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Intellectual Property and Technology Alert: PPSA reforms - 31 May 2011

The new Personal Property Securities Act (which will come into full operation and effect in October this year) implements the "Personal Properties and Securities Register" or "PPS Register". The PPS Register provides a single, national, system for the registration of "security interests" over personal property (including IP) and determines the priority of those "security interests". It will have a significant impact on the ICT industry.

Personal property refers to any type of property other than land or particular statutory licences.

Here, Associate Hayden Delaney discusses what this means for the ICT industry.

What does it mean for the ICT Industry?

While the consequences of the Personal Property Securities Act, specifically in relation to "retention of title" clauses in ICT supply contracts, remains an important issue, the reforms to personal property securities law have broader effects - particularly for "intellectual property" rich industries, such as the ICT industry.

As most people are aware, it is a common practice for creditors (such as banks) to require securities be given over business assets.

A critical issue is that intellectual property or "IP" assets (including the copyright in software) are capable of having a security interest registered over them on the PPS Register. IP assets include "licensed rights". A benefit of this is that it will be easier for businesses to manage their IP assets and can also be used as a "security" to raise capital.

However, there are also consequences. The particular consequences for IP are complex and require careful consideration of a number of factors, including the type of IP (such as copyright, patents, designs or trade marks). There are also specific provisions for physical goods which have closely associated IP rights (such as software embedded within hardware or physical devices that are patent-protected).

An example

New Zealand has for some years had similar laws in place to the Personal Property Securities Act, including a national securities register. The recent New Zealand decision of Viacom Global (Netherlands) B.V. v Scene One Entertainment Limited (In Receivership) considered some of the consequences for the owner of IP licensed to a third party.

In that case, Viacom granted a licence to Scene One (a DVD retailer) to sell its films on DVD in New Zealand. Viacom maintained ownership of all of its IP in the films, but failed to register its interests on the NZ equivalent of the PPS Register. In order to raise capital, Scene One granted a bank a blanket security interest over all of its assets (including all of its DVD stock). The bank promptly registered that security interest.

Problems arose when Scene One went into receivership and in order to pay back the bank, the receiver attempted to sell all of the company's DVDs, albeit at a drastically "cut price". Viacom terminated the licence and took issue with the receiver's discounting as it affected its other licensees and also devalued its assets. However, despite Viacom owning the IP in the films and Scene One no longer being licensed to sell the DVDs, the Court found in favour of the Receivers because of Viacom's failure to register its security interests in its IP.

The Australian Personal Property Securities Act contains specific provisions which specifically deal with goods that have closely associated IP rights. However, provisions such as these are complex and are yet to be considered by a Court. To avoid any doubt, owners of IP who supply goods or services with underlying IP should have systems in place to register a security interest over that IP, or risk losing their rights.

What should you do?

In summary, the following issues need to be considered:

  • Suppliers of ICT hardware who seek to retain title to that hardware until paid, should register that as "security interest" on the PPS Register.
  • Where physical goods have closely associated IP rights (such as film DVDs or software embedded within hardware), it is important to register a security interest over that IP, or there is a risk of losing rights to a creditor who did register an interest over the physical goods.
  • When conducting transactions to buy or sell a business or company, the parties to that transaction should consider the inclusion of warranties which address the registration of IP interests (including licences) on the PPS Register.

The above are intended to be general guidelines only. Should you require additional information, or be interested in a legal risk-assessment in order to understand the implications of the Personal Property Securities Act for your business, please contact HopgoodGanim's Intellectual Property team or its Information and Communications Technology practice.