IP IN SECURED TRANSACTIONS AND FINANCING: OPPORTUNITIES AND CHALLENGES IN VIETNAM IFC – MOST WORKSHOP JUNE 12, 2014 PROFESSOR XUAN-THAO NGUYEN GERALD L. BEPKO ENDOWED CHAIR IN LAW INDIANA UNIVERSITY MCKINNEY SCHOOL OF LAW INDIANAPOLIS, INDIANA, USA contact:

 How does a business obtain funding/credit/$$$ to hire employees, purchase equipment, and sell products/services?  Sources of funding/credit/$$$  Mom? Dad? Other relatives? Friends?  Not available  Ineffective

 How does a business obtain funding/credit/$$$ to hire employees, purchase equipment, and sell products/services?  Sources of funding/credit/$$$  Equity Financing?  Secured Financing?

Secured Financing – Secured Transactions  Borrowers: Farm Products, Equipment, Inventory, Account Receivables, etc.  Borrowers: Need Credit/Financing (to operate the business, hire employees, expand the business)  Borrowers: Use the Farm Products, Equipment, Inventory, Account Receivables, etc. as Security (Collateral) to obtain credit/financing  Lenders: Extend credit, make loans to Borrowers. Take a Security Interest in the Property Collateral (Farm Products, Equipment, Inventory, Account Receivables, etc.).  Win-Win Situation for Borrowers and Lenders: Borrowers uses the credit/financing for their business purposes (operating the business, hire employees, expand the business). Borrowers continue to operate their businesses with their Equipment, Farm Products, Inventory, Account Receivables, etc. Borrowers will be able to pay back the loan in accordance with the payment schedule. Lenders will be able to continue to extend credit/loans

Secured Financing – Secured Transactions  Borrowers: Intellectual Property (Equipment, Account Receivables)  Lenders: Extend credit, make loans to Borrowers. Take a Security Interest in the Property Collateral (Intellectual Property, Equipment, Account Receivables, etc.).  Win-Win Situation for Borrowers and Lenders: Borrowers uses the credit/financing for their business purposes (operating the business, hire employees, expand the business). Borrowers continue to operate their businesses with their IP, Equipment, Account Receivables, etc. Lenders will be able to continue to extend credit/loans

U.S. Experience from the beginning  Intellectual Property: First Session of Congress enacted IP statutes Continue to Develop IP law  Secured Transactions The idea of security devices (old idea for financing in many countries) Waterman v. Mackenzie,138 U.S. 252 (Supreme Court 1891); patent was used as security for a loan of $6,500. (Other first Supreme Court case on Secured Transaction was in 1828).

Waterman v. Mackenzie,138 U.S. 252 (Supreme Court 1891)  By a mortgage of personal property, differing in this respect from a pledge, it is not merely the possession or a special property that passes; but, both at law and in equity, the whole title is transferred to the mortgagee, as security for the debt, subject only to be defeated by performance of the condition, or by redemption on bill in equity within a reasonable time, and the right of possession, when there is no express stipulation to the contrary, goes with the right of property.

Then … to Present Day  Secured Transactions  IP (patents, trademarks, copyrights, pending applications, software, domain names, trade secrets, customer lists, licenses, etc.) = Collateral in Secured Transactions.  Very common

Then … to Present Day  Secured Transactions  IP = Collateral in Secured Transactions  Borrower continues to have and use the IP in its business  Lender perfects its security interest by filing financing statement (registration in the State Office and PTO/Copyright Office)

Then … to Present Day  Some Banks Specialized in IP Financing  Silicon Valley Bank

Then … to Present Day  Borrower’s Benefits and Rights Gain access to financing for its business Bound by the Security Agreement  Bank’s Benefits and Rights Loan/Extend Credit; Get Paid Back If borrower is in default, Bank can foreclosure on the Collateral (IP and other assets per the Security Agreement) Successor in Title by operation of law (after bank forecloses) Bank then sells the Collateral to others (others will then have title, record/register the security interest with appropriate authority); Sky Technologies LLC v. SAP AG, 576 F.3d 1374 (Fed. Cir. 2009)

Then … to Present Day The policy justifications for permitting transfers of patent ownership through operation of law without a writing also support our holding. First, if foreclosure on security interests secured by patent collateral could not transfer ownership to the secured creditor, a large number of patent titles presently subject to security interests may be invalidated. Any secured creditor who maintained an interest in patent collateral would be in danger of losing its rights in such collateral. Second, by restricting transfer of patent ownership only to assignments, the value of patents could significantly diminish because patent owners would be limited in their ability to use patents as collateral or pledged security. Lastly, it would be impractical to require secured parties to seek out written assignments following foreclosure from businesses that may have ceased to exist. Sky Technologies LLC v. SAP AG, 576 F.3d 1374, (Fed. Cir. 2009)

Lessons?  Security Agreement: Parties’ Rights, obligations  Easy for Bank to foreclose and sell to a third party  No need to involve courts, auctioneers (as long as the Disposition is Commercially Reasonable)  Collateral now can be used by others  Ingredients: IP Law, Secured Transaction Law, Best Practices  Vietnam? IP law (yes), Secured Transaction law (yes)  Dr. Bich-Thao Nguyen’s Dissertation (cases in Vietnam with IP as collateral)  Need Best Practices (Education/Training/Encouragement for Innovation)

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