Challenges Related to Security Interests over IP Rights under the Canadian PPSA System Norman...

Challenges Related Challenges Related to Security to Security

Interests over IP Interests over IP Rights under the Rights under the Canadian PPSA Canadian PPSA

SystemSystemNorman SiebrasseNorman Siebrasse

Professor of LawProfessor of Law

University of New Brunswick, University of New Brunswick, CanadaCanada

PPSA PRINCIPLESPPSA PRINCIPLES

Basic PPSA PrinciplesBasic PPSA Principles

Modelled on UCC Art 9Modelled on UCC Art 9 ““Proximates” Art 9Proximates” Art 9 Reform complete in early 90sReform complete in early 90s

Scope Scope Very broad, subject to specific exclusion (eg Very broad, subject to specific exclusion (eg

land)land) IP licences problematic due to SCC decisionIP licences problematic due to SCC decision

Test is whether right is analogous to something Test is whether right is analogous to something that was similar to property at common lawthat was similar to property at common law

Legislative reform in Sask includes IP licencesLegislative reform in Sask includes IP licences


Substance over formSubstance over form Locus of title is irrelevant for secured Locus of title is irrelevant for secured

transactions law and insolvency lawtransactions law and insolvency law All traditional forms are effective and All traditional forms are effective and

equivalentequivalent chattel mortgage, conditional sale, fixed charge, chattel mortgage, conditional sale, fixed charge,

floating charge, pledge, trust indenture, trust floating charge, pledge, trust indenture, trust receiptreceipt

Grant of “security interest” also Grant of “security interest” also effective and equivalenteffective and equivalent


Substance over formSubstance over form Locus of title remains relevant for other Locus of title remains relevant for other

purposespurposes Financing lease treated as lease for tax Financing lease treated as lease for tax

purposespurposes Locus of title may be relevant for IP lawLocus of title may be relevant for IP law

As described by Dr TosatoAs described by Dr Tosato Solution: use “security interest”Solution: use “security interest”

That form is irrelevant to PPSA allows That form is irrelevant to PPSA allows flexibility for other purposesflexibility for other purposes


Publicity (“perfection”) by registration Publicity (“perfection”) by registration in PPRin PPR

Notice filingNotice filing Agreement itself is not registeredAgreement itself is not registered

Single registration may perfect multiple Single registration may perfect multiple agreementsagreements

Registration ofRegistration of Debtor nameDebtor name Secured party nameSecured party name Asset descriptionAsset description

Asset DescriptionAsset Description

General asset descriptionGeneral asset description by item or kind or by reference to one by item or kind or by reference to one

or more of the following: “goods”, or more of the following: “goods”, “document of title”, “chattel paper”, “document of title”, “chattel paper”, “investment property”, “instrument”, “investment property”, “instrument”, “money” or “intangible”,“money” or “intangible”,

After-acquired property clauses are After-acquired property clauses are effective & commoneffective & common ““All present and after-acquired All present and after-acquired

property” = GSAproperty” = GSA

Asset DescriptionAsset Description

Serial number for “serial numbered Serial number for “serial numbered goods”goods” Motor vehiclesMotor vehicles SomeSome IP could be treated as “serial IP could be treated as “serial

numbered goods”numbered goods” PatentsPatents Registered trademarksRegistered trademarks

General collateral description and General collateral description and serial number are separate fieldsserial number are separate fields

SearchSearch

Search by Search by Debtor name Debtor name Serial numberSerial number

Cannot search byCannot search by General collateral descriptionGeneral collateral description Secured party nameSecured party name

(General collateral description and serial number (General collateral description and serial number are separate fields)are separate fields)

Registration and search are Registration and search are entirelyentirely onlineonline


First-to-file priorityFirst-to-file priority Knowledge generally irrelevantKnowledge generally irrelevant Super-priority for purchase-money Super-priority for purchase-money

security interest (PMSI)security interest (PMSI) Eg Conditional sales agreementEg Conditional sales agreement

Grant of IP licence during term of Grant of IP licence during term of agreement with assignment on agreement with assignment on satisfaction of obligations creates PMSIsatisfaction of obligations creates PMSI

CURRENT CANADIAN CURRENT CANADIAN SITUATIONSITUATION

Current Canadian SituationCurrent Canadian Situation

Commercial law generally is Commercial law generally is provincial responsibilityprovincial responsibility PPSA in effect in all common law PPSA in effect in all common law

provincesprovinces Very successfulVery successful Bankruptcy and insolvency is federal Bankruptcy and insolvency is federal

(BIA)(BIA) BIA well-integrated with PPSABIA well-integrated with PPSA No priority reversalsNo priority reversals


IP is generally federalIP is generally federal Except unregistered trademarks, trade Except unregistered trademarks, trade

secretssecrets IP Acts have registration systemIP Acts have registration system

Ownership interests are registrableOwnership interests are registrable CIPO permits registration of security CIPO permits registration of security

interestsinterests Priority effect of registration is unclearPriority effect of registration is unclear Both wrt security interest and assignments, Both wrt security interest and assignments,

licences etclicences etc


Interaction between PPSA / IP Acts Interaction between PPSA / IP Acts not clearnot clear Registration in provincial PPR effective Registration in provincial PPR effective

to perfect security interest in IPto perfect security interest in IP

Law Reform HistoryLaw Reform History

Law Commission initiative 2002Law Commission initiative 2002 Post PPSA reformsPost PPSA reforms

Roform stalledRoform stalled Institutional disinterest from CIPOInstitutional disinterest from CIPO Dual registration solutionDual registration solution

Now: Patent troll problem of rights Now: Patent troll problem of rights of IP licensees in insolvencyof IP licensees in insolvency

NortelNortel

ChallengesChallenges

Legal challengesLegal challenges Priority & registrationPriority & registration Substantive lawSubstantive law

Institutional challengesInstitutional challenges

LEGAL CHALLENGESLEGAL CHALLENGES

Priority & RegistrationPriority & Registration

How to integrate PPSA security How to integrate PPSA security interests registry with IP title registry?interests registry with IP title registry? Patent, copyright, registered trademarksPatent, copyright, registered trademarks Issue is Issue is notnot primarily federalism primarily federalism

IPRs not subject to title registry IPRs not subject to title registry treated as general intangibles under treated as general intangibles under PPSAPPSA Eg unregistered trademarksEg unregistered trademarks

IP Title Registry ReformIP Title Registry Reform

Problem (1)Problem (1) Current Canadian IP title registries not Current Canadian IP title registries not

adequate for commercial purposesadequate for commercial purposes Substantive effect of registrationSubstantive effect of registration SearchabilitySearchability

Need definitive asset searchable Need definitive asset searchable registryregistry

Search & RegistrationSearch & Registration

Problem (2)Problem (2) Dual search / registrationDual search / registration PPR for security interests, IP registry PPR for security interests, IP registry

for titlefor title GoalGoal

Minimize combined search & Minimize combined search & registration burdenregistration burden

Search & RegistrationSearch & Registration

Perfection with single registration Perfection with single registration minimizes registration burden while minimizes registration burden while increasing search burden and vice increasing search burden and vice versaversa

Entirely eliminating dual search Entirely eliminating dual search /registration is not possible/registration is not possible

All Assets v Single AssetAll Assets v Single Asset

Tension between party dealing withTension between party dealing with Single IP asset and Single IP asset and All assets of the debtorAll assets of the debtor

All-asset financing facilitated by All-asset financing facilitated by debtor name registrationdebtor name registration

IP-specific financing facilitated by IP-specific financing facilitated by asset registrationasset registration

Two ApproachesTwo Approaches

PPR focusPPR focus IP registry focusIP registry focus

PPR FOCUSPPR FOCUS

PPR FocusPPR Focus

Perfection RulePerfection Rule Security interests must be Security interests must be

registered in PPRregistered in PPR Priority RulePriority Rule

Assignments & security interests Assignments & security interests have priority according to order of have priority according to order of registration in respective registriesregistration in respective registries

AdvantagesAdvantages

Uses existing sophisticated PPSA (in Uses existing sophisticated PPSA (in Canada)Canada)

General financier can perfect General financier can perfect security interest with single security interest with single registrationregistration

DisadvantagesDisadvantages

Chain of title problemChain of title problem Consider party dealing with specific IP Consider party dealing with specific IP

(eg prospective assignee)(eg prospective assignee) Must search Must search

IP registry for prior owners IP registry for prior owners andand PPR by prior owner name for PPR by prior owner name for security interests granted by security interests granted by predecessors in titlepredecessors in title

Requires uniform debtor name rulesRequires uniform debtor name rules


Difficult IP registry reform Difficult IP registry reform requiredrequiredDebtor name rules consistent Debtor name rules consistent

with PPR rules requiredwith PPR rules requiredHow to enforce name rules?How to enforce name rules?

Invalidity of assignment is Invalidity of assignment is draconiandraconian


Foreign debtor problemForeign debtor problem Twist on chain of title problem Twist on chain of title problem

Which PPR?Which PPR? Location of Debtor for general Location of Debtor for general

intangiblesintangibles Foreign debtor granting security Foreign debtor granting security

interests in UK IPRs registers in interests in UK IPRs registers in foreign PPR foreign PPR


Characterization problemCharacterization problem Exclusive licence to IP with option to Exclusive licence to IP with option to

purchase at end of termpurchase at end of term True licence or financing licence?True licence or financing licence?

Mischaracterization results in Mischaracterization results in invalid registrationinvalid registration ““Solved” by dual registrationSolved” by dual registration

IP REGISTRY FOCUSIP REGISTRY FOCUS

IP Registry FocusIP Registry Focus

Allow registration of security Allow registration of security interests in respective IP Registryinterests in respective IP Registry

AdvantagesAdvantages

Solves most of the problems with Solves most of the problems with PPR focused approachPPR focused approach

Chain of title search not requiredChain of title search not required Asset-based registration, so strict Asset-based registration, so strict

debtor name rules not requireddebtor name rules not required No foreign debtor problemNo foreign debtor problem Characterization problem does not Characterization problem does not

arisearise


Burdensome for general financierBurdensome for general financier Requires multiple registrationRequires multiple registration Can’t perfect after-acquired IPCan’t perfect after-acquired IP

SolutionSolution PPR registration should be effective PPR registration should be effective

against insolvency administratoragainst insolvency administrator And against any party not registered in And against any party not registered in

IP RegistryIP Registry

IssuesIssues

Unregistered trademarksUnregistered trademarks General intangibles under PPRGeneral intangibles under PPR

Unregistered copyrightUnregistered copyright Mixed systemMixed system

RoyaltiesRoyalties Should security interest in royalties be Should security interest in royalties be

registered in PPR (general intangible) registered in PPR (general intangible) or in corresponding IP Registry?or in corresponding IP Registry?

Depends on financing practiceDepends on financing practice

Substantive LawSubstantive Law

Ordinary course ruleOrdinary course rule ExhaustionExhaustion UNCITRAL UNCITRAL

OCR for secured financing lawOCR for secured financing law Subject to restrictions in title Subject to restrictions in title

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INSTITUTIONAL INSTITUTIONAL CHALLENGESCHALLENGES

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