The Challenge of IP Financing

• Author: Lorin Brennan
• Position: U.S. attorney specializing in international IP licensing and financing

A growing share of commerce in today's global information economy revolves around IP assets rather than the physical commodities that dominated the industrial age. IP represents an important source of commerce in its own right, for example online content licensing, and is also an increasing component of traditional merchandise, from trademarked fashion apparel to patented drugs. While these developments offer exciting opportunities for increased trade, they also present profound challenges to many established legal practices.

IP law has traditionally focused on protecting the property right. Commercial law, by contrast, deals with making and enforcing contracts in the course of trade. Much of traditional commercial law, however, developed for transactions in tangible goods, and IP is, of course, different. As IP becomes more prevalent in modern commerce, it is becoming imperative to harmonize these different bodies of law.

One area where this process is occurring is secured financing. In December 2007, the U.N. Commission on International Trade Law (UNCITRAL) promulgated a long awaited Legislative Guide on Secured Transactions to help states modernize their laws and increase the availability of low-cost credit. However, the Guide was primarily focused on financing practices for tangible goods and related trade receivables, and it was recognized that the Guide could require asset-specific adjustments for IP. Thus, the Guide does not apply "to the extent [that it is] inconsistent with intellectual property law." Instead, UNCITRAL is preparing an Annex on how to adjust the Guide for IP.

The discussions at UNCITRAL have been remarkably fruitful in identifying the varying expectations of commercial lenders and IP right holders but much work needs to be done for effective harmonization. Professionals from all sectors have expressed a strong desire to develop modern rules for IP financing, and the UNCITRAL Secretariat has been a tireless supporter of the process. While many issues are still open, the following are some major areas under discussion:

Effectiveness: Many commercial laws require public notice of a security right before it can be effective against third parties. The UNCITRAL Guide thus proposes a personal property registry for filing notices of security rights, which could include IP. In many states, typically those whose financing law derives from pledge concepts, the lack...