Part 1 Security Interests in Personal Property: The PPSA ...

Part 1 Security Interests in Personal Property: The PPSA ...

Challenges Related to Security Interests over IP Rights under the Canadian PPSA Norman Siebrasse System Professor of Law University of New Brunswick, Canada PPSA PRINCIPLES Basic PPSA Principles

Modelled on UCC Art 9 Proximates Art 9 Reform complete in early 90s Scope Very broad, subject to specific exclusion (eg land) IP licences problematic due to SCC decision

Test is whether right is analogous to something that was similar to property at common law Legislative reform in Sask includes IP licences Basic PPSA Principles Substance over form Locus of title is irrelevant for secured transactions law and insolvency law All traditional forms are effective and

equivalent chattel mortgage, conditional sale, fixed charge, floating charge, pledge, trust indenture, trust receipt Grant of security interest also effective and equivalent Basic PPSA Principles

Substance over form Locus of title remains relevant for other purposes Locus of title may be relevant for IP law

Financing lease treated as lease for tax purposes As described by Dr Tosato Solution: use security interest That form is irrelevant to PPSA allows flexibility for other purposes Basic PPSA Principles

Publicity (perfection) by registration in PPR Notice filing Agreement itself is not registered Single registration may perfect multiple agreements

Registration of Debtor name Secured party name Asset description Asset Description General asset description by item or kind or by reference to one or more of the following: goods, document of title, chattel paper, investment property, instrument, money or intangible,

After-acquired property clauses are effective & common All present and after-acquired property = GSA Asset Description Serial number for serial numbered goods Motor vehicles Some IP could be treated as serial numbered goods

Patents Registered trademarks General collateral description and serial number are separate fields Search Search by Debtor name

Serial number Cannot search by General collateral description Secured party name (General collateral description and serial number

are separate fields) Registration and search are entirely online Basic PPSA Principles First-to-file priority Knowledge generally irrelevant Super-priority for purchase-money security interest (PMSI)

Eg Conditional sales agreement Grant of IP licence during term of agreement with assignment on satisfaction of obligations creates PMSI CURRENT CANADIAN SITUATION Current Canadian Situation

Commercial law generally is provincial responsibility PPSA in effect in all common law provinces Very successful Bankruptcy and insolvency is federal (BIA) BIA well-integrated with PPSA No priority reversals Current Canadian Situation IP is generally federal

Except unregistered trademarks, trade secrets IP Acts have registration system Ownership interests are registrable CIPO permits registration of security interests Priority

effect of registration is unclear Both wrt security interest and assignments, licences etc Current Canadian Situation Interaction between PPSA / IP Acts not clear Registration in provincial PPR effective to perfect security interest in IP

Law Reform History Law Commission initiative 2002 Post PPSA reforms Roform stalled Institutional disinterest from CIPO Dual registration solution

Now: Patent troll problem of rights of IP licensees in insolvency Nortel Challenges Legal challenges Priority & registration Substantive law

Institutional challenges LEGAL CHALLENGES Priority & Registration How to integrate PPSA security interests registry with IP title registry? Patent, copyright, registered trademarks Issue is not primarily federalism

IPRs not subject to title registry treated as general intangibles under PPSA Eg unregistered trademarks IP Title Registry Reform Problem (1)

Current Canadian IP title registries not adequate for commercial purposes Substantive effect of registration Searchability Need definitive asset searchable registry Search & Registration

Problem (2) Dual search / registration PPR for security interests, IP registry for title Goal Minimize combined search & registration burden Search & Registration

Perfection with single registration minimizes registration burden while increasing search burden and vice versa Entirely eliminating dual search /registration is not possible All Assets v Single Asset Tension between party dealing with

Single IP asset and All assets of the debtor All-asset financing facilitated by debtor name registration IP-specific financing facilitated by asset registration Two Approaches

PPR focus IP registry focus PPR FOCUS PPR Focus Perfection Rule

Security interests must be registered in PPR Priority Rule Assignments & security interests have priority according to order of registration in respective registries Advantages Uses existing sophisticated PPSA (in Canada) General financier can perfect

security interest with single registration Disadvantages Chain of title problem Consider party dealing with specific IP (eg prospective assignee) Must search IP registry for prior owners and PPR by prior owner name for security interests granted by predecessors in title Requires

uniform debtor name rules Disadvantages Difficult IP registry reform required Debtor name rules consistent with PPR rules required How to enforce name rules? Invalidity of assignment is draconian

Disadvantages Foreign debtor problem Twist on chain of title problem Which PPR? Location of Debtor for general intangibles Foreign debtor granting security

interests in UK IPRs registers in foreign PPR Disadvantages Characterization problem Exclusive licence to IP with option to purchase at end of term True licence or financing licence? Mischaracterization results in

invalid registration Solved by dual registration IP REGISTRY FOCUS IP Registry Focus Allow registration of security interests in respective IP Registry Advantages

Solves most of the problems with PPR focused approach Chain of title search not required Asset-based registration, so strict debtor name rules not required No foreign debtor problem Characterization problem does not arise

Disadvantages Burdensome for general financier Requires multiple registration Cant perfect after-acquired IP Solution PPR registration should be effective against insolvency administrator And against any party not registered in

IP Registry Issues Unregistered trademarks Unregistered copyright

General intangibles under PPR Mixed system Royalties Should security interest in royalties be registered in PPR (general intangible) or in corresponding IP Registry? Depends on financing practice Substantive Law

Ordinary course rule Exhaustion UNCITRAL OCR for secured financing law Subject to restrictions in title documents INSTITUTIONAL CHALLENGES

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