocated) that comprises designs; patents; plant breeder’s rights; or trade marks; or licenses over those rights.
If this type of property is not described by serial number, the security interest will be void against a buyer or lessee of the property who searched against the serial number (except a buyer or lessee who uses the property as inventory.
4. Steps for financiers
Before taking security interests in IP or IP licences, you should carefully check the PPS Register to ensure that there are no existing prior security interests.
You should immediately undertake an audit of all security interests you hold over personal property including intellectual property and security over intellectual property licences in Australia.
If the intellectual property covered by your security interest has a serial number, the serial number should be recorded on the PPSR.
As security interests recorded with IP Australia Registers will not be automatically migrated to the PPS Register, you must arrange for those security interests to be recorded on the PPS Register.
It is still beneficial to record any security interests on IP Australia’s Registers. This will enable registrants to receive notifications, be given the opportunity to be heard, or given the opportunity to make submissions under various sections of the Acts.
5. Steps for intellectual property owners
To protect your business, you should actively monitor the PPS Register for registrations made against you to ensure that only valid security interests are being registered.
If you are a licensor of intellectual property, you should ensure that the licence agreement prohibits the licensee from granting a security interest over the licence.
If you assign intellectual property on terms that provide for a transfer back to you after a certain time or on certain conditions, then you should ensure that your reversionary right is registered on the PPS Register.
If you are giving a security over personal property (for example equipment) that is connected with intellectual property, you must ensure that you have not granted a security interest over the intellectual property to another financier.
How can we work together? Please contact me if you have any intellectual property (IP) or commercial law needs or assistance.
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