Intellectual property and Licensing Agreements - YouTube

Welcome to Lawpath's legal education videos. My name is Damin Murdock and I've

been a lawyer here for over 10 years. Today we're going to talk about

interrelated license agreements. A lot of times when you set up your corporate

structure, you might have a holding company and then under your holding

company you have a subsidiary, and that subsidiary is wholly owned or sometimes

100% owned by the parent company. Sometimes, you also have an IP company,

where the IP company is wholly owned by the holding company and the subsidiary

is using the technology of the IP company. In any case, what you want to do

is make sure that your IP is not held by the company that's actually trading. The

reason for this is that your trading company is the company that takes on liability,

and if something ever happens, you don't want to lose all your intellectual

property. So what most people do, is they set it up so that the holding company

owns the intellectual property or the IP company holds the other intellectual

property and from there it's licensed from the holding company down

to the subsidiary, and when you prepare this License Agreement, a lot of times it

says the subsidiary is allowed to use the intellectual property during the

term for a fixed period of time, and the subsidiary will pay the holding company

an annual royalty. Now what happens if the subsidiary goes down and it's closed

down, and all the intellectual property that has been developed by the

subsidiary on top of the original IP that was given to it by the holding

company? Well, you could lose all that intellectual property, so we need to look

at how do you protect your IP from a situation where your subsidiary

eventually goes into liquidation. I don't like talking

about administration or liquidation, but that's a fact. It's a reality and it

especially happens in high-growth companies, mostly because of

cash flow issues. Now let's look at this License Agreement. What we normally do is

we draft it in a way that we license the IP down to the subsidiary. We pay a royalty

from the subsidiary back up to the parent company, and we have it for a

fixed term. We also draft what's called a default event clause.

The default event clause says that if anything happens to the subsidiary, such as

it having a debt that it can't pay, going into administration, a liquidator gets appointed,

the company decides to wind it up, any of those scenarios, then the IP that's held

by that subsidiary is automatically reverted back to the holding company. Not

only does it revert back up to the holding company of the IP that was

originally given to it, or licensed to it, that includes all the add ons and the

modifications, anything that's been developed on top of that. You might even

also include client lists. What's important is to get it right, and if you

can get it right, it protects you. But what's the most important thing to do is

to have a PPSA clause. That's the Personal Property Securities Act and you

want a clause that secures the parent company interest in the subsidiary. That

is the PPSA allows companies to register an interest against another

company so it's similar to financing your car. You buy a car, you get finance

on your car, you have possession of your car but although you own your car

there's still a registered charge against it by the finance company. If you

don't pay your debt, now that finance company can come back and take your car

from you. This is very similar - you have a PPSA or a PPSR which is a personal

property security registration on behalf of the holding company

against the subsidiary. So if anything happens to the subsidiary, you can walk

in and you can take your IP back and link it back up to the holding company.

Now what's also important is once you sign that License Agreement,

generally speaking, you have 20 days to perfect your interest. That means that

you have 20 days to lodge an application pursuant to the PPSA so

then you have that charge registered against your subsidiary. What's also

important to know is that if you don't register the PPSA, and you do nothing

until the company (the subsidiaries) are put into administration or put in

liquidation, there's a real risk that your License Agreement or your

protections that you thought you had via the License Agreement, won't actually

exist. And that's because there is a section of the Act which says if you

don't perfect it within two months from the agreement coming into place and if

you do not perfect it until six months before the winding up or the

liquidation or the appointment of administrator, if you put a PPSR

against the subsidiary within six months of that event happening, there's a good

likelihood that the administrator or the liquidator will be able to overturn your

registration. So at the end of the day, it's really important to get a lawyer

most likely to look at your license agreement, and if you don't get a lawyer

to look at your license agreement, make sure you get a contract that's been prepared by

a lawyer - don't just find it off the internet.

These are very tailored documents that are between related entities. Thank you

for watching our video. For more videos, make sure you subscribe to Lawpath's

YouTube channel. For more information, visit Lawpath's website, www.lawpath.com.au.

I'll see you next time.