Trademark as a form of security
It is not surprising that intangible assets such as intellectual property are becoming increasingly important like any other form of tangible asset, i.e. land and machinery, for contemporary business. Given the importance of intellectual property, the 2019 Trademark Law (“TMA 2019”) which entered into force on December 27, 2019 now recognizes the trademark as a form of security and considers it to be an object of personal or movable property. such as stocks. and cars, whether registered or pending.
What is real security?
“Collateral interest” refers to an enforceable legal right that has been pledged by the owner, usually to a financier, to obtain a loan. In other words, a registered or pending trademark that is intangible can now be used as a form of collateral to secure a loan from a financier. In the event of default of repayment, the financier could take possession of the pledged mark.
How does the granting of a trademark right work?
There are generally 2 methods for brand owners (Brand Owner) who wish to grant a security interest in their brands in order to obtain financing from a financier (Financier).
I. Assignment as collateral
An assignment as collateral is a type of mortgage and involves the transfer of ownership of the brand from the assignor (Brand Owner) to an assignee (Financial) as security for a loan, provided that the ownership of the trademark is reassigned to the trademark owner after fulfilling all loan obligations.
The assignment must be in writing and signed by or on behalf of the Brand Owner and the Financier. Otherwise, it won’t be effective. A written assignment is then entered in the trademark register; otherwise, it will be unenforceable against any person acquiring a conflicting interest in the mark without being aware of the said assignment. In other words, if a brand is pledged twice to different financiers and the first financier has not registered its assignment as collateral with the Trademark Register, the next financier, ignoring the constitution of the first security, is not bound by said first assignment. Therefore, in order to protect the security of a financier, it is advisable to register the assignment as collateral in the Trademark Register as soon as it is created.
A charge does not imply a transfer of ownership, but the creditor (Financial) is granted the rights to the mark and has priority over other creditors. Consequently, the beneficiary is granted the right to dispose of or appropriate the mark in the event of default by the debtor (owner of the mark).
Likewise, a charge is not opposable to another conflicting interest unless it has been entered in the register of marks.
Difficulty in taking security on the brand
Pledging a brand to secure a loan may not be easily achievable, especially for start-ups, or a new brand that is not known to the public because the valuation of a brand may be a problem. difficult task. A financier is generally cautious when assessing risk or approving a financing request. The value of the collateral, or the brand in this case, needs to be determined in order to determine whether it is worth providing the financing. This is a difficult practice because the brand demonstrates different value for different entities; a financier may not have the skills / expertise to assess brand value and risk accepting it as collateral. In the event of default, it can also be difficult for the financier to sell the mark for value that could cover the finances provided. However, there are professional appraisers specializing in intellectual property valuation who can assist the financier in assessing his risk.
While financial institutions may not be ready to finance a business on the basis of a newly invented brand, brands that have gained reputation and goodwill for years can reap the benefits. Intellectual property owners can also bundle all of their intellectual property, including the trademark, as a basket of rights to secure higher value funding.
All in all, TMA 2019 is the first step towards recognizing the rights of brand owners and shifting the financier’s growing confidence in brand securitization. Nevertheless, improvements can be made with regard to awareness of the value of brands and the evaluation of the brand as a good basis for ensuring safety.