Secured Transactions and IP Licenses: Comparative Observations and Reform Suggestions
26 Pages Posted: 4 May 2018 Last revised: 12 May 2018
Date Written: April 18, 2018
The information age has heralded formidable technological progress in all segments of society. Miniaturization, communication networks, social media, and cloud computing have ushered in new business models that have disrupted existing commercial sectors and spawned new ones. Knowledge has become the key factor of production in mature economies, elevating IPRs to one of the most economically and strategically valuable asset classes.
In this evolving landscape, attention has drifted away from the rules governing the creation and transfer of proprietary rights in tangible assets and documentary intangibles and gravitated towards the legal tenets that regulate private law dealings involving IPRs.
This paradigm shift has brought unprecedented focus on the legal regime for the taking of security over such assets, reflecting the mounting desire to realize their full value as means to facilitate access to credit and reduce associated costs. At a national level, legal reform initiatives seeking to overhaul the outdated laws that presently govern the use of IPRs as collateral have gained traction both in common and civil law jurisdictions. Internationally, the United Nations Commission on International Trade Law (UNCITRAL) has developed a suite of legislative texts on secured transactions law that jointly articulate a sophisticated normative model for the taking of security in IPRs.
This article aspires to make a contribution to this discourse by investigating a specific challenge that the twenty-first century levels at the legal framework governing the taking of security over intellectual property: the use of IP licenses as collateral.
IP license contracts are progressively assuming a leading role in both the business-to-business and business-to-consumer markets. The proliferation of the internet of things will reinforce this trend, as most tangible goods progressively integrate digital components and communications capabilities that necessitate licenses for the embedded intellectual property.
The majority of IP licenses are of low value, arising from mass-market, business-to-consumer transactions. Nevertheless, there are also licenses of substantial monetary worth that are granted in business-to-business agreements. Notable examples include trademark retail-distribution licenses, patent licenses for both manufacturing processes and products, copyright licenses for audio-visual creative content, and business applications software. There is compelling evidence to support the view that these types of licenses will be ever more prominent in the decades ahead, acquiring unprecedented economic and strategic significance. In addition, it is increasingly apparent that high-value licensing arrangements of this kind will be multi-jurisdictional in nature, as market participants design business models that transcend national borders.
In such an environment, both licensees and lenders will gradually recognize IP licenses as a palatable source of collateral, repeating a pattern that has recurred throughout history whenever an asset class appreciates substantially. The challenge will be for secured transactions law to provide these parties with suitably supportive legal infrastructure.
Keywords: Intellectual Property, Licences, Licenses, IP licenses, Copyright, Patents, Trademarks, Secured Transactions, Personal Property Security Law, Law Reform, UNCITRAL, Private Law, Contract Law, Commercial Law, Intellectual Property Law
JEL Classification: K11, K12, O34, O30
Suggested Citation: Suggested Citation