534 ARTICLE
The Personal Property Securities Act and IP: a
simpler way?
Tim Golder, Tom Reid*, and Thomas Middleton
On 30 January 2012, the new Personal Property Secur-
ities Act 2009 (Cth) (the PPSA) came into operation.
The PPSA, which applies to security interests in nearly
all types of personal property, including IP, was
designed to simplify the registration of such security
interests, streamlining what was a complex system of
registers throughout Australia.
While the main benefit of the PPSA will be to create
a consistent approach to registration and priority of
security interests in personal property, a number of
issues confront IP lawyers.
First, we cover the reasons behind personal property
securities reform. Secondly, we discuss the basics and
operation of the PPSA, and the Personal Property
Securities Register established by it, as they relate to IP.
Finally, we present some issues that have been identi-
fied from a review of the legislation and discuss how
practitioners can assist their clients with the transition
to the new regime.
Rationale behind reform
The PPSA seeks to harmonize and streamline what was
formerly a myriad of Commonwealth and State regis-
ters of security interests in different types of IP. The
previous system entailed a complex web of common
law and legislation, involving over 70 Commonwealth,
State and Territory Acts and some 40 separate regis-
ters.1 For that reason, ascertaining whether the personal
property of an entity was subject to a security interest,
and if so, what property was affected, involved ineffi-
cient searches of a variety of registers.
In the context of IP, the complexities were illustrated
by the differing treatment of copyright, patents, trade
marks, and design when it came to registering security
interests. In Australia, copyright was (and still is) not
registrable. Accordingly, there was no copyright register
on which security interests in copyright could be
recorded. While designs were (and still are) registrable,
* Email: tim.golder@aar.com.au; tom.reid@aar.com.au.
# The Authors (2012). Published by Oxford University Press. All rights reserved.
Journal of Intellectual Property Law & Practice, 2012, Vol. 7, No.
The authors
Downloaded from http://jiplp.oxfordjournals.org/ at Fundaci?n Programas de Desarrollo Competitivo - Bolivia on June 20, 2012
Tim Golder is a Partner in the Intellectual Prop-
erty Group at Allens Arthur Robinson in Austra-
lia. Tom Reid is a Senior Associate and Thomas
Middleton is a Vacation Clerk with the same
firm.
This article
Australias new Personal Property Securities Act
came into operation on 30 January 2012. It regu-
lates security interests in nearly all kinds of per-
sonal property, including IP, and contains rules
governing priority between competing security
interests. The Act expands the traditional
concept of a security interest to include interests
such as those arising under retention of title
clauses.
The Act has replaced a range of registers of per-
sonal property security interests with a new,
online Personal Property Securities Register, or
PPSR, which will serve as an authoritative record
for priority purposes. New security interests
must be registered on the PPSR if the secured
party is to have priority over holders of security
interests in the same property, although there is
a 24-month transitional period during which un-
registered pre-existing security interests will
remain protected.
IP practitioners should be aware of practical
issues that may arise when registering or search-
ing for security interests in unregistered IP, such
as copyright. Non-Australian practitioners will
also need to be mindful of the potential for the
Act to apply to transactions involving Australian
registered IP, even where the owner of the IP is
not Australian.
1 See, eg, Commonwealth, Parliamentary Debates, House of
Representatives, 24 June 2009, 6960 (Robert McClelland).
doi:10.1093/jiplp/jps053
Advance Access publication on 16 April 2012
Tim Golder et al. . The Personal Property Securities Act and IP: a simpler way?
the Designs Act 2003 (Cth) made no provision for
recording security interests in them on the designs
register. The Patents Act 1990 (Cth) and the Trade
Marks Act 1995 (Cth) both permitted, but did not
require, the recordal of security interests on the patents
and trade marks registers, respectively, but that facility
was rarely used. Accordingly, security interests in IP
were commonly only recorded, if at all, on the Register
of Company Charges that was maintained by the
Australian Securities and Investments Commission.
The PPSA seeks to address these issues and reduce
administrative burden by unifying all the registers of
security interests in personal property and by harmon-
izing the arrangements for registering and enforcing se-
curity interests. It aims to achieve this by establishing a
new, public access Personal Property Securities Register
(PPSR) and by introducing a set of generally uniform
priority rules for competing security interests. The
PPSR has been promoted as a simple, quick, and inex-
pensive one stop shop for the registration of security
interests, providing greater certainty to lenders and
borrowers by lowering risk, improving efficiency and
increasing competition.2
Basics and operation of the PPSA
There are many instances in which IP is used as collat-
eral for a security interest. One now-famous example
was the issue of Bowie Bonds by the musician David
Bowie, who wanted to raise money in order to buy out
his former managers minority rights to his music.
Bowie issued asset-backed securities for 10 years worth
of current and future royalties for his existing
music copyright catalogue, generating approximately
$US 55 million. Other owners of royalty-bearing IP
have since done similar deals.3 Bowie Bonds are among
the types of security interests that individuals and com-
panies might now seek to register under the PPSA.
Under the PPSA, the term security interest is
defined broadly as an interest in personal property pro-
vided for by a transaction that, in substance, secures a
payment or performance of an obligation.4 Personal
property includes any form of property, other than real
property (land) and some statutory licences. The PPSA
thus regulates security interests over registered and un-
registered IP rights, as well as rights under IP licences
(although such licences themselves are not security
2 ibid.
3 Steve Pemberton and Robyn Chatwood, Using your IP to get finance?
Implications of the Personal Property Securities Act 2009 for IP lawyers
and their clients (2010) 22 (10) Australian Intellectual Property Law
Bulletin 190, 190.
ARTICLE 535
interests). Personal property that is subject to a security
interest is known as collateral under the PPSA, a party
granting a security interest is known as a grantor, and
a party taking a security interest is known as a secured
party.
The PPSA requires that three conditions be met in
order to protect a security interest over personal prop-
erty in full.5 First, there must be attachment. A security
interest attaches to a property when the following
events occur: the grantor (the party giving security
Downloaded from http://jiplp.oxfordjournals.org/ at Fundaci?n Programas de Desarrollo Competitivo - Bolivia on June 20, 2012
interest) has good rights in the property, and either the
secured party (the party taking the security interest)
has given value or the grantor has acted in a way that
creates a security interest.
Secondly, the security interest must be enforceable
against third parties. A security interest becomes
enforceable against a third party when attachment has
occurred and one of two conditions applies (i) there
exists a written agreement that sufficiently describes the
property, or (ii) the secured party has taken possession
of or controls the collateral.
Finally, a security interest that is attached and
enforceable must be perfected. An unperfected security
interest that exists in relation to a corporate grantors
assets generally vests in the grantor upon its insolvency,
causing any secured party that has not perfected its
security interests to lose its priority.6 Perfection is
achieved when one of the following has occurred: the
security interest has been registered on the PPSR, or
the secured party has taken possession of, or controls,
the collateral.
Once a security interest is perfected, two general
rules for priority apply. First, perfected interests take
priority over unperfected interests. Secondly, perfected
interests will take priority in order of perfection. All
applicable rules, including exceptions, are contained
within the PPSA, replacing the previous common law
and equitable principles.
Perhaps the most important exception to the way
the PPSA treats security interests, for the time being at
least, arises under its transitional provisions. Security
interests arising under security agreements in existence
prior to 30 January 2012 are transitional security inter-
ests (TSIs).7 The PPSA deems a TSI to be perfected
for the duration of a transition period of 24 months
from the registration commencement time (ie until
30 January 2014). If not registered by the end of that
4 PPSA s 12(1).
5 ibid, Part 2.2.
6 ibid, s 267.
7 ibid, ch 9.
536 ARTICLE
period, the perfected TSI becomes an unperfected TSI,
thus losing priority to all perfected security interests in
the same collateral.
Specific priority rules apply to TSIs:
(a) A perfected TSI has priority over all subsequent
security interests that are not TSIs, irrespective of
whether those subsequent security interests have
been perfected by registration on the PPSR.
(b) A perfected TSI has priority over any remaining
unperfected TSIs after the expiry of the 24-month
transitional period.
(c) A perfected security interest, whether a TSI or not,
has priority over an unperfected security interest
and over any remaining unperfected TSIs after the
expiry of the 24-month period.
(d) Any unperfected TSI remaining after the expiry of
the 24-month transitional period has priority over
a subsequent unperfected security interest, but not
over a perfected security interest, regardless of
whether the latter is a TSI.
Basics and operation of the PPSR
The PPSR is an online register available 24 hours per
day, seven days per week.
Registrations of security interests previously
recorded on a variety of prior registers, including the
Register of Company Charges, have been automatically
migrated to the PPSR. However, security interests in
patents or registered trade marks that were registered
with IP Australia were not among those that were
migrated. Accordingly, any such security interests must
be re-registered on the PPSR within the two-year tran-
sitional period to avoid risking a loss of priority.
Registrations can last for differing periods of time,
depending on the collateral involved. For property that
can be described by serial number, a registration will
last for seven years. Such property includes patents,
registered designs, and registered trade marks, for
which the applicable serial number is the patent or
design number or trade mark registration number allo-
cated by IP Australia. Security interests in property for
which there is no serial number, including copyright,
may be registered indefinitely, or until a specific date
no more than 25 years after registration.
Upon expiry, a registration must be renewed in
order to maintain the priority of the relevant security
interest. Registrations can be renewed for as long as
both the security interest and the property endure.
While security interests will be recorded on the
PPSR, ownership of registered IP will continue to be
Journal of Intellectual Property Law & Practice, 2012, Vol. 7, No. 7
recorded with IP Australia. So, for example, an assign-
ment of a registered trade mark will need to be
recorded with IP Australia, whereas an assignment of a
security interest in the registered trade mark will need
to be recorded on the PPSR.
A simpler way? Issues with the PPSA
and PPSR
Many issues confront IP practitioners when dealing
Downloaded from http://jiplp.oxfordjournals.org/ at Fundaci?n Programas de Desarrollo Competitivo - Bolivia on June 20, 2012
with the PPSA and PPSR.
First, from the perspective of the parties to a security
agreement, while registered IP is to be described by its
serial number given by IP Australia, any unregistered
rights may be difficult to describe in writing where spe-
cificity is needed (for example where something less
than a security interest over all the assets of the grantor
is granted). An example is copyright, where a careful
description of the copyright material must be provided
to ensure that the full breadth of the security interest is
captured. From the perspective of a prospective secured
party or transferee, searches of the PPSR for any exist-
ing security interests will need to be carried out care-
fully to avoid missing any vaguely worded descriptions.
Secondly, there may be complications for identifying
security interests where the IP is associated with goods.
Section 105 of the PPSA contemplates that the terms of
a security agreement may extend a security interest
over goods to IP the exploitation of which is necessary
to the exercise of the security interest in the goods. In
such circumstances, the PPSA provides that a registra-
tion of a security interest describing the goods is taken
to include a description of the associated IP (unless the
relevant security agreement states a contrary intention).
Consequently, IP may be covered by the registration of
a security interest in goods even though the registration
does not refer to that IP at all. Examples include
patented machinery or equipment, and branded cloth-
ing. This adds to the complexity of a search, because
more information than is available on the PPSR may
be required in order to determine whether a security
interest is attached to particular intellectual property.
The effect of section 105 is, however, limited in
some circumstances by section 44. Under that section,
if a search of the PPSR for security interests in prop-
erty that may, or must, be registered by reference to
its serial number would not identify any such inter-
ests, a buyer will generally take the property free of
any such interest. As we have mentioned above,
patents and other registered IP rights must be
described by serial number in any registration. Ac-
cordingly, if a security interest over a patented
Tim Golder et al. . The Personal Property Securities Act and IP: a simpler way?
machine extends to the patent covering the machine,
the registration of a security interest in the machine
may, by force of section 105, be sufficient to perfect
the security interest in the patent; but, if the security
interest in the patent is not separately registered, a
buyer of the patent may nonetheless take it free of the
security interest by force of section 44. To avoid this,
a secured party holding a security interest in regis-
tered IP associated with particular goods will want to
ensure that the security interest is registered specifical-
ly in relation to the IP by reference to its serial
number, rather than simply relying on section 105.
In relation to international transactions, the PPSA
contains several provisions relating to the applicable
law. In general, the validity and perfection of a security
interest in intangible property (including IP), and the
effects of perfection or non-perfection, will be governed
by the law of grantors jurisdictionnot the jurisdic-
tion in which the property is located.8 So, for example,
if a grantor of a security interest in Australian IP is
located in the USA, the validity and perfection of the
security interest will be governed by US law. According-
ly, advice on foreign law may be needed even where the
relevant IP is, for example, an Australian patent, if the
owner of the patent is not Australian. Under specific
provisions relating to registered IP, however, Australian
law will still apply when determining whether the gran-
tors successor in title takes registered IP free of a secur-
ity interest and when determining the validity of a
security interest against a transferee of registered IP.9
Finally, practitioners who deal with retail and distri-
bution agreements must be aware of changes to the
treatment of retention of title (ROT) clauses. An ROT
8 ibid, s 239.
ARTICLE 537
clause (sometimes known as a Romalpa clause) is a
clause pursuant to which a party that supplies goods to
a recipient in advance of payment retains legal title in
the good until payment is made. Such clauses are
common in retail and distribution agreements as a
means of avoiding having inventory treated as part of
the recipients assets in the event the recipient becomes
insolvent. Originally, ROT clauses were not treated as
security interests at all. The PPSA changes that ap-
proach, treating them as purchase money security
Downloaded from http://jiplp.oxfordjournals.org/ at Fundaci?n Programas de Desarrollo Competitivo - Bolivia on June 20, 2012
interests (PMSIs). A PMSI will have super-priority
over other security interests, but must be perfected to
be effective. Importantly, for PMSIs relating to inven-
tory (eg ROT clauses), perfection must occur before
the buyer takes possession, or the supplier risks losing
the priority status that an ROT clause would normally
provide.
Efficiency and effect
The PPSA is designed to facilitate the creation of per-
sonal property security interests to ensure efficient
transactions and increased certainty in financing. With
the PPSR now in effect, it is important that lawyers and
their clients deal with the transition into the new
regime. This can be achieved by ensuring that there is
adequate auditing of existing security interests to deter-
mine what has not automatically been migrated to the
PPSR, identifying transactions that will give rise to a
security interest that needs to be perfected, and by
registering security interests on the PPSR as soon as
possible.
9 ibid, s 239(3).