Thanks to Mark Hargreaves for this article.
Australia enacted the Personal Property Securities Act 2009 (PPSA) in December 2009. The PPSA was due to come into force in May 2011, but has now been delayed until October 2011. It puts in place a national Australian personal property securities register similar to New Zealand’s.
As in New Zealand, the PPSA impacts directly on transactions involving intellectual property (IP). Anyone buying, selling or licensing IP assets in Australia or offering or taking them as security should review those arrangements in light of the new scheme.
How does the scheme work?
The PPSA provides for a national register of security interests over personal property (PPSR). Holders of security interests “perfect” their security interest by registering a financing statement on the PPSR. The PPSR is publicly searchable and contains basic details about the security interest, who it is held by, and who and what it is held over.
Security interests that are perfected take priority over other security interests subject to the specific priority rules in the PPSA.
There is a broad range of security interests that can be registered. They are defined as "any interest or right in relation to personal property provided for by a transaction that in substance secures payment or performance of an obligation". Security interests will be created under wide range of commercial arrangements.
Personal property is also defined broadly and includes most forms of intellectual property such as registered trade marks, patents, copyright and registered designs, but does not include know-how or trade secrets or unregistered trade mark rights. IP licences are also included in the definition of property over which a security interest could be registered.
How does the PPSA affect IP?
In the past, security interests relating to IP were often recorded on the various IP registers (for example, patents, trade marks and designs). However, recording an interest on these registers did not necessarily have the effect of defeating competing interests such as a subsequent bona fide purchaser of the IP without notice of the interest.
Now there will be a single national register and a means for perfecting the security interest over IP and defeating other third party claims. Some commentators suggest this will make it easier to raise money using Australian IP assets as security although it’s not clear that this has been the effect in New Zealand since the introduction of the scheme here in 2002. IP assets were already often included as assets secured by general security arrangements prior to the PPSA and there still remains the very real issue of valuing the IP for the purpose of raising capital against it.
Nonetheless, if you are buying IP assets or using IP to secure payments or other obligations, you will need to check the PPSR during due diligence and, in the latter case, register your interest.
Examples of relevant transactions involving IP
Apart from the obvious purchase, sale and loan transactions, a wide variety of other transactions will be relevant.
For example, a partial assignment of copyright that involves an assignment back as a means of securing payment or performance of other obligations should be registered under the PPSA. Failure to do so may mean the IP could be validly on sold to a third party purchaser for value.
Transactions involving physical assets that are closely related to IP rights in those assets will also need attention under the Australian PPSA. These assets might include equipment that contains embedded software or that is covered by patents. They might also include patented pharmaceuticals. The PPSA provides that security interests over these types of goods may also apply to the IP rights underlying them unless a contrary intention is expressed in the security agreement. Where these physical assets are being used as security, it will be important to confirm specifically whether or not the underlying IP rights are also being secured to avoid them being included as security unintentionally.
The transfer of IP licences will also be relevant. The PPSA provides that, where a security interest is granted over an IP licence and the IP is sold to another person with the licence still in place, then the security interest will continue to bind the new owner. Licensors should prohibit their licensees from using the IP licence as security in any way.
The introduction of the PPSA in the Australia will be a major change for business in this part of the world. It is also a timely reminder for New Zealand businesses to make sure their house is in order under New Zealand’s own PPSA scheme.