16

Basic Study on the Intellectual Property Security System
in Germany – Security Systems as Distribution andManagement Schemes for Intellectual Property Rights – (*)
Masanori Ikeda(**) (IP Expert Overseas Research Program in FY2006)

In recent years, we have seen many disputes arise over intellectual property rights. An
increasing number of those disputes have made headlines due to their important social
implications. These disputes clearly indicate that people have started recognizing the social valueof intellectual property rights. Those who have recognized the financial value of the rights havebeen demanding permission to make financial use of those rights. For example, the use of
intellectual property as collateral to raise funds would benefit both the fund receiver and the fundprovider because the fund receiver can raise enough funds in spite of being a new company
without sufficient properties to secure a loan, while the fund provider can broaden the range ofassets that can be used to secure its loans. This paper aims to reveal the structure of theintellectual property security system in Germany and to analyze problems associated with thesystem. A comparison between the German law and the Japanese law would be insightful for ourstudy of the Japanese intellectual property security system. The following sections first provide
the outlines of the intellectual property systems under the German law. Each of the systems is
examined with a focus on the historic background and characteristics. Second, the intellectual
property security system in Germany is briefly described. Third, a study is conducted as towhether the insolvency of either of the parties concerned would affect the effect of collateral.
Finally, insights gained from this study are discussed in association with the Japanese intellectual
property security system.

Introduction
In recent years, we have seen many
disputes arise over intellectual property
rights. An increasing number of those
disputes have made headlines in media
coverage due to their important social
implications. These disputes clearly indicatethat people have started recognizing thesocial value of various types of informationand the necessity to protect such information
asset as soon as possible. Those who haverecognized the financial value of suchinformation
have
been
demandingpermission to make financial use of
information in the course of creation anddistribution of the information. The use of
intellectual property as collateral to raise
(*)
(**)

funds would benefit both the fund receiverand the fund provider because the fundreceiver can raise enough funds in spite ofbeing a new company without sufficient
properties to secure a loan while the fundprovider can broaden the range of assetsthat can be used to secure its loans.
This paper aims to reveal the structureof the intellectual property security system
in Germany and analyze the problems
associated with the system. There are two
reasons for choosing the German law as astudy subject. First of all, the German law issimilar to the Japanese law in terms of basic
legal system. Secondly, despite the similarity,
the two legal systems have many minor
differences. A comparison between theGerman law and the Japanese law would beThis is an English translation of the Japanese summary of the report published under the Industrial Property
Research Promotion Project FY2007 entrusted by the Japan Patent Office. IIP is entirely responsible for any errors
in expressions or descriptions of the translation.
Graduate School of Business Science, University of Tsukuba, Advanced Study of Business Law, Professor●

IIP Bulletin 2008

136 ●

insightful for our study of the Japanese
intellectual property security system.
The following sections first provide theoutlines of the intellectual property systems
under the German law. Each of the systems
is examined with a focus on the historicbackground and characteristics. In theexamination, a comparison with the tangible
entity doctrine of the Civil Code is madewhenever possible. Second, the intellectual
property security system in Germany isbriefly described. The characteristics of thesystem are examined in comparison withthose of the Japanese system. Third, a study
is conducted as to whether the insolvency ofeither of the parties concerned would affectthe effect of collateral. This study
emphasizes the case where a person who had
deposited the collateral went bankrupt
because this is a typical case where theeffect of collateral becomes an issue. Finally,
insights gained from this study of theintellectual property security system of theGerman law are discussed in association
with the Japanese intellectual property
security system.

I

Basics and characteristics
intellectual property rightsofThis chapter examines the historicbackgroundandcharacteristics
ofintellectual property rights. While there aremany types of intellectual property rights,
this chapter focuses on patent rights,
trademark rights and copyrights. In addition,
this chapter separately discusses license
agreements that are concluded based on suchintellectual property rights.

1Intellectual property rights(1) Patent rights
A patent right is granted on an
invention (PatG § 1), while a patent right is
not automatically established upon invention.
A patent is granted only to an invention thathas passed an examination conducted by theGerman Patent and Trade Mark Office(DPMA). In other words, an inventor is not●entitled to justify the exclusive use of his
invention just because he made theinvention. After the DPMA’s examination,
the grant of a patent shall be publicized in
the Patent Gazette (Patentblatt). The legal
effects of the patent shall come into force
upon publication of the Patent Gazette (PatG§ 58(1)). The DPMA is also authorized torecordinthePatentRegister(Patentregister) the grant of a patent madebased on a patent application that was filed
by a patentee or patent applicant (PatG § 30).
The registration of the establishment of apatent right in the Patent Register merely
hasthefunctionofpublication(deklaratorisch). The substantive change inthe right has nothing to do with theregistration. This view has been supportedby the court.
In principle, the grant of a patentauthorizes the patentee to work the patented
invention exclusively (PatG § 9, the first
sentence) and prohibits any third party fromworking the patented invention without theconsent of the patentee (the second sentenceof said Section). Unlike the “ownership of athing” specified in the Civil Code, a patent
has a limited effective period of 20 years, inprinciple (PatG § 16(1), the first sentence).
During that period, the patentee is requiredtopayapatentregistration
fee(Jahresgebuhren) (PatG § 17). If thepatentee fails to pay the fee in due time, thepatent will lapse (PatG § 20(1)(iii)).
the Patent
In the meantime, a patent
may be assigned to others as a pure property
right (PatG § 15(1)), whereas any
assignment or renunciation of an inventor’s
personal right (Erfinderpersönlichkeitsrecht)
is prohibited. Since there are no particularprovisions about assignment methods, anassignment of a patent is conducted inaccordance with the relevant provisions of
the Civil Code, which is a general law thatgoverns assignment of rights (BGB § 398 and§ 413). In connection with a patentassignment, the change of the patentee may
be registered in Register. However, suchregistration is not a requirement for theassignment of the right to be valid (PatG §137 ●IIP Bulletin 2008

15(3), the third sentence). The current
consensus between the court and thedominant academic circle on this issue isthat the registration serves functions only
under the procedural law and does not haveany effect under the substantive law. This is
why a bona fide acquisition is not recognizedin the case of a patent transaction. Eachpatentee is allowed to license its patent,
either exclusively (ausschliesliche Lizenz) or
nonexclusively (nicht ausschliesliche Lizenz)(PatG § 15(2)). In principle, the decision as
to which type of license, whether exclusive or
nonexclusive, has been granted may be madebetween the licensor and the licensee. Afterthe grant of an exclusive license or anonexclusive license on a patent, even if said
patent is assigned or licensed to any third
party, it would not affect any licensepreviously
granted(“previous
licenseprotection” (Sukzessionsschutz), PatG15 (3)).
(2) Trademark rights
A right granted on a trademark is an
exclusive right on a mark designed to
distinguish the goods or services of one
company from those of others (MarkenG §3(1)). Each trademark holder has the right touse the trademark to promote its businessand to prohibit a third party from using thetrademark without its consent (MarkenG §14(1)). While no restrictions were initially
imposed on the assignment of a trademark
itself (WZG § 8(1), the first sentence), a
trademark must have been assigned as apart of a business transfer (the second
sentence of said Section). This is why people
did not put much importance on using a
trademark itself as collateral. In contrast, it
is currently permissible to assign or transfer
a trademark right independently and tocreate a pledge and other real rights thereon.
A trademark is subject to a compulsory
execution and regarded as an asset of the
trademark holder in the case of insolvency(MarkenG § 27(1) and § 29). Each trademark
holder may license its trademark right either
exclusively or nonexclusively (MarkenG § 30).
As is the case with the Patent Law, theTrademark Law has a provision stating that●

IIP Bulletin 2008

any grant of a license on a trademark rightshall not affect licenses previously granted
to third parties (MarkenG § 30(5)).
Any assignment or transfer of a
trademark right or any establishment of areal right shall be registered in an
appropriate register upon request of a party
concerned (MarkenG § 27(3) ,§ 29(3)). The
decision as to whether such request should
be made is left to the parties concerned. The
legal effect of the registration in a register islimited to the presumption that the person
registered as a proprietor in the Register isentitled to the right recorded in theregistration (MarkenG § 28(1)). In otherwords, the registration is not a requirement
for trademark transfer and does not have theeffect of establishing a right. The purpose oftheregistrationislimitedtothepresumption of the proprietorship of a right.
The practical purpose of the presumption is
to facilitate the certification of theacquisition of a right and, more specifically,
to transfer the burden of proof. The bona fideacquisition of a trademark is not recognized.
In Germany, a trademark right can beestablished by either of the following threemanners (MarkenG § 4): (1) by registering asign as a trademark in the Trademark
Register of the DPMA (Item 1), (2) by using asign that has acquired distinctiveness as atrademark within the relevant trade circles(Item 2), or, (3) by achieving andmaintaining a high level of prominence andreputation of a sign as a trademark (Item 3).
In the case of any sign that has been
established as a trademark throughregistration by use of the first manner, theuse of the sign prior to the registration is not
required. As long as the sign fulfills thesubstantive requirements, a trademark righton the sign can be established byregistration. The registration of any
trademark that has not been used for atleast five years may be deleted from theRegister upon request (MarkenG § 49(1), thefirst sentence). In this sense, a registeredtrademark must be used to be consideredvalid (Benutzungszwang). The provisions
concerning a registered trademark right138 ●apply mutatis mutandis to any person who
has filed a trademark application (MarkenG§ 31). This provision indicates that thetrademark applicant has a right of
expectation (Anwartschaftsrecht) on a
trademark right. In addition, as is the casewith a trademark right, it is allowed toassign or transfer a right of expectation,
establish a real right such as a pledge on aright of expectation, or enforce compulsory
execution on a right of expectation (saidSection).
(3) Copyrights
Copyrights are defined as rights ofprotection granted to authors of literary,
scientific and artistic works (UrhG § 1). It is
understood that a copyright is a single rightthat has the element of personal right(urherberpersonlichkeitsrechtliche Element)
and the element of property right(vermogensrechtliche Element). A copyrightconsists of individual rights that can beclassified into two groups: a group of rightsthat have the element of personal right anda group of rights that have the element ofproperty right. It is the latter group that ismainly studied in this paper. In themeantime, the element of property right isembodied in the author’s exploitation right(UrhG § 15 and subsequent Sections). This
exploitation right entitles the author to use
his work comprehensively, generally andexclusively. This means that Section 15 of
the Copyright Law allows the author to
exploit his work not only by the existingmeans but also by any means that will beinvented in the future. This author’s general
exploitation right allows the author to
exploit his work by new means when suchnew means of exploiting copyrighted works
are made available thanks to technologicaldevelopment. Further details are set forth in
Section 16 and subsequent Sections. A
copyright is automatically established upon
the act of creation by an author (UrhG § 7).
It is not necessary to obtain the copyrightfrom the nation or to register the copyrightin an appropriate register under thejurisdiction of public authorities. The length●of the period of protection for a copyright is
70 years, in principle (UrhG § 64).
To protect the ties between a work andits author, it is explicitly specified that anindividual exploitation right as well as a
copyright itself are unassignable (UrhG §29(1)). Since it is necessary to expand theauthor’s potential for exploitation, theauthor may grant a right to a third party to
use the work in a particular manner or inany manner (UrhG § 29(2), § 31). There are
two types of license: a nonexclusive license(einfaches Nutzuungsrecht) and an exclusive
license (ausschliesliches Nutzungsrecht).
Section 398 and Section 413 of BGB apply
mutatis mutandis to the grant of a license.
The right to use a future work may be
granted in advance as long as the granting of
the right is carried out in writing (UrhG §40(1)). Moreover, it is interpreted that thebona fide acquisition of a license is notrecognized under the German Law. This isbecause a license lacks the external
appearance of a right that can provide
grounds for bona fide acquisition. Thisappearance consists of such features as the
exclusive possession and registration of
movables.

2

A license as a derivative right or alicense granted under the CopyrightLaw

A license on a patent right or a
trademark right may be granted by thepatentee or the trademark holder to a third
party under a license agreement (PatG § 15,
MarkenG § 30). License agreements areinterpreted to be unique agreements(Vertrag sui generis) that are different fromsales agreements, use-lease agreements or
usufruct-leaseagreements.
Thisinterpretation has been supported by the
court. A license agreement may be concluded
on the right to seek the grant of a patent in acase where a patent has not been granted
but the patent application has already been
filed (PatG § 15(2), the first sentence). Whenan exclusive license has been granted on apatent right, the grant does not need to be
139 ●IIP Bulletin 2008

registered in the Patent Register. The grantof a license on a right means that the holderof the right authorizes the licensee to use theright while the licensee is obliged to pay alicense fee to the licensor. The licensor is
obliged to allow the licensee to exercise theright. Specifically, there are nonexclusive
licenses and exclusive licenses. First of all,the grantee of a nonexclusive license thathas been granted on an intellectual property
right is merely entitled to use theintellectual property right and is not allowed
to prohibit a third party from using the right.
Second, the grantee of an exclusive licensethat has been granted on an intellectual
property right is entitled to use theintellectual property right exclusively. Thismeans that the holder of the intellectual
property right has the obligation of inaction,
which prohibits the holder of the intellectual
property right from granting a license to any
third party. The holder of an intellectual
property right is not allowed to use theintellectual property right as long as theholder of an exclusive license uses theintellectual property right.
While there have been different views on
the assignability of licenses excluding thecase of a copyright, it has been argued thatan exclusive license in particular should beconsidered assignable. This argument iscurrently in the mainstream. On the other
hand, a license granted under the Copyright
Law is assignable regardless of whether or
not it is exclusive (UrhG § 34) as long as theconsent of the author is obtained on theassignment (Subsection 1 of said Section, thefirst sentence).

3

Eligibility of intellectual
rights as collateralproperty

The following section examines how theeligibility of intellectual property rights as
collateral is interpreted in Germany.
As
described
earlier,
intellectual
property rights are roughly classified into
two groups. The first group includes patentrights that are established after passing due
examination. The second group includes●

IIP Bulletin 2008

copyrights that are established automaticallyupon its creation. A patent is generally
considered to be more appropriate as
collateral from the perspective of stability
because a patent right is established only
after passing a certain examination.
However, some people think that a patentright, which is limited in terms of theprotection period, is not so appropriate. The
most important element of the eligibility of aright as collateral is assignability. There has
been a consensus on the assignability of apatent right and a trademark right. A license
granted on such right has also been widely
considered assignable as long as the license
is exclusive. In contrast, in the case of a
copyright, the nonassignability is explicitly
specified (UrhG § 29(2)). This means that a
copyright alone cannot be used as collateral.
Despite this provision, the assignment of a
copyright is allowed to some extent in thesense that the grant of a license is permitted
as long as the consent of the author has beenobtained (UrhG § 34 and § 35). In this way, alicense granted under the Copyright Law isassignable under certain conditions andshould be considered eligible as collateral inthat sense.
It is necessary to study the economic
assessment methods of intellectual property
rights in order to determine eligibility as
collateral. There are three assessment
methods of collateral as follows. The first
method is the price-comparison method(Vergleichspreismethode), which allows acreditor to calculate the value of theintellectual property right in question bymaking a comparison to the price of a similar
intellectual property right in a similartransaction. The second method is thelicense–fee-comparison
method(Lizenzgebuhrenvergleich), which uses as abase value the license fee that is or can begenerated from the intellectual property
right in question. The third method is thecontribution-assessment
method(Ergebnisbeitragsmethode), which intends toassess how much the corporate value has
increased thanks to the use of theintellectual property right. The calculation

140 ●will be conducted by comparing the incomethat was earned by the company with theuse of the intellectual property right with
the income that would have been gained if
the intellectual property right had not beenused. Other methods include the cost method(Kostenmethode). This method intends tocalculate the value of the intellectual
property right in question by determining
the cost of re-procuring the intellectual
property, the use of which is permitted by
the intellectual property right. Thesemethods
possess
theirown
distinct
limitations. Some people have pointed outthat intellectual property should be assessednotonly
independently
but
also
comprehensively.

II

The development of the intellectual
property security system

Under the German law, there are twomeans of putting up collateral, i.e., creationof a pledge on a right (Pfandrecht an
Rechten) and assignment of a right forcollateral (Sicherungsabtretung), regardlessof whether it is an intellectual property rightthat is deposited as collateral or a license
granted on the intellectual property right bya concerned party. The following section
briefly explains how an intellectual property
right is deposited as collateral by each ofthese means.

1

Pledge created on a right

Under the German law, creation of apledge over a right is considered to be typicalcollateral (BGB § 1273 and subsequent
Sections). A pledge may be created on a rightby an act of law conducted between thecreditor (i.e., the pledgee) and the debtor (i.e.,the holder of the right). A pledge is createdin accordance with the procedure to assign
the right in question (BGB § 1274). This
interpretation is supported by the court as
far as patent rights are concerned (RG
Urt.v.13.02.1911, RGZ 75,225,227). The
currently dominant view is that theestablishment of a patent right in that case●would not require registration in the Patent
Register. Currently, registration may bemade at the discretion of the parties
concerned (DPMAV § 29). Most judicial
precedents and theories agree on the pointthat such registration does not have theeffect of establishing a right and that theregistration only has the function of
publication. On the other hand, in the case ofa trademark right, the Trademark Law has aprovision concerning the creation of a pledge(MarkenG § 29(2)). However, the registration
is discretionary and only allows thepresumption about the proprietorship of aright. As a result, the possibility of acquiring
a pledged patent right or trademark rightwithout recognizing the existence of thepledge is excluded. In recent years, however,an increasing number of people havedemanded wide recognition of bona fideacquisition as “what the law ought to be (delege ferenda)” to lay the groundwork forsafer use of intellectual property rights as
collateral. In the case of a copyright, it isinterpreted that a pledge may be created on
an individual license with the author’s
consent (UrhG § 34(1), the first sentence). A
pledge may be created on a nonexclusive
license as long as the license is assignable.
As a general theory, it is possible tocreate a pledge on a right that is scheduled
to be established in the future. In order forsuch creation to be permitted, therequirements for an ordinary pledge on aright must be satisfied. In addition, the rightmust be sufficiently and undoubtedly
identifiable at the time of its establishment.
This means that it must be identifiable fromthe viewpoint of a third party as well.
The holder of an intellectual property
right who has created a pledge on the rightwould not lose the right even after thepledge creation. On the other hand, a holder
of a pledge on a right does not have the rightto gain earnings from the use of the right(BGB § 1273(2), § 1213). However, there are
no provisions that prohibit the parties
concerned to conclude an agreement thatallows the pledgee to gain such earnings. In
other words, unless such an agreement has

141 ●IIP Bulletin 2008

been concluded, a pledge on a right remains
to be a mere right of conversion. In general,a person who has created a pledge on an
intellectual property right is prohibited fromextinguishing the right by an act of law orfrom making any change to the right inquestion that might infringe on the pledge(BGB § 1276) without the pledgee’s consent.
Any infringement of an intellectual
property right by a third party is expected to
be dealt with by the holder of the right. Thissection focuses on the issue of whether apledgee has the authority to remove such an
act of infringement and to demandcompensation for the infringement. In thecase of either a patent right or a trademark
right, a pledgee may exercise the right ofdefense based on his legal status under BGB§ 1227 concerning the protection of a pledge
that is applied mutatis mutandis to BGB §1273(2). It is also interpreted that, if apledge created on a trademark right has
been infringed, the pledgee is authorized toexercise a right to claim an injunction and aright to demand damages while those rights
originally belong to the trademark holder
under Section 14 of the Trademark Law.
Regarding a pledge created on an
intellectual property right and other rights
created on the right, the priority isdetermined depending on the order of theestablishment of those rights in accordancewith the priority principle (Prioritätsprinzip)of the German law. In particular, BGB §1209 plays an important role in determining
priority among pledges.
If a right is established on an
intellectual property right on which a pledge
has already been created, it would give riseto an issue of the scope of effect of the pledge.
In other words, if a license is granted, there
is an issue of whether the effect of the pledge
extends to the license fee paid to the holderof the intellectual property right. There are
no provisions that directly define the scopeof the effect of a pledge created on a right.
BGB § 1212, which specifies that the effect ofa pledge on movables shall extend to any
separated product, is not applied mutatis
mutandis to a pledge created on a right. A●

IIP Bulletin 2008

scholar who takes the stance that the effectof a pledge extends to a license fee argues
that, if BGB § 1123(1) is applied mutatis
mutandis, the effect of a pledge created on aright extends to a license fee that is
generated from a nonexclusive license.
In principle, a pledge on a right may berealized under BGB § 1277 by means ofcompulsory execution. The conversion ofvalue by means of compulsory execution is amore complicated and costly procedure. As
mentioned earlier, in the case of an
intellectual property right, the calculation of
the average market value is more difficult
than the case of movables, which are morecommonly used to create a pledge. This is
why it is difficult to calculate the value of apledged right when the pledge is realized bymeans of compulsory execution. In this way,the execution of a pledge created on an
intellectual property right is a hard task
itself.

2

Collateral provided by assignment of
a right

In Germany, as is the case withmovables, it is more common to provide
collateral by assigning a right than bycreating a pledge on a right.
As is the case with the creation of apledge on a right, a right may be assigned ascollateral (Sicherungsabtretung) as long as
the right is assignable. Therefore, licenses
granted on a patent right, trademark rightor copyright can become collateral. A creditor
gives credit in exchange for the collateralprovided by assignment of such right (BGB §413, § 398 and subsequent Sections). In
principle, the provision of collateral by
assignment of a right is carried out by
conclusion of an informal agreement. As
mentioned
earlier,
while
there
are
registration systems for patent rights andtrademark rights, the registration is not arequirement for the completion of theprovision of collateral by assignment of suchright. The same applies to the case of alicense granted on a copyright and an
exclusive license.

142 ●A right may not be assigned as collateral
unless the right is identified or sufficiently
identifiable. This is called the “principle ofidentification(Bestimmtheitsgrundsatz).”
This principle, which is applicable to rights,
is established under the Real Right Law. The
time of identification is the time ofassignment of the right in question. It has
been interpreted that, in a case where aright has already been assigned, the right isonly required to be identifiable at the time of
the conclusion of an agreement to assign theright. Therefore, if an intellectual property
right that is scheduled to be established in
the future is assigned as collateral, the rightis only required to be identifiable at the timeof the conclusion of an assignment
agreement. However, the right needs to be
identified at the time of the actual
assignment. With regard to this principle ofidentification and identifiability, in the caseof an intellectual property right, it isnecessarytopresent
indications
todistinguish such intellectual property rightfrom other similar intellectual property
rights.
The relationship between the party
secured by collateral provided by assignmentof a right and the party providing thatcollateral is generally referred to as aninternal relationship (Innenverhältnis). Suchan internal relationship is basically
governed by the agreement concluded
between the parties concerned, which can beconsidered to be an agreement concerning aclaim. Even if the secured party assigns theright to a third party in violation of thisagreement,theassignment
itselfiscompletely legitimate. However, the securing
party considers it to be a nonfulfillment ofan obligation. In most cases, the parties
concerned specify in their agreement who
has the authority to use the right provided
as collateral. In this respect, it would beenough for the secured party to allow the
securing party to use the right unless the
securing party fails to fulfill its obligations.
If nonperformance occurs, the secured party
would, as preparation for realization of thecollateral, prohibit any further use of the●right by the securing party. In the meantime,with regard to the possibility of granting alicense by a securing party, if a right has
been assigned as collateral to the secured
party, the effect against third parties would
depend on whether the assigned right
permits the grant of a license in general.
If a license has been granted on a rightsince before the right has been assigned ascollateral, such case would involve thebroader issue of previous license protection.
Therefore, even if the previously granted
right is a nonexclusive it would be subject toprevious license protection. There would be
another case where a party that has been
secured by assignment of a right ascollateral grants an exclusive license on theright. In most cases, such grant of a license
may constitute a violation of the security
agreement on the part of the secured party.
If this is the case, even though an obligation
to pay damages may arise between theparties concerned, the grant of such a license
itself will be protected because, from theviewpoint of third parties, it is the rightholder who has made the grant of thelicense.
Another
issue
relatedtotheeffectiveness of a right against third parties
arises when an intellectual property rightthat has been assigned as collateral isfurther assigned or assigned as collateral. If
the right in question has been assigned
completely, it would be impossible for the
securing party to further assign the right orassign it as collateral. Even if the securing
party has the authority to dispose of a right,
as is the case with “collateral provided byassignment of a merchandise warehouse(Sicherungsübereignung vom Warenlagern),”in the case of an intellectual property rightsuch as a patent right, it is not essential forthe securing party to be able to dispose of
the right itself in order to continue its
business. The securing party would rather
like to continue its business by exploiting theright, as is the case with a mortgage. If thisis the case, it seems difficult to interpretthat the grant of authority to dispose ofcollateral provides grounds for assignment of143 ●IIP Bulletin 2008

collateral or provision of collateral by
assignment.
In the case of collateral provided byassignment of a right, the secured party isentitled to realize the collateral at the timeof default by the borrower. Since, from theviewpoint of third parties, the secured party(i.e., the creditor) has already obtained theright with restrictions imposed by the
purpose of security, the secured party isentitled to satisfy his claim by realizing thecollateral provided by assignment of theright. For such collateral realization, thesecured party may take such measures as
selling the collateral to a third party within
the restrictions imposed by the purpose of
security. In this case, it is interpreted thatthe secured party is obliged to realize thecollateral in full consideration of theinterests of the securing party.

3

Other methods

There are other methods such as the
grant of a collateral-purpose license(Sicherungslizenz) and the establishment ofa usufruct (Nießbrauch).

III Effect of an intellectual property
collateral at the time of bankruptcy
In order to examine the effect of asecurity right, it is important to analyze theeffect at the time of bankruptcy of either ofthe parties concerned.

1

Treatment of an intellectual property
right at the time of bankruptcy

This section first examines whether an
intellectual property right would be subject
to compulsory execution and how the rightwould be treated at the time of theinsolvency of the right holder. In general, aseizable property is considered enforceable.
The decision as to whether a certain
property is seizable is based primarily on
whether it is assignable. Patent rights andtrademark rights are enforceable because
they are assignable. On the other hand,●

IIP Bulletin 2008

copyrights are unassignable themselves(UrhG § 29) and therefore unenforceable.
Copyrights are not included in theinsolvency
estate.
Only
individual
exploitation rights granted on works are
subject to compulsory execution (UrhG §112and subsequent Sections). In this case, theauthor’s consent is necessary (UrhG § 113).

2

The treatment of a security right at
the time of bankruptcy of the securing
party

If a securing party goes bankrupt, eachof the general creditors of the securing party
can conduct a compulsory execution (ZPO §857). Against the seizure, a holder of apledge on a right is permitted to make aclaim for preferential repayment under ZPO§ 805 (Vorzugsklag). On the other hand, inthe case of the commencement of an
insolvency procedure on a securing party, theholder of a pledge on a right is permitted
under Section 50 of the Insolvency Law to
obtain separate satisfaction (abgesonderte
Befriedigung). Again, the pledgee is not
permitted to oppose the commencement of
the procedure for insolvency itself. The
pledgee is merely permitted to obtainsatisfaction from immediate realization of
the pledge. Needless to say, the pledge on aright must have been created before thecommencement of the insolvency procedure.
Collateral provided by assignment of a rightis considered to have the same legal effect asa pledge created on a right. As mentioned
earlier, in the case of collateral provided byassignment of a right, a secured party is
considered to be the holder of the assigned
right as far as the legal formality isconcerned. From an economic viewpoint, theassignment is, in substance, carried out forthe purpose of providing collateral. Thus, itwould be appropriate to consider a pledge tobe the same as collateral provided byassignment of a right in terms of legal effect.
For this reason, both pledge and collateralby assignment are treated in the samemanner as a security right in the procedurefor insolvency. The holder of collateral
144 ●provided by assignment and the holder of apledge created on a right could obtainseparatesatisfactionbyindividually
exercising its right (InsO § 173). In this case,Section 166 of the Insolvency Law, which isdesigned to apply to movables and monetaryclaims, is not applicable. Since theinsolvency administrator is not authorized torealize the collateral or distribute dividends,
such exercise of a right would be carried out
outside the framework of the insolvency
procedure, which gives due consideration of
the continuation and recovery of the debtor’sbusiness management.

3

Problems unique to the case of alicenseThis section examines how a license willbe treated in the case of bankruptcy of asecuring party. In the case of suchcontinuous contract as a license agreement,
it is up to the insolvency administrator todecide whether to continue insolvency
procedure (InsO § 103). The point at issue is
how the decision made by the insolvency
administrator would influence the security
right established on a license. There are twodifferent views depending on whether toadopt the non-cause principle. From theperspective of non-cause principle, thetermination of a license agreement thatprovides the legal grounds for the grant of alicense would not influence the effect of any
license already granted. On the other hand,from a perspective different from that of anon-cause principle or from the standpointthat allows the parties concerned to conclude
an agreement for a wide range of issues, it
can be said that the termination of a license
agreement would automatically extinguish
any license previously granted. As a result,
such extinguishment of an underlying
license would cause the secured party to lose
the security regardless of whether he has apledge or collateral provided by assignment.

●

4

The treatment of a security right at
the time of bankruptcy of the secured
party
If a secured party, especially the holderof collateral provided by assignment, goesbankrupt, the creditor is allowed to conduct
a seizure on the holder of collateral provided
by assignment. In the case of such a seizure,
it is interpreted that the provider ofcollateral by assignment is allowed to file an
opposition as a third party as long as theconditions for the realization of the assigned
collateral have not been satisfied. Once theconditions for the realization of the assigned
collateral are satisfied, the collateralprovided by assignment would be considered
to be owned by the holder of collateralprovided by assignment. If the value of thecollateral provided by assignment is overthat of the secured claim, the excess value
may be owned by the provider of collateralby assignment. If a holder of collateralprovided by assignment goes insolvent, theprovider of collateral by assignment ispermitted to exercise the right to separation(Aussonderungsrecht) on the right that thecollateral provider had assigned as collateral(InsO § 47). In order for the collateralprovider to exercise the right, he needs torepay or to have already repaid the secured
claim.

Conclusion
The following is the summary of theabove-describedexaminationoftheintellectual
property
security
systemestablished under the German Law.
First, the findings about the intellectual
property system itself are as follows.
Intellectual property rights are establishedin different ways depending on the purposeof each intellectual property system. None of
the systems requires registration of atransfer of a right even if the transferor
intends to make commercial use of the rightthat has already been established. The same
applies to a patent right that cannot beestablished until it has been granted by thegovernmental authorities and also to a
145 ●IIP Bulletin 2008

trademark right that has been establishedon the condition that the trademark will be
registered in the Register. It is interpreted
that the function of the Registers is limited
to publication. An exclusive license itself canbe subject to a transaction despite many
restrictions.
The
above-mentioned
discussionsinGermanyontheestablishment of intellectual property rights
and their assignability reveal the fact that,while a right should fulfill various
requirements in order to be consideredestablished, it is more important to examine
how to prove the effect and existence of aright that has been established by satisfying
those requirements. Such examination isnecessary before analyzing an assignment of
a right as a precondition for depositing theright as collateral. In this respect, theGerman law seems to be insufficient because
the Germany system treats an intellectual
property right in the same way as an
ordinary right established under the law ofobligations.
Furthermore,theappropriateness as collateral depends partly
on the necessity or lack of necessity of
examination and the length of a period ofeffectiveness. It is difficult to assess thevalue of the intellectual property rightprovided as collateral under the German law
as well. It should be noted that some people
point out the necessity of conducting acomprehensive study on the collateral inquestion, including the structure of therelevant market, and the price trends, suchas the trend of loan costs.
The
Germanintellectual
property
security system can be summarized asfollows. In Germany, there are two ways ofdepositing an intellectual property right ascollateral: the creation of a pledge on a rightor the provision of collateral by assignmentof a right. Under the German law, theregistration system plays a minor role in theassignment of an intellectual property right.
Similarly, the registration system has nouseful function in providing collateral. Since
the provision of collateral, whether bycreating a pledge on a right or by assigning aright, is carried out within the legal●

IIP Bulletin 2008

framework of assignment of a right, theagreement of the parties concerned would beenough for the assignment to take effect. On
the other hand, a pledge may be created on aright that is scheduled to be established in
the future. Such a right may also be assigned
as collateral. Similarly, some people pointout the importance of allowing the use of
future intellectual property rights as
collateral. In the meantime, regarding
expansion of the scope of effect, the German
law lacks such a provision applicable to apledge created on a right that explicitly
specifies the use of the system of extension of
security interest to the proceeds of thecollateral. Under the German law, it isinterpreted that such a system should not be
used casually unless it is explicitly permitted
by law. These facts suggest that Germany
has been rather restrained from expanding
the scope of effect. This reveals that theGerman law permits an individual right,
whether it is an existing right or a futureright, to be used as collateral, while paying
little attention to the possibility of
expanding the effect to other rights
derivative from the individual right or the
possibility of grasping the right in acomprehensive manner. When a debtor goesinsolvent, the current German law regards
both a pledge created on a right andcollateral provided by assignment of a rightas security rights. A secured party, ispermitted to exercise his right in his own
way. Some people point out that suchpermission reflects a defect of the law andthat the insolvency administrator should
realize a claim and make preferential
repayments so that liquidation can be
carried out with due consideration for thecontinuation and recovery of the debtor’sbusiness management.
In addition to the issues about the
intellectual
property
security
systemdiscussed in this paper within theframework of the German law, there areother points that remain unaddressed, as
follows. First of all, this paper did not
examine what financing methods or
financing frameworks are in use outside the146 ●individual security systems. This issue needs
further study from the perspective of how todesign loans for intellectual property rights
since it is very difficult to assess the valuesof individual rights. Furthermore, this paper
relies solely on literature study, which hasprovided only an indirect insight into thecurrent situation of the German intellectual
property security system. The next goal is togain a direct insight to conduct a moredetailed analysis of the current situation.

●

147 ●
IIP Bulletin 2008