Putting up Copyright as Collateral in Financial Institutions - Brief Overview of Government Regulation Number 22 of 2022 on Creative Economy
In Indonesia, several laws and regulations have been issued which regulate several aspects of intellectual property rights, one of which is Law Number 28 of 2014 on Copyrights ("Copyright Law"). In the Copyright Law, the state recognises and protects rights to works, and regulates derivative rights thereof, which are referred to as associated rights. However, the Copyright Law has not gone far enough to regulate the process of economic use of the copyright itself, and in this regard, Indonesia is still left behind.
In the United States, the process of economic use of copyright has been very advanced, even allowing copyright to be put up as collateral for loans from Financial Institutions. On 6 September 2005, Marvel Enterprises, Inc. pledged all copyrights and film economic rights to its various characters, including Captain America, Black Panther, Ant-Man, Doctor Strange, and The Avengers, in an attempt to secure a loan of USD 525,000,000 (five hundred and twenty-five million United States Dollars) from Merrill Lynch, Pierce, Fenner & Smith Inc. That year, Marvel Enterprises, Inc. was experiencing financial difficulties due to the deteriorating prospects for the comic books and merchandise business, and also their desire to enter the filmmaking business. Marvel Enterprises, Inc., plans through its subsidiary Marvel Entertainment, Inc., to independently go into the filmmaking business and will use the loan to start filming under Marvel Entertainment, Inc., starting with the film "Iron Man", and the rest is history. Currently based on the website Box Office Mojo, gross revenue for the film "The Avengers: Endgame" is USD 2,797,501,328 (two billion seven hundred ninety seven million five hundred one thousand three hundred and twenty-eight United States Dollars), more than 4 times the loan value obtained from Merrill Lynch, Pierce, Fenner & Smith Inc. in 2005.
On 24 October 2019, the Government of Indonesia issued Law Number 24 of 2019 on the Creative Economy (“Law No.24/2019”) in which in its elucidation the government acknowledged that the development of the creative economy experienced obstacles, one of which was due to limited access to the banking sector, hence a comprehensive creative economy regulation is needed. Although article 33 of Law No.24/2019 mandates that implementing regulations must be stipulated not later than 2 years from the promulgation of the Law, only on 12 July 2022 Government Regulation Number 24 of 2022 on Implementing Regulations of Law Number 24 of 2019 on the Creative Economy was issued (“GR No.24/2022”).
All this time, banks have been reluctant to provide credit to a creative business practitioner because there is no legal basis for putting up intellectual property right as collateral. This further makes it difficult and at the same time becomes an obstacle for the creative business practitioner because banks continue to ask for conventional collateral, namely in the form of immovable assets or tangible movable assets as collateral for the provision of funds, which the majority of creative business practitioners do not have.
Article 9 paragraph (1) of GR No.24/2022 stipulates that in the implementation of intellectual property-based financing schemes, bank financial institutions and non-bank financial institutions put up intellectual property as an object of collateral for debts. Furthermore, Article 9 paragraph (2) sharpens that the object of collateral for debts in Article 9 paragraph (1) may take the following form:
- Intellectual property as a fiduciary guarantee;
- A contract in a creative economic activity; and/or
- A collection right in a creative economic activity.
In Law Number 42 of 1999 on Fiduciary Guarantees ("Law No.42/1999"), a fiduciary guarantee is defined as the security right to movable objects, both tangible and intangible and immovable objects, particularly immovable buildings and especially buildings that cannot be encumbered by mortgage rights which remain in the possession of the fiduciary giver. Considering that fiduciary can be applied to intangible objects, then putting up intellectual property right an object of fiduciary guarantee can be done. In Law No.42/1999, an execution of a fiduciary object must be conducted by way of an auction and Article 6 paragraph (2) of Minister of Finance Regulation Number 213/PMK.06/2020 on Auction Implementation Guidelines stipulates that intangible goods include but are not limited to the right to use goods, collection rights, intellectual property rights, broadcast/release rights, and securities. Thus, the regulation instrument of the auction implementation has accommodated the implementation of a fiduciary execution auction for intellectual property rights, but in practice so far there has never been an auction of intellectual property rights.
It is interesting to note that in Article 10 of GR No.24/2022, intellectual property that can be used as an object of collateral for debts must take the form of, (i) the intellectual property recorded or registered with the Ministry that administers government affairs in the field of law and (ii) the intellectual property that has been managed either independently and/or its rights has been transferred to other parties. Elucidation of Article 10 of GR No.24/2022 explains that "what is referred to by intellectual property that has been managed is the intellectual property that has been commercialised by the owner himself or another party under an agreement". Given this article, a creative business practitioner cannot put up as collateral his/her intellectual property that is still in the form of a concept, a work that is dormant, or a creation that is still in the development stage. For example, a screenwriter cannot put up a script as collateral which has not been registered and has not yet received a contract to be filmed, even though the funding from the bank is needed at the stage where the script has not yet received a contract to be filmed, considering that if the script has received a contract to be filmed, the funding will come from the film producer and would no longer need funding from the bank. The same applies to book scripts, video games, and other works that cannot be commercialised, which require funding before they can be commercialised.
C. Things to Pay Attention to When Drafting Agreements/Contracts to Put Up Intellectual Property in the Form of Copyright as Collateral
Unlike other aspects of intellectual property rights such as trademarks or patents, copyright has its own characteristics. Its characteristic is that essentially copyright arises not because of registration, but because of publication. This characteristic is what makes a security contract or agreement related to copyright need to pay attention to certain aspects. Therefore, a contract or agreement for putting up copyright as collateral needs to at least contain the following:
- Copyright Registration
Subject to Article 10 of GR No.24/2022, the intellectual property rights that can be put up as collateral are those that have been recorded or registered with the Ministry that administers the affairs in the field of law. Based on this, the contract/agreement drafter needs to detail the documents that proved the recording or registration which were issued by the Ministry of Law and Human Rights as an object of collateral.
- Collateral Must Cover All Aspects of Economic Rights in various media and derivatives of the Copyright.
The development of the times has made the variety of information technology wider; therefore, it is very important to emphasise that putting up copyright as collateral covers all aspects of the economic rights of the work. This is important considering that economic rights to one media can be separated from economic rights to other media. As a concrete example by using the Marvel superhero character, the economic rights to make films for the Spider-Man character belong to the Sony Corporation, while other economic rights to the Spider-Man character, namely the economic rights for comics and action figures, are still held by Marvel Entertainment, LLC. This what makes the contract/agreement drafter should expressly state that the collateral covers all economic rights of the work in any media, and its adaptation in any media, and if necessary, the derivation of the work in any media and its adaptation.
- Author or Copyright holder
As stated in Article 8 of the Copyright Law, economic rights are the exclusive rights of the copyright author or holder to obtain economic benefits from the creation. Therefore, the contract/agreement drafter must ensure that the party putting up the copyright as collateral is the party entitled to the economic rights of the work. If necessary, the party must make a statement on a stamp duty paper that the party is the legal owner and holder of the economic rights of the work and the work has never been and is not being transferred or pledged to any third party.
- Value of Copyright
With reference to Article 8 letter c in conjunction with Article 12 paragraph (2) of GR No.24/2022, the relevant copyright must first be assessed by an appraiser. Moreover, under Article 12 paragraph (3) letter c, the relevant appraiser must be registered with the Ministry that administers creative economy affairs. Until the date of this piece of writing is produced, there has not been any infrastructure or provisions regarding the registration of appraisers at the Ministry of Tourism and Creative Economy.
- Copyright Duration
With reference to Article 18 of the Copyright Law, a work that has been transferred in a one-time sale and purchase agreement and/or an indefinite transfer, then the copyright returns to the author when the agreement reaches a term of 25 years. Furthermore, it is also necessary to note that Article 58 paragraph (1) states that the age of copyright protection is 70 years after the author's death in the event that the author is an individual, or 50 years since the first publication if the author is a legal entity. Thus, it is important that the encumbrance of guarantee period pays attention to these aspects.
- Prohibition Clause of Copyright Transfer or License Without Consent of a Guarantee Holder
Given that copyright is an intangible right and unlike a tangible object of which transfer can be monitored, it is important that the debtor expressly states that it will not transfer in any way, or grant a licence to the copyright that is the object of the guarantee, to any third party without written consent of the guarantee holder. In extreme cases (e.g. there is a dispute between the copyright owner and the author), it can be considered to announce in the newspaper that the relevant copyright is being the object of the guarantee and warn any party not to accept the transfer of the copyright without written consent of the creditor.
- Obligation to Record that the Copyright is in the Financing Status
Article 13 paragraph (1) of GR No.24/2022 stipulates that creative economy practitioners must record the financing provided by bank financial institutions or non-bank financial institutions in the recording system of financing facilitation for creative economy practitioners. The agreement/contract drafter is obliged to ensure this registration/recording clause is a positive covenant. This is important so that third parties can easily know that the relevant intellectual property is being put up as collateral for financing. However, until this piece of writing is produced, the registration system has not come to existence.
The agreement/contract drafter is obliged in detail to confirm the consequences of the default in relation to putting up intellectual property as collateral. At the very least, the contract/agreement drafter is obliged to confirm that after the default, the debtor gives written consent to sell the intellectual property rights privately under the provisions of Article 29 paragraph (1) letter c. This is important considering that the fiduciary auction infrastructure by the Directorate General of State Assets (Direktorat Jenderal Kekayaan Negara, DJKN) still has not accommodated intellectual property auctions even though there is a legal basis for it.
The issuance of GR No.24/2022 is indeed an improvement in the development of economic management of intellectual property rights, but the issuance of regulations is certainly not enough. It should also be accompanied by the creation of a good intellectual property infrastructure so that the implementation and supervision in it can run well, while at the same time encouraging financial institutions to be able to receive intellectual property rights, in this case, copyright, as collateral for debts.
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