Home About Us Reports Research Paper 2002 Leveraging Knowledge Assets Page 5

About Us

Reports

Research Paper

Leveraging Knowledge Assets

4.1              Overview

In this Report we take the continued existence of federal ownership registries for federal IPRs as a basic constraint on reform strategies.⁶² We also take it that no federal ownership registry will be created for provincial IPRs (even assuming that this would be constitutionally permissible). The reform possibilities therefore relate to the choice of law which will govern security interests in IPRs, and in particular federal IPRs.⁶³ There are a number of possible variants since it would be possible in principle to assign different aspects of security law to different bodies of law: for example, validity might be governed by provincial law while registration and priorities is governed by federal law. These choices are addressed in more detail below. At this point we will provide a broad overview of the two main approaches.

One option would involve the explicit exclusion of security interests in federal as well as provincial IPRs from the scope of the assignment and registration provisions of the federal IP statutes and from federal control generally. In the absence of a federal secured transactions law relating to IPRs, security aspects of IPRs would be governed instead by the movables security regime in force in the jurisdiction where the debtor is located, consistently with the current provincial choice of law policy.⁶⁴ In accordance with established usage we will call this a “provincial” approach, even though this is something of a misnomer. Provincial or territorial movables security law would apply only in the case of Canadian debtors. For foreign country debtors, their home law would govern, e.g. for U.S. debtors, this would be the version of UCC Article 9 in force in the State where the debtor is located. Though the law of the debtor’s location would govern security interests in federal IPRs, federal law would continue to regulate registered ownership and the owner of record in the federal registry would have priority over any security interest subsequently registered at the provincial level. Otherwise provincial law would supply the entire default secured transactions law even to the extent that any security interests registered provincially would have priority over assignments subsequently registered in the federal system.

A second option is a federal approach to secured financing law which would remove intellectual property to which it applies from the reach of the general provincial secured transactions regimes. Federal law would govern all significant issues, including the requirements for the creation and validity of the security right, its registration and priority status, the appropriate filing venue, and the mode and manner of enforcement on default of the debtor. Federally registered interests would have priority over all provincial registered interests, including prior registered interests. However, the federal approach which we conclude would be best is also mixed in some respects: for example, it would apply only to federal IPRs; security interests in royalty payments should continue to be governed by provincial law; and provincial registration would be effective except in competition with a federally registered interest.

The next several chapters are devoted to an analysis of the advantages, disadvantages, and implementation challenges posed by each solution. But we wish to set the stage for that exercise by first explaining certain general working assumptions.

4.4 A Qualitative versus Quantitative Approach to Reform

Analysts sometimes justify a preference for the provincial solution on the basis of efficiency in law reform.⁶⁵ Why invest scarce law reform dollars in the development of a specialized federal substantive security law for one type of collateral when federal deference achieved through a simple choice of law rule would permit secured creditors to rely on extant general secured transactions law?

We agree that all other things being equal, the reform which is easiest to implement should be chosen. However, not all things may be equal. The goal is to produce the most efficient cost-effective reform, not from an immediate term implementation perspective, but from a long term operational perspective. It would not make sense to choose a reform path that is clearly second best merely because it is easiest to put in place in the short term.

We also need to be careful in defining our point of comparison. We have already seen that the ownership, assignment and registration provisions of the federal intellectual property statutes require reform if they are to enable secured creditors to verify a prospective debtor’s title with any degree of confidence. As we will see, federal law would need to be reformed and modernized even if the provincial approach were adopted, or the weak link posed by the current deficiencies in the federal system would undermine the advantages of the modern provincial systems. The need for complementary reform of the federal registry systems must be keep in mind when comparing the ease of implementation of the provincial and federal approaches.

Of course, in deciding the ultimate direction of reform the practicality of implementing that reform must be taken into account. Nonetheless, in comparing the two alternatives, we need to think in terms not of the existing law and registry system but of the best feasible version of each alternative. The final choice of solutions requires an assessment of the relative merits of each approach combined with the relative difficulty of implementing each. A somewhat imperfect solution that can be implemented at minimal cost may be superior to a perfect system that requires a complex implementation process. The ultimate decision requires to some extent a value judgment that is beyond the scope of this Report, although we hope to provide the pertinent decision points to enable that value judgment to be made. .

4.2              Constitutional Bases for Reform Alternatives

Doubts are occasionally raised with respect to the scope of federal constitutional authority over secured transactions covering federal IPRs. In our view, such doubts are misplaced. We say this because of the unquestionable federal power over issues relating to ownership and the transfer of ownership of copyright, patents, and federal trademarks. The ability to grant security is one of the bundle of rights associated with ownership. The grant of security potentially results in an involuntary transfer of ownership should the debtor default and the secured creditor seek to exercise its enforcement powers against the charged property. In other words, authority over ownership and its transfer necessarily includes authority over a security transfer or hypothecation of ownership. In order to find that the federal government is not competent to legislate in respect of security in federal IPRs, we would need to find that it is necessary to draw a constitutional line between ownership interests and security interests in the same item of intellectual property. In later sections of the report we show why that position is not defensible based on a constitutional policy analysis of the justifications for the federal IP power.

At the same time, we do not wish to suggest that the provincial legislatures are incompetent to legislate in respect of security in intellectual property rights as an aspect of their general legislative authority over property and civil rights. By virtue of federal paramountcy, provincial laws of general application are rendered inapplicable only to the extent that federal law governs the particular issue. However, in the absence of positive federal law, there can be no constitutional objection to the application of the provincial security regimes. Moreover, unless there is a direct conflict, the double aspect doctrine would support the concurrent application of both federal and provincial law.⁶⁶

In any event, under a provincial solution, the basis for the application of provincial or territorial law would be (as explained later in more detail) a federal choice of law provision expressly deferring to the law of the debtor’s location. The constitutional jurisprudence in the maritime field firmly establishes that the federal Parliament has authority over the choice of law aspects of any subject matter within its constitutional competence, and is also empowered to referentially incorporate other bodies of law as federal law. Either or both of these theories provides more than sufficient constitutional support for the choice of law solution, from both the federal and provincial/territorial perspectives.