05 Dec 2013
"Whose interest is it anyway?" The Personal Property Securities Act and IP security interests
The wide range of arrangements that could create a security interest under the PPSA, and of IP assets that could be affected, means IP owners and their financiers should be auditing these arrangements now.
Intellectual property owners and those who have security interests in their IP might not understand the full scope of the Personal Property Securities Act 2009 (Cth) ("PPSA") and how it affects them. A recent case is a timely reminder for them to get their house in order.
Security interests, intellectual property, and the PPSA
The interplay of the PPSA and IP is quite complex and beyond the scope of this article. Put briefly, however, the PPSA comes into play for IP owners, licensees and their financiers where a security is granted:
- over intellectual property itself, such as a trade mark portfolio;
- over a licence to use that IP;
- over goods which have an IP component (such as clothes branded with a trade mark), the security extends to that IP (this is via section 105 of the PPSA); or
- over royalty streams.
What's immediately obvious is that the Act's scope goes well beyond simply putting up an IP asset as security.
The second key point is that these interests must be registered to be enforceable. Interests recorded on the Australian Trade Marks Register, Patents Register or Designs Register will not be automatically migrated across to the Commonwealth Personal Property Securities Register ("PPSR").
The Maiden Civil case explores the PPSA in action
Early this year, the NSW Supreme Court considered the operation of in its decision of Maiden Civil (P & E) Pty Ltd v Queensland Excavation Services Pty Ltd  NSWSC 852.
Queensland Excavation Services Pty Ltd ("QES") leased three Caterpillar vehicles to Maiden Civil (P & E) Pty Ltd. QES did not register its security interests in the vehicles on either the Northern Territory Register or the PPSR.
Maiden Civil then entered a Loan Agreement and General Security Deed (identified the vehicles as part of Maiden Civil's assets) with Fast Financial Solutions Pty Ltd. Fast Financial Solutions registered its security interest in these assets on the Commonwealth PPSR.
Maiden Civil then breached terms of its deed with Fast Financial Solutions, which triggered the appointment of receivers and managers. Although both Fast Financial Solutions and QES had a security interest in the vehicles, which took greater priority under the PPSA regime?
Applying the PPSA, Justice Brereton held:
QES' security interest was vulnerable to other competing interests, as it had failed to register it;
under the Personal Property Securities lease, Maiden Civil had not only possessory, but also proprietary rights to the vehicles, so it could transfer rights in them to a second party;
Fast Financial Solutions on the other hand obtained a security interest over the vehicles when it advanced its loan to Maiden Civil in exchange for security over all of Maiden Civil's assets. The security interest was further held to be enforceable against a third party, provided a security agreement (ie. the General Security Deed) was in place that covered the collateral in question;
the registration of its security interest in the vehicles on the PPSR "perfected" Fast Financial Solutions ' interest, and as perfected interests take priority over unperfected interests (under section 55 of the PPSA) its registered security interest was superior to that of QES.
Take-out actions for anyone with a security interest in an IP asset
Since the introduction of the PPSA regime, the question of competing security interests in personal property is one of priority, and no longer ownership.
Given the wide range of arrangements that could create a security interest under the PPSA, and of IP assets that could be affected, both IP owners and those contracting with them should be auditing these arrangements now, if they haven't done so already.
To prevent the unexpected, it is important to register your interest sooner rather than later, including interests in intellectual property rights with a State or Commonwealth Personal Property Securities Register, or face the sort of unpleasant surprise QES received in the Maiden case.
If those owners have not done so because they think that they have 24 months to benefit from "temporary perfection", they may be mistaken. That perfection will not apply if the security interest was registrable on a transitional register but was not registered before 30 January 2012. If a security interest is unperfected it may be defeated and the owner may lose its goods (even though it owns them).
Even if you do think you have the benefit of the transitional period, that transitional period is coming to an end in less than two months. You will need to act now to ensure your interests are properly protected.
IP owners should also be looking very carefully at not only their own financing arrangements and the security interests they might have granted (including the hidden sort described above), but also their licensing arrangements to see what rights the licensee might have under it to grant security interests to third parties.
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