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Friday, 23 January 2009

Security arrangements and IP

The IPKat has been wondering whether any of his readers have considered whether registration at Companies House ("the official UK government register of UK companies") might help to preserve unregistered IP rights.  

Right: Magnus was a feline insomniac before he discovered the Companies Act 1985 ...

This is because he hears a story that goes like this:
"Once upon a time there was an author who had sold the IP rights in his books to a publishing company, but wanted to retain some control over them . So what did that author do? He took a charge over those rights. The security was then registered at Companies House under section 395 of the Companies Act 1985
The parties had contractually agreed that the publishing company could not dispose of or charge the IP rights in the author's works, but the security registration had some value for the author in that it publicised, in a manner similar to registration of the rights, the fact that the IP rights were subject to a charge and a non-disposal covenant. Any third party who could reasonably have been expected to check the register, who then acquired the rights in breach of the restrictive covenants, could not be said to have done so in good faith.  And they all lived happily ever after ..."
The IPKat would be really curious to hear whether any readers have views on this approach.


Renzo Marchini said...

A legal charge of course is an assignment of copyright to the chargee with a covenant back to reassign later. (So the "seller" might as well licence.) And so the charge you are postulating can only be an equitable assignment - I think. And then only equity's darling takes free of the charge: a purchaser without notice (or in good faith) for valuable consideration etc.

Question: how many practitioners reading your blog in acting for an assignee have ever done a company search for a section 395 charge (which on its terms is there to protect the chargee in the event of a liquidation/administration etc and not a dealing in breach of covenant)? My guess is very few have. Now these people may have been negligent in not doing so (I make no admissions as to whether I fall into this category), but if the majority of practitioners do not do such searches then it is unlikely to be a failure to take reasonable care etc in accordance with the Bolam test (a professional (there a doctor) is not negligent "if he has acted in accordance with a practice accepted as proper by a responsible body of medical men skilled in that particular art"). And so if it is not negligent not to check the register, how can the charge be constructive knowledge?

The seller should take a legal mortgage (which amounts to granting the buyer a licence I suspect in any case) - and a charge becomes unnecessary.

Interested to get other views. Might need to do some searches next time I'm helping a client take an assignment!

Howard Knopf said...

A few years ago, I was advisor to the late lamented Law Commission of Canada, and we did a major comparative project on security interests in IP. Fortunately, this resulted in a book that I edited which includes two excellent chapters on EU and UK law and practice by Alison Firth and D.M.R. Townend respectively.

The book is available here:

Readers should also be aware that there are some highly complex and not very transparent developments going on at UNCITRAL.

Howard Knopf

Dr Schoen said...

have looked at this and the answer is unsurprisingly unclear. My current advice is that it may work, but it simply hasn't been tested by the courts.

PS, not convinced that a legal charge = assignment

Anonymous said...

They're not. Otherwise there wouldn't be a distinction between a mortgage by way of assignment (where legal title transfers) and a mortgage by way of charge (where legal title does not transfer).

I believe charges at CH protect against lower-ranking creditors on insolvency, but provide no other rights. If an asset is sold, the charge attaches to the proceeds-of-sale: it does not "run" with the asset.

Unlike entries on the Land, TM or Patent Registers, entries on the Register of Companies does not provide constructive notice to assignees of an encumberance on a copyright work (for s90(4) purposes or otherwise). Hence, intellectual property assigned in breach of contract cannot be recovered from a third-party purchaser for value, without actual notice.

Bad faith is of course absolutely nothing to do with constructive notice. In fact they are polar opposites (see the long discussions on this blog on the need for mens rea in respect of "bad faith", raised in the context of trade marks).

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