The Rajya Sabha Parliamentary Committee on Intellectual Property noted in its 161st Report that it is not satisfactory for intellectual property to be used as collateral in financing transactions. The Committee believed that changes to Indian legislation were necessary to increase the acceptability of intellectual property (IP) as collateral by banks and other financial institutions. Sadly, the Committee was unable to pinpoint any specific policy problems that such a reform should prioritise. However, despite the growing significance of intellectual property in the contemporary economy, IP financing in India receives a startlingly low level of attention. It is crucial to stress at the outset that there are additional non-legal obstacles to IP funding, such as a developing IP valuation scheme. However, this post is limited to legal issues that crop up in IP financing.
A contract that establishes the security rights secures the responsibility of security interests. To safeguard a creditor's interests, however, simple creation is insufficient. They must make sure that the security interest outweighs any other parties' interests. If it isn't, their claim may be greater than what the secured property can pay off since, if more than one security interest is created over a single piece of property, the asset may also be used to pay off other creditors' claims. As a result, the legislation typically incorporates registration requirements (sometimes known as “perfection” of security) that are intended to act as general public notice. However, the problem with the perfection of security interests in India is that it has a complicated legal framework that governs the registration of security interests not just for IP but for all assets in general.
Financing, Intellectual Property, Register, Public.
For copyright, everything is completely different. Although being a party to the Berne Convention, India does not require copyright registration in order to provide protection. Hence, copyright registration is entirely optional and not required. But, from the perspective of financing, this poses a significant barrier because banks and other financial institutions are unable to trace the title to the property in the absence of a public database of all transactions involving the property.
Any sort of property can be used as collateral, but title research is essential. The Registration Act of 1908 mandates the mandatory registration of transfers of land, which is arguably the most common type of collateral. These documents give banks a transparent history of who owned the property in the past, ensuring to them the borrower's rightful ownership. The ease with which the land can be used as collateral accounts for its appeal. Although it was previously suggested that the use of patents and trademarks as collateral is hampered by the variety of registration requirements, the issue with copyright is the exact reverse. For proving possession of the copyright in the first place, let alone for transferring it, there is no legal requirement for registration. It is challenging, if not impossible, for owners of copyrights to convince banks and other financial institutions of their ownership because there is no registry that keeps a record of transactions linked to a specific copyright. It is always possible that someone else has already acquired a competing interest in the copyright, and since there is no register within which such a transaction is recorded, it is extremely difficult for the lender to conduct due diligence. Even the owners' or authors' voluntary registration of the copyright will not convince the lenders of the title.
Having said that, banks in particular may find some solace through the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI). Since every financial institution is required by the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 (SARFAESI) to register security interests with CERSAI, banks can access the CERSAI even though there is no specialised register to check for prior interests in the property. Also, under Section 77 of the 2013 Companies Act, a business that possesses a copyright must register it if it uses it as collateral. Hence, it is simple for banks to perform due diligence in the instance of a company using copyright as collateral—they only need to visit the register under section 77 of the Companies Act and look for any possible prior interests that might have been created on the copyright. The fact that CERSAI is a generalist record that contains data on all security interests makes it difficult for banks to locate the particular copyright they want to check.
A solution to this unique copyright issue in the context of the United Kingdom might also apply to India. Owners of copyright in the United Kingdom typically transfer their rights to a business that specialises in copyright. The assignment deeds that the original owner executed give these corporations their ownership rights. A company must present the assignment deed from which it derives title in order to use the copyright that has been transferred to it as collateral. Lenders are urged to acquire ownership of the assignment deed in such a case. This effectively functions as a public notice because the corporation will need to provide the assignment deed once more to demonstrate title if it wants to use the same copyright to form another security interest. But, since the previous lender would already be in possession of this, the corporation will need to let the new lender know about the prior security interest. The following lender will be informed of the prior security interest in this manner.