Intellectual Property and Financing: Where Should Security Interests Be Registered?

Authors: Charles-Antoine Bilodeau and Kristina A. Fundaro

As part of a financing arrangement, lenders often require that intellectual property rights be subject to a movable hypothec.

To ensure that this hypothec is enforceable against third parties, a recurring question arises: is registration of the hypothec in the Register of Personal and Movable Real Rights (RDPRM) sufficient, or must it also be filed with the Canadian Intellectual Property Office (CIPO)?

What You Need to Know:

In Quebec, intellectual property is considered intangible movable property. For a security interest to be enforceable against third parties, it must be registered in the appropriate registry.

Registration in the RDPRM is sufficient to render the movable hypothec enforceable against third parties. Legal consensus holds that a lender cannot rely solely on the Canadian Intellectual Property Office (CIPO) registry when conducting due diligence to determine whether these rights are subject to prior hypothecs.

Where there may be a conflict between registration in CIPO and the RDPRM, legal consensus also holds that registering intellectual property rights with CIPO has no impact on the creation, registration, or priority of hypothecated property under the provisions of the Civil Code of Quebec.

Some important nuances:

• Although CIPO allows hypothecs to be registered in its public registry, this is generally not required to ensure the enforceability of the security interest.
• Intellectual property rights have legally defined durations: patents (20 years), trademarks (10 years), industrial designs (10 years), and copyright (the author’s lifetime plus 50 years). A hypothec ceases to exist upon the extinction of the right it charges. It is therefore important to consult the CIPO registry to confirm whether the right exists and how much longer it remains valid, and subsequently consult the RDPRM to ensure that no hypothec already encumbers that right.
• Given the uncertainties surrounding the interaction between the CIPO and RDPRM registries, it is recommended as a precaution to register security interests in both. Dual registration is generally preferred for secured creditors to maximize legal protection.

Our role at KRB:

When representing a financial institution, we ensure that the intellectual property rights subject to the security interest:

• are published in the CIPO registry,
• remain valid and in force,
• and that the security interest is registered in the appropriate registry to be fully opposable.

At KRB, we take pride in delivering rigorous legal services tailored to the realities of our clients in the banking and financial sectors. Whether you are involved in a transaction or financing and have concerns regarding the registration of security interests encumbering intellectual property, our team has the expertise to assist you.