A trade­mark could pro­vide col­lat­eral

Busi­ness­men some­times for­get that in­tel­lec­tual prop­erty can pro­vide value in a deal just like more sub­stan­tial as­sets do

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - ALETIA VAN ROOYEN

IN THE cur­rent eco­nomic cli­mate se­cur­ing a loan or ob­tain­ing ac­cess to cap­i­tal can be chal­leng­ing, yet many un­der­tak­ings have a valu­able as­set that may as­sist in ac­cess­ing cap­i­tal, namely, in­tel­lec­tual prop­erty — no­tably trade­marks.

It is called “in­tel­lec­tual” be­cause it is not tan­gi­ble and that is, per­haps, why it is so of­ten over­looked. Of­fer­ing valu­able in­tel­lec­tual prop­erty as se­cu­rity for a debt might help to get a loan.

In a typ­i­cal fi­nanc­ing sit­u­a­tion the bor­rower of­fers an as­set as se­cu­rity for a loan and the lender se­cures the debt by record­ing a pledge over the as­set. A de­liv­ery of prop­erty to a cred­i­tor has to be done as se­cu­rity for a debt or for the per­for­mance of an act.

This is re­ferred to as hy­poth­e­ca­tion, whereby a nat­u­ral per­son or a com­pany pledges se­cu­ri­ties or other as­sets as col­lat­eral to se­cure a loan or to se­cure a debt. In a pledge the bor­rower tem­po­rar­ily gives pos­ses­sion of the col­lat­eral to the cred­i­tor, who hy­po­thet­i­cally con­trols the col­lat­eral and who has the right to seize pos­ses­sion if the bor­rower de­faults.

Many en­trepreneurs may not be aware that in­tel­lec­tual prop­erty, more specif­i­cally reg­is­tered trade­marks, can also serve as se­cu­rity for a debt or obli­ga­tion. Brand­ing has be­come com­mon­place and ap­pre­ci­ated for the com­pet­i­tive ad­van­tages that it of­fers. It has be­come so well recog­nised that cur­rent ac­count­ing prac­tice re­quires in­tel­lec­tual prop­erty to be listed on bal­ance sheet at val­u­a­tion.

In­tel­lec­tual prop­erty is re­ferred to as an in­tan­gi­ble as­set, some­thing of value that can­not be touched phys­i­cally — for ex­am­ple trade­marks, patents, copy­right and reg­is­tered de­signs.

Turn­ing the fo­cus on trade­marks, the South African Trade-Marks Act, 1993 pro­vides that a reg­is­tered trade­mark may be hy­poth­e­cated by a deed of se­cu­rity, since a reg­is­tered trade­mark has al­ways been viewed as in­cor­po­real mov­able prop­erty and has been ca­pa­ble of at­tach­ment as it is of eco­nomic value and could be con­verted to cash.

The deed of se­cu­rity may also in­clude fu­ture in­tel­lec­tual prop­erty to be pledged and hy­poth­e­cated, such as trade-mark ap­pli­ca­tions pend­ing reg­is­tra­tion. Al­though the ap­pli­ca­tion for en­dorse­ment of the hy­poth­e­ca­tion will be lodged be­fore the reg­is­tra­tion of the trade­marks, the ac­tual hy­poth­e­ca­tion will only be ef­fected or en­dorsed in the Reg­is­ter of Trade Marks as soon as the trade­marks are reg­is­tered.

To reg­is­ter the deed of se­cu­rity, an ap­pli­ca­tion must be made to the Reg­is­trar of trade­marks in a pre­scribed form ac­com­pa­nied by a power of at­tor­ney in the name of the per­son or en­tity in whose favour the deed of se­cu­rity has been granted. The ap­pli­ca­tion must be ac­com­pa­nied by the deed of se­cu­rity it­self or a cer­ti­fied copy thereof. The ap­pli­ca­tion must also be served on the reg­is­tered pro­pri­etor of the trade­mark or trade­marks and any other per­son recorded in the trade­marks reg­is­ter as hav­ing an in­ter­est in the trade­mark, and proof of such ser­vice must be fur­nished to the sat­is­fac­tion of the Reg­is­trar of trade­marks.

As stated above, be­cause the record­ing of the deed of se­cu­rity has the ef­fect of a pledge, the prin­ci­ples re­lat­ing to the law of pledge will ap­ply. The real right of se­cu­rity which the pledgee en­joys en­ables it to in­sist on the sat­is­fac­tion of the prin­ci­pal obli­ga­tion out of the pro­ceeds of the sub­ject mat­ter of the pledge, even against cred­i­tors of the pledge. The pledgee is there­fore en­ti­tled to have pref­er­ence in re­spect of the pro­ceeds of the sale in ex­e­cu­tion.

It is there­fore ap­par­ent that in pledges, both par­ties, that is the pled­gor and the pledgee, have cer­tain rights and li­a­bil­i­ties. Al­though there is no stan­dard form which the deed of se­cu­rity must take, it would be nec­es­sary to ob­tain ex­pert ad­vice from an in­tel­lec­tual prop­erty at­tor­ney as to whether the deed ac­cords with the pro­vi­sions of the South African law and to en­sure that it will pro­vide ad­e­quate pro­tec­tion to the pledgee.

Usu­ally the con­tent will set out the two par­ties in­volved, the debt or obli­ga­tion in ques­tion, the terms and con­di­tions of the con­tract of pledge, as well as a ter­mi­na­tion clause.

It would there­fore ap­pear that if an in­di­vid­ual or cor­po­ra­tion at­tempts to se­cure a loan and ex­pe­ri­ences dif­fi­cul­ties in ob­tain­ing se­cu­ri­ties, such an in­di­vid­ual or com­pany may then rely on their reg­is­tered trade­marks that are of eco­nomic value and which could be con­verted to cash.

Other than us­ing a reg­is­tered trade­mark as a pledge in se­cur­ing a loan or ob­tain­ing cap­i­tal for a cor­po­ra­tion or in­di­vid­ual pur­poses, there are var­i­ous other ad­van­tages as to why one should con­sider to reg­is­ter a trade­mark, namely:

A reg­is­tered trade­mark con­fers upon the owner the ex­clu­sive rights to use that trade­mark in re­spect of the goods or ser­vices for which it was reg­is­tered, pre­vent­ing the unau­tho­rised use by oth­ers in the spe­cific in­dus­try;

A reg­is­tered trade­mark serves as an of­fi­cial no­tice to oth­ers that the trade­mark is no longer in the pub­lic do­main and should an­other party adopt an iden­ti­cal or con­fus­ingly sim­i­lar trade­mark to the reg­is­tered trade­mark they will not be in a po­si­tion to claim ig­no­rance of the mark;

As trade­marks are ter­ri­to­rial the reg­is­tered pro­pri­etor will re­ceive na­tion­wide (in the coun­try of ap­pli­ca­tion) own­er­ship of the mark;

As a reg­is­tered owner the chances of be­com­ing in­volved in po­ten­tially costly lit­i­ga­tion are re­duced in that a trade­mark owner ben­e­fits from the pre­sump­tion of be­ing the valid owner of that mark; and

A reg­is­tered trade­mark could also be com­mer­cialised through li­cens­ing agree­ments, such as fran­chis­ing.

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