New Guidelines for IP in Commercial Finance Benefit both Lenders and Businesses

By Patrick A. Guida | A new model agreement for documenting transactions secured by intellectual property clarifies much of the process for both lenders and business owners in financial transactions involving intellectual property as collateral. The new Model Intellectual Property Security Agreement (“MIPSA”) addresses copyrights, patents, trademarks, licenses and various other sub-categories of IP assets.

According to the ABA’s article in its publication The Business Lawyer (Summer 2016), this Model Agreement (prepared by an ABA Task Force I served on) “attempts to bridge the gap between UCC and IP lawyers by offering—and explaining—provisions the lawyers should consider in documenting a secured loan when the collateral includes intellectual property. “

Prior to this effort, there weren’t any standard models for documenting intellectual property security interests and every law firm gave it their best shot. Some turned out better than others. After years of different approaches, the new model provides confidence for both banks and borrowers that a legally enforceable security interest can be done right. It gives a higher level of assurance to bankers that the deal is effectively documented and to principals of borrower entities that they are less likely to be pursued for payments as guarantors because of defective underlying security agreements.

In one instance, a firm client who was entitled to a security interest in a trademark that had substantial value requested that we review an agreement prepared by another law firm to be filed with the US Patent and Trademark Office. As it turned out, the documentation was defective and, without our intervention, could have created unanticipated risk of liability for both our secured party client and the debtor.

In the process of creating the new agreement and explanatory memo, we sought to elucidate what needs to be done for different categories of IP. Rules are different even for patents and trademarks. For instance, the covenants accompanying a security agreement describing patents are different from those accompanying a security agreement describing trademarks.

For the last five years, our ABA Task Force and committees of the American Bar Association Business Law Section dedicated themselves to drafting and perfecting this model agreement. It has been a long road with an excellent resolution. I recently presented a program explaining the law behind MIPSA and highlighting how the new model agreement can leverage the value. The program was part of the American Law Institute-CLE’s annual Commercial Lending Today conference, held in San Francisco in April.

For more information on MIPSA, a copy of the The Business Lawyer article or other information about the new Agreement, please contact me at pguida@duffysweeney.com.