Asset Protection, the PPSA and IP
Asset protection and business succession go hand in hand. If you have not considered the former, you really don’t have to worry about the latter!
Most businesses these days have significant IP (e.g. trademarks, patents, designs, plant breeder rights, copyright) and under the PPSA, an IP licence is personal property and can be used as collateral, so a security interest can be granted over it.
An IP licence can allow the use of specific IP on goods such as promotional goods or designer clothing. A patent used by robots to make car parts is another example.
But the goods can themselves be the subject of a completely separate security interest. However under Part 3.5 of the PPSA, any IP required to be used in relation to those goods is subject to the same security interest over the goods, unless the security agreement relating to the goods provides otherwise.
This can give rise to competing security interests where a general security is granted over the grantor and its property (which will include the IP licence) and where there is also a (deemed) security interest over the IP because of a security interest given over the goods to which the IP licence relates. The latter specific security agreement could cause the borrower to be in breach of the former general security agreement.
What should borrowers do to avoid default? IP licensors should ensure that under s105 of the PPSA, any implied references to IP rights are excluded from a security interest they grant over the goods to a third party.