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Board Resolutions
Recordal of Security Interests in Trademarks





March 21, 2007

Sponsoring Committee: Security Interests Subcommittee of the Emerging Issues Committee


Resolution

WHEREAS, intellectual property assets, including trademarks and service marks, are a major and growing factor in commercial lending transactions;

WHEREAS, lack of consistency in the recording of trademark security interests fosters commercial uncertainty, as well as poses an untoward risk that a trademark owner may forfeit or otherwise endanger its trademark related rights;

WHEREAS, many countries have no or insufficient recording mechanisms for the registration of trademark security interests;

WHEREAS, many countries apply different and conflicting criteria for determining what can and will be recorded; and

WHEREAS, international initiatives on security interests in intellectual property by organizations such as the United Nations Commission on International Trade Law (“UNCITRAL”) will have broad implications for the way secured financing laws are implemented to deal with recordal and other aspects of trademark security interests, especially in developing countries;

BE IT RESOLVED, that the International Trademark Association endorses uniformity in recording mechanisms and methods regarding trademark security interests.

BE IT FURTHER RESOLVED, that the International Trademark Association endorses the following principles with regard to the recording of trademark security interests as “best practice” to be followed whenever and wherever possible:

  1. Security interests should be recordable against registered trademarks, and ideally also against marks of pending applications. 
  2. For purposes of giving notice of the security interest, recordal in the applicable national Trademark Office or in any applicable commercial registry is recommended, with free public accessibility, preferably through electronic means.
  3. The grant of a security interest in a trademark should not effect a transfer of legal or equitable title to trademarks which are subject to a security interests, and should not confer upon the secured party a right to use the marks.
  4. The Security Agreement creating the security interest should clearly set forth provisions acceptable under local law enabling the renewal of the marks by the secured party, if necessary to preserve the trademark registration. 
  5. Valuation of trademarks for purposes of security interests should be made in any manner that is appropriate and permitted under local law and no particular system or method of valuation is preferred or recommended.
  6. Recordal of security interests in the local Trademark Office should suffice for purposes of perfecting a security interest in a trademark. At the same time, recordal of a security interest in any other place allowed under local law, such as a commercial registry, should also suffice. 
  7. If local law requires that a security interest be recorded in a place other than the local Trademark Office in order to be perfected, such as in a commercial registry, dual recordation of the security interest should not be prohibited.
  8. Formalities in connection with recordal of a security interest and the amount of any government fees should be kept to a minimum. A document evidencing 1) existence of a security interest, 2) the parties involved, 3) the trademark(s) involved by application and/or registration number, 4) a brief description of the nature of the security interest, and 5) the effective date of the security interest, should suffice for purposes of perfecting a security interest.
  9. Regardless of procedure, enforcement of a security interest through foreclosure, after a judgment, administrative decision or other triggering event, should not be an unduly burdensome process.
  10. The applicable Trademark Office should promptly record the entry of any judgment or adverse administrative or other decision against its records and take whatever administrative action is necessary. The filing of a certified copy of the judgment or decision should be sufficient. 
  11. In the event that enforcement is triggered by means other than a judgment or administrative decision, local law should provide for a simple mechanism enabling the holder of the security interest to achieve recordal, with free public accessibility, preferably through electronic means.
  12. In cases where the trademark owner is bankrupt or otherwise unable to maintain the trademarks which are subject to a security interest, absent specific contract provisions the holder of the security interest (or the administrator or executor, as the case may be) should be permitted to maintain the trademarks, provided that nothing shall confer upon the secured party the right to use the trademarks.
  13. The relevant government agency or Office should promptly record the filing of documentation reflecting release of the security interest in its records, with free public accessibility, preferably through electronic means.

Background

This Resolution is the result of a project commenced by the Assignments & Transfers Subcommittee during the 2004-2005 committee term, in respect of security interests in trademarks. A multi-jurisdictional survey was carried out to determine the law and practice in relation to the recording of security interests in trademarks. The Security Interests Subcommittee considered the responses and has recommended: i) best practices for the recording of security interests, and ii) that, where possible, the law and practice be harmonized in the different jurisdictions.

It cannot be denied that the importance of intellectual property assets as a source of financing has grown significantly over the last decade. More and more companies (and individuals) are recognizing their ability to leverage their IP assets to obtain financing and, with growing confidence in the value of intellectual property, more and more lenders are willing to accept intellectual property assets as collateral in such transactions. As a result, the granting of security interests in trademarks has become commonplace.

For the purposes of this Resolution, a “security interest” is a right that a creditor has in the property of a debtor that secures an obligation. When a security interest is applied to a trademark, this generally means that the creditor can, upon default, obtain ownership of the trademark that secures a debt - and reap the benefits of such ownership. The granting of security interests in trademarks has become more prevalent as companies and individuals recognize their ability to leverage their intellectual property assets to obtain financing, and lenders become more willing to accept intellectual property assets as collateral in such transactions.

It should also be noted that the United Nations Commission on International Trade Law (“UNCITRAL”) is in the process of drafting a legislative guide for developing countries regarding secured financing transactions. Representatives of the Security Interests Subcommittee have been attending UNCITRAL meetings and will continue to do so, while remaining in close communications with other organizations with an interest in this matter, including WIPO and MARQUES.

UNCITRAL is planning to finalize its guide by June 2007. It should be noted that the legislative guide is currently somewhat vague regarding intellectual property issues and some provisions of the guide would seem to contradict established intellectual property practice. For example, the guide recommends that recordation of security interests in a central registry should suffice for perfection. The guide as currently drafted indicates that recordation in the trademark office would be permitted, but it is unclear whether this would be sufficient for perfection. Additionally, the guide contemplates that, with respect to choice of law, the law of the location of the debtor should always control, a position that does not allow for the fact that a debtor’s intellectual property may be located in a number of different jurisdictions and may, therefore, be subject to a number of different laws. Finally, the drafters of the guide paid little or no attention to existing treaties governing intellectual property issues, such as TRIPS.

It was originally UNCITRAL’s intention that intellectual property issues should not be covered by the legislative guide. However, as might have been anticipated at the outset, it proved impossible to draft a guide that would have no impact on intellectual property issues. Certain adjustments have and will be made to the guide, particularly at the recommendation of the intellectual property community. It now appears that UNCITRAL’s intention is to commence additional work on intellectual property financing issues subsequent to the adoption of the legislative guide by the UNCITRAL Commission.

In light of the foregoing, the Security Interests Subcommittee feels that INTA should take a position on issues concerning trademark owners as soon as possible, so that an official position can be communicated to UNCITRAL for consideration during the drafting of any future documents concerning secured financing in intellectual property.

INTA last addressed the security interests issue in 1997. However, the previous resolutions concerned U.S. law only and was not aimed at promoting international harmonization. (See INTA Board Resolution supporting the legislative approach of the ABA Task Force on Security Interests in Intellectual Property and endorsing three specific amendments to Section 10 of the Lanham Act, in response to a report and request for action submitted by the Security Interests Subcommittee of the Legislative Analysis Committee.)

The work done by the Security Interests Subcommittee (as well as that of the Assignments and Transfers Subcommittee during the 2004-2005 committee term) shows that the current state of international law and practice with respect to security interests in trademarks and other types of intellectual property is unclear and inconsistent. This leads to uncertainty as to where and how to file a security interest, what constitutes proper notice of a security interest, whether a security interest is properly perfected and who has priority. The present state of the law in different jurisdictions thus creates a risk for intellectual property owners as well as for the creditors and lenders who serve them.

With this in mind, it was considered appropriate and necessary that best practices regarding the recording of security interests should be identified. The Security Interests Subcommittee also feels strongly that INTA should take an official position and use its good offices to promote international harmonization in this area.

The following is a discussion of some of the “Recommended Points of Harmonization” listed in the Resolution above.

1. Security interests should be recordable against registered trademarks, and ideally also against marks of pending applications.

Discussion: At the outset, it should be pointed out that this recommendation concerns recordation only. Perfection of security interests is discussed in recommendation 5. The group does not see a good reason to exclude marks of pending applications from recordal as a part of the collateral subject to a security interest. Since a security interest is not an assignment of ownership rights, prohibitions against assignment of intent to use applications under certain circumstances do not prevent marks covered by such applications from forming a part of the collateral subject to a security interest. Allowing inclusion of marks in pending applications as a part of the collateral subject to a recordable security interest maximizes the value of such marks to the trademark owner as valuable property, and should be permitted. However, at the same time, the subcommittee is cognizant of the fact that marks in pending applications may not be in use at the time a security interest is created. Furthermore, because some countries do not recognize rights in marks that have not been registered (or where there is no use of the mark in commerce, as the case may be), it may not be possible always to achieve what the subcommittee believes would be “best practice” with respect to the ability to record security interests against marks in pending applications.

2. In order for the public, particularly prospective purchasers/ transferees of the trademarks covered by the security interests and third party creditors to have notice of the security interest, recordal in the applicable national Trademark Office or in any applicable commercial registry is recommended, with free public accessibility, preferably through electronic means.

Discussion: The group realizes that many jurisdictions, though by no means all, permit and sometimes require the recordal of security interests pursuant to commercial law in order to make such interests effective against third parties. It is primarily in the field of security interests where trademark law and commercial law intersect. While the practice of dual recordation should not be discouraged, the group also believes that, where trademarks are concerned, recordal of security interests in the local Trademark Office should be encouraged. However, in keeping with INTA’s Model Law Guidelines, it should be optional, not mandatory. The group believes that recordation in the local Trademark Office would be “best practice” - even if it leads to a “dual-filing” system, such as is already common in many countries (see also the discussion regarding Issue 5). However, these recommendations apply only to recordals in the local Trademark Office and the group does not wish to suggest that other recordals, such as in a jurisdiction’s commercial registry, should be done away with. This is particularly important with respect to unregistered marks for which no application is pending in the local Trademark Office. Because no records will exist in the Trademark Office with respect to unregistered marks for which no applications have been filed, security interests affecting such marks should not be recordable in the Trademark Office.

3. The grant of a security interest in a trademark should not effect a transfer of legal or equitable title to the trademarks subject to the security interest, and should not confer upon the secured party a right to use the marks. However, the agreement creating the security interest should clearly set forth provisions acceptable under local law enabling the renewal of the marks by the secured party, should a breach of the agreement occur and where renewal is due before a transfer of rights to the secured party or subsequent purchaser is completed and/or recorded. Accordingly, the holder of a security interest should be able to take the necessary steps to maintain or renew a trademark registration where it can show that that it has a contractual right to renew or maintain, even if the assignment of the mark has not yet been recorded.

Discussion: In the countries surveyed, a security interest creates a lien or may limit the right of the owner to assign the mark while the security interest is in effect. Only where the security interest is created in the context of an assignment does the ownership in the mark move to the secured party. The subcommittee is in agreement that, absent specific assignment language, the ownership and right to use the mark remains in the trademark owner. If the contract creating the security interest requires the trademark owner to use the trademark, nonuse effects a breach of contract, but absent specific language to the contrary, does not transfer rights to use the mark to the secured party. However, the subcommittee believes that where local law permits, an exception should be made, e.g., when the trademark owner is bankrupt, to allow for submission of evidence of use of the covered marks by the secured party, for the purpose of maintaining/preserving the trademarks. The subcommittee is convinced that holders of security interests must be given every opportunity to assure that marks and registrations do not become abandoned or cancelled solely because of timing issues involving the assignment of the mark, the recordal thereof and the deadline for filing a renewal application. Finally, in order to implement this recommendation, it is necessary that restrictions on the transfer of pending trademark applications based on the proposed or intended use of the subject trademarks should not apply to transfers to secured parties resulting from foreclosure, default, judgment, administrative action or some other triggering event.

4. If necessary or required under local law, the value of marks may be established by agreement of the parties to a secured transaction, or by an expert appointed by the parties, or by an actuary, or in any other manner that is appropriate and permitted under local law.

Discussion: Valuation of marks is crucial for the purpose of enabling trademark owners to use their marks as collateral to obtain loans. The group is in agreement that the method of valuation should be left entirely to the parties to the security interests, and no single means of valuing marks is recommended.

5. Recordal of security interests in the local Trademark Office should not be required in order to perfect the security interest, but it should be encouraged, for the purposes of giving notice to third parties of the existence of the security interest. Recordal of a security interest in any one place allowed under local law, such as a commercial registry, should suffice for purposes of perfection of the security interest. However, if local law requires that a security interest be recorded elsewhere in order to be perfected, such as in a commercial registry, dual recordation of the security interest should not be prohibited.

Discussion: The place of recordal of the security interests may be the Trademark Office in which the mark is of record, or also, where applicable under local law, a separate government Office (see also Issue 2 above). Perfection of a security interest, for the purpose of its taking priority over general creditors in the case of the trademark owner's bankruptcy, should ideally be considered accomplished whether the security interest is recorded, for example, at the Trademark Office, or in another government Office, according to local law. While the group believes that “best practice” would be that recordal in the trademark office should be sufficient to perfect the security interest with respect to the trademark(s) concerned, the group also realizes that local law may have different requirements and does not wish to suggest that such different requirements should in all cases be revised. However, because it is likely that parties interested in the status of a trademark (prospective licensees, for example) would first examine the records of the local Trademark Office, the subcommittee believes that recordal in the local Trademark Office is always advantageous, without wishing to suggest that the real and substantial advantages of dual filing regimes should be ignored.

6. Formalities in connection with recordal of a security interest and the amount of any government taxes should be kept to a minimum. A document evidencing 1) existence of a security interest, 2) the parties involved, 3) the trademark(s) involved by application and/or registration number, 4) a brief description of the nature of the security interest, and 5) the effective date of the security interest, when deposited with the Trademark Office (or any other government Office or entity provided for under local law), should suffice for purposes of perfecting a security interest.

Discussion: Trademarks are assets which should be easily accessible as a source of funds for the use of the trademark owner. There is no need or justification for burdensome formalities. Any government taxes should be minimal, as excessive taxes can defeat the purpose of the security interest, namely using a security interest in trademarks as a source of revenue.

7. Regardless of what procedure is provided for under local law, enforcement of a security interest through foreclosure, after a judgment, administrative decision or other triggering event, should not be an unduly burdensome process. The applicable Trademark Office should record the entry of any judgment, adverse decision or other qualified event against its records and take whatever administrative action is necessary. The filing of a certified copy of the judgment or decision should be sufficient. In the event that enforcement is triggered by other means, local law should provide for a mechanism under which the holder of the security interest can achieve recordal of the enforcement of the security interest in the applicable local Trademark Office. The information must be accessible to the public, preferably through electronic means.

Discussion: It is important that holders of security interests not be put to unnecessary expense and effort in enforcing their rights in the event of foreclosure. The more expensive and complicated such procedures are, the less willing lenders will be to loan against such marks. The recordal regarding enforcement of a security interest must be easily accessible to the public for notice purposes. Thus it is preferable that there be electronic access to such information.

8. In cases where the trademark owner is bankrupt or otherwise unable to maintain the trademarks which are subject to a security interest, absent specific contract provisions the holder of the security interest (or the administrator or executor, as the case may be) should be permitted to maintain the trademarks, provided that nothing shall confer upon the secured party the right to use the trademarks.

Discussion: On the one hand the trademark owner may have no interest or no money to maintain the collateral subject to the security interest (the trademarks). On the other hand, the holder of the security interest has a vital interest in maintaining the trademark registrations and pending applications (if any), as they are the collateral for recouping the amount of the loan to the trademark holder. Therefore, the Trademark Office should accept the secured party’s payment of the renewal fee and the submission of evidence of use (where required under local law) regardless of who is, whether by contract or operation of law, the legal owner of the subject registrations or applications at the time of maintenance or renewal. This recommendation is not meant to suggest that a holder of a security interest (or the administrator or executor) should not be required to comply with all other requirements for renewal or maintenance of a registration, including any requirement to show use or to explain excusable non-use of a mark, where required under local law. If permitted by local law, parties to a secured financing transaction may wish to consider including a provision in the agreement that provides the holder of the security interest with the ability to renew and/or maintain the subject trademarks, such as a power of attorney or similar mechanism.

9. Upon filing of the documentation reflecting release of the security interest, the relevant government agency or Office should promptly record such release of the security interest in its records. Such records must be accessible to the public, preferably through electronic means.

Discussion: It is in the interest of trademark owners that once they have satisfied their obligations to their lender, a release of the security interest should be promptly recorded, so that a search by the public against their trademarks in the official record will reveal no current encumbrances against their trademarks.