Recordal of Security Interest in Intellectual Property; The Nigerian Law Perspective

Introduction

Embedded in the right of ownership over any form of property is the ability to deal with the said property as the owner deems fit subject to legal restrictions. Thus, a person who has title to land could sell, lease, or gift the land to anyone he deems fit. By extension, he could also relinquish certain interest in the land as security for the payment of a loan. The same is true for Intellectual Property assets. Though intellectual property (IP) does not possess the tangibility of other kinds of property, they can nonetheless be dealt with in the same way as other forms of property. There are instances where Intellectual Property owners seeking loans may find that their most valuable property for use as collateral is their trademarks, patents, or copyrights. In certain cases, a bank that provides capital or credit to an IP owner will most likely require that the owner’s IP assets be pledged as collateral[1].  Hence, they could be granted as security for payment of a loan or discharge of an obligation.

However, intellectual property (though a property for all intents and purposes) is a creation of law. These laws, particularly Trademark Act (TA) and the Patent and Design Act (PDA) mandates registry notification of a change in the ownership interest of the IP holder. For instance, where the IP holder assigns his right to someone else, the registry must be notified of that assignment. This begs the question of whether the law provides for similar provisions in terms of a grant of a security interest in IP. This article explores the legal position in Nigeria in that regard.

Recordal Under the Nigeria Companies and Allied Matters Act

The Companies and Allied Matters Act (CAMA)[2] makes sufficient provision for recordal of security interest owned by companies at the Corporate Affairs Commission (CAC). Hence, where a company uses its properties as security for the payment of a loan there is an obligation to inform the CAC of such transaction. By extension, Section 193 (2) (i) (now section 222(2) (i) under the new CAMA) provides that the registration of a charge at the CAC also includes the registration of a grant of a security interest in a patent, trademark or copyright. For instance, where a company mortgages its patent to a bank as security for payment of a loan, such a company is obligated to register the charges created over the IP as it would do for any other property owned by the company.

This provision, though laudable creates two major problems. Firstly, the provision only applies to property owned by companies and not individuals. IP rights, including trademark, patent and industrial design can be held by natural persons as well as companies. Hence, the provision excludes the registration of security interest in IP rights held by individuals. Secondly, even for a company, notification at the CAC might not be in full compliance with extant IP laws. The provisions of the TA and the PDA requires stricter compliance that must be adhered to.  

Recordal Under the Nigeria Trademark and Patent & Design Act

In discussing recordal under the applicable IP law, it is important to note that the grant of a security interest in the copyright has no recordal requirement. This is essentially due to the legal framework and nature of copyright interest. Though there is a provision for deposition of a copyright eligible work at the Nigerian Copyright Commission, there is no mandatory requirement for registration of copyright interest since copyright is automatic upon expression. Thus, the question of recordal of interest does not arise here.

However, the rights of ownership of a patent, design or trademark registration are not automatic. They are granted pursuant to registration at the appropriate registry. Thus, the enabling act makes provision for recordal of transactions dealing with the rights granted under these laws. The TA and the PDA provide for the recordal of an Assignment, license (registered user under the Trademark Act) transmission and a surrender (PDA only). Yet, the Acts makes no provision for recordal of a security interest such a mortgage, a pledge or bailment. One might be tempted to assume that since no provision was made for these transactions, a recordal is unnecessary. That assumption would be wrong. This is so because the Act provides for consequences of failure to record assignment and licenses which as would be the same as failure to record grant of a security interest. For instance, the PDA provides that where the assignment or license of a patent right is not recorded, it would be of no effect against any third party[3]. Under the Trademark Act, such a security agreement might be inadmissible in court[4]. 

While the PDA and TA do not expressly make provision for recordal of security interests, an examination of the nature of security interests would reveal that the recordal requirement would apply to these transactions. To illustrate, a mortgage is an assignment of an interest in property subject to redemption. In essence, where parties execute a mortgage, an assignment occurs subject to a subsequent assignment to the original assignor. Similarly, a pledge is a grant of possession in a property as security for payment of a debt. Hence, this transaction is would be regarded as a license under the existing IP laws. Thus, where a security interest is passed and there is no recordal, the consequence of the failure to record might apply even though the transaction is not directly contemplated under the law. 

In avoiding this, Security interests can be recorded as either assignments or licenses. A mortgage could be recorded as an assignment of the patent. However, the deed of assignment must state the conditions for reassignment to the original patentor. Similarly, a pledge could be recorded as a license so long as the commercial agreement granting the pledge expressly provide for the modalities of the recordal.

International Perspective

In the United Kingdom, a security interest in IP is recorded as assignments or licenses. Though there are no specific provisions for recordal of security interest, the emphasis is placed on the wording of the instrument of transfer rather than the recording process. In the US, the provision on recordal is left open-ended. For instance, chapter 26 of the relevant patent law[5] provides that rights in IP are assignable subject to recordal. The chapter goes further to state as follows:

“An interest that constitutes an assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage”

Though expressed as an assignment grant or conveyance, the law contemplates recordal of security interest by the inclusion of “mortgagee for a valuable consideration” as a beneficiary of such recordal.

Conclusion

In perfecting the interest of lenders in transactions involving the grant of a security interest in IP, the task of the lawyer in structuring agreements becomes more important. While the law might not make express provisions for recordal, some solutions could be explored in other to maintain commercial relevance and compliance with extant laws.