Zuykov & Partners - Russia
Based on Article 334(1) of the Civil Code, a pledged right to a trademark gives a creditor priority over other creditors, in the case of the debtor’s failure to discharge its obligation.
Pledge agreements are widely used to secure the performance of obligations. They serve an important protective function for lenders, giving them the right to satisfy their interest directly at the expense of the mortgaged property (ie, the right to a trademark). In addition, when the pledger is the debtor itself, the pledge can work as an added incentive for it to properly fulfil its main obligation in order to avoid the loss of the right to mortgaged property.
Provisions on pledges of exclusive rights, including rights to a trademark, are set out in Article 358.18 of the Civil Code. It is crucial to distinguish between situations where the object of the pledge is the exclusive right to designation and when the object is the rights under an agreement or under a licence agreement. The general provisions on pledges (Articles 334-356 of the Civil Code) apply to the former, while the later are governed by the rules on obligatory pledges (Articles 358.1-358.8).
With regard to the legal properties of a pledge on a trademark, this is comparable to the basic properties of a pledge on property. The pledge is an accessory (additional to the main obligation) legal relationship and has the following features:
- The pledge shall be ended with the termination of the obligation secured by the pledge (Article 352(1,1) of the Civil Code).
- If the obligation secured by the pledge arises in future, then the pledge shall arise from the moment determined by the agreement, but not earlier than the occurrence of this obligation.
- The law prohibits an “isolated” assignment of the right of pledge.
The transferral of rights is an important criterion in determining the admissibility of using an intellectual asset as a pledged item, as well as the ability to evaluate this.
In general, pledged items are divided into mortgaged and non-mortgaged items. Mortgages include: trademarks, patents, trade secrets, copyright and related rights objects, computer programs, databases, selection achievements. Non-mortgaged objects include: collective trademarks, appellations of origin, company names and commercial designations, as well as secret inventions.
According to Article 341(1) of the Civil Code, the right of pledge arises from the moment the contract of pledge is concluded, unless otherwise stipulated by the agreement, the Civil Code or other laws. A pledge is subject to registration in cases where the result of intellectual activity or means of individualisation is also subject to state registration in accordance with the law.
In accordance with Article 358.18(2) of the Civil Code, pledges are registered in accordance with the rules set out in Section VII of the code “Rights to the results of intellectual activity and means of individualisation”.
While there are currently only a small number of such agreements, this is growing steadily. Below is a table from the Russia Patent and Trademark Office’s (Rospatent) 2019 annual report on the number of contracts with trademarks included in their subject.
Title: Pledge of trademarks
Blue line: quantities of pledged trademarks
Red Line: number of pledges.
Using intellectual assets as the subject of pledge has the following additional benefits and privileges for mortgage banks:
- A pledge agreement allows the possibility of obtaining additional income through interest.
- The number of borrowers looks set to increase, especially in the field of small and medium-sized businesses.
- The pledge portfolio is expanding.
- The expenses of a creditor bank on a credit transaction are falling in comparison with traditional types of pledge.
- There is no need for on-site inspections.
- It is possible to quickly check a trademark using the Rospatent registry online.
- A pledge of a unique intellectual property object can become a stronger way to influence a borrower than a pledge on traditional assets (real estate, equipment).
- It is beneficial for the borrowing company to repay the loan without violating the terms of the loan agreement in order to prevent its trademark being transferred to a competitor.
- Growth in this area can strengthen the bank’s position in a complex, highly competitive market.
As for pledgers that own trademarks, the pledge of the exclusive right gives them the opportunity to receive additional funds to develop their own production and economic activities, as well as a means to effectively manage non-current capital to increase the profitability of their business.