Intellectual Property and Debt Collection: How to Touch Assets that are Inherently Intangible in Canada

2011-09-29

CIPS,2011
*FrançoisPainchaudisashareholder/partnerandJasonMoscoviciisanassociateofROBIC,LLP,amultidisciplinaryfirmof
Lawyers,PatentandTrade-markAgentsandtheyarebothbasedinMontreal,Canada.
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INTELLECTUALPROPERTYANDDEBTCOLLECTION:
H
OWTOTOUCHASSETSTHATAREINHERENTLYINTANGIBLEINCANADA

FrançoisPainchaudandJasonMoscovici*
ROBIC,
LLP
Lawyers,PatentandTrademarkAgents

Therealitiessurroundingthepracticeofdebtcollectioncanbebestexemplifiedbythelonely
creditor,alwaysconfrontedwiththepossibilitythathisdebtorwilleitheronedaybeinfinancial
disarray(andthereforehavenoassetstopayoffhisdebts),orissimplyfeignbeinginfinancial
disarray(andthereforestillnotpayhisdebts).Ineithercase,thecreditoristaskedwiththe
ongoingchallengeofattemptingtocollectwhatcanmaybebesalvaged,whilebalancingthe
expensesassociatedwithsuchcollectionactivities.Thecomplexityofthisendeavourintoday’s
marketiscompoundedbyaglobalisedeconomywherecreditorsareoftenchasingdebtorsfrom
onesideoftheoceantotheother.
Whilemostjurisdictionsreadilyrecognizedifferentmechanismsallowingacreditorreadyaccess
toassets(seizures,etc),itcanalsobesaidthattoday’saccentonintangiblerightshasmadeit
suchthatweareseeingmoreandmorequestionsregardingtheplaceofIPrightsasanintegral
partofaperson’sassetportfolioandtherefore,ofinteresttothepracticeofdebtcollection.The
statusofintellectualpropertyasatraditionalformofpropertyforuseindebtcollectionis
important,variesfromjurisdictiontojurisdiction,andisnotnecessarilycompatiblewithall
legislativemechanismsestablishedtorecoverdebt.
Certainsituationscanarisewherethedistinctionbetweenthedifferentlayersofintangible
propertyarenecessarytoestablishwhatcan,andcannotbecollectedaspaymentofdebt,
especiallyinabankruptcysituation.Thepresentarticleattemptstogiveageneralizedoverview
oftwointerestingdebtcollectionmechanismsbenefitingintellectualpropertyownersthatare
availableinCanada.

1)TrusteeHavingtheRighttoSell(notalways)
Whenspeakingofdebtcollection,youaremoreofte
nthannottalkingaboutbankruptcy.In
Canada,bankruptcyisgovernedtheCanadianBankruptcyandInsolvencyAct.1Whatis
particularaboutbankruptcyinCanadawithrespecttoIPisthattheActestablishesspecific
mechanismsallowingforpatentorcopyrightholderstoregainaninterestintheirpropertyor
works,whichwerepreviouslysoldorassigned,andthatarecurrentlyvestingwiththetrusteeof
aBankrupt.
Withrespecttopatents,ifpatentedpropertysoldtotheBankruptiscurrentlyvestingwitha
trustee-thispropertypotentiallybeingsubjecttocertaincontractualrestrictionsorlimitations-
thetrusteewouldnotbeboundbytheserestrictionsandcoulddecidetosellanddisposeofthe
patentedmaterials,freeandclearofanypreviouslyexistinglimitations.2However,the
manufacturerorvendorofthesepatentedmaterialsmaynotlikethattheirproductscouldbe
releasedfreeintothewild,andcanobjecttothetrustee’sdisposal/saleofthesematerialsby
puttingthemonwrittennoticeoftheirrighttopurchasebackthearticlesattheinitialinvoice
price,subjecttoanyreasonabledeductions.Insodoing,amanufacturercaneffectivelystepin
andreactbeforetheirpatentedmaterials,previouslysoldundercertainpermissionsand
restrictions,getsintothehandsofanunwantedthirdparty.
Concerningcopyrights,theActalsospecificallyprovidesforamechanismthatgovernsany
copyrightprotectedworkthatmayhavebeenassignedtoapublisher,printer,firm,person,and
soonwhoisnowbankrupt.Inthissituation,theseassignedworksmayrevertbacktothe
author3ifcertainconditionsaremet.
Forexample,ifthecopyrightedworkhasyettobepublishedorputonthemarketatthetimeof
bankruptcy,andnoexpensehasbeenincurredinconnectiontothework,itrevertsbacktothe
authorandanycontractualagreementbetweentheauthorandthebankruptistherebyvoidand
terminated.However,ifexpenseshaveinfactbeenincurredbythebankrupt(theworkhasbeen
putintotype),theworkwillonlyrevertbacktotheauthoruponpaymentoftheseexpenses.
1BankruptcyandInsolvencyAct,RSC1985,cB-32S.82(1)3S.83

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3
Intheeventthatcopiesoftheworkareindeedon
themarketatthetimeofbankruptcy,the
trusteecansell/authorise/reproducecopiesofthepublishedworkinexchangeforthepayment
ofroyaltiestotheauthor.However,thetrusteecannotassignanycopyrightoranyinterest
withouttheconsentoftheauthor,exceptundertermsguaranteeingtheauthorpayment
(royalties).Anycontractoragreementbetweentheauthorortheirheirsandthebankruptshall
thennormallyterminateandbevoid.
Consequently,inlightoftheabove,ifyouareintellectualpropertyrightsholderinCanadaand
haveassigned/soldeitherpatentorcopyrightstoapersonwhoisnowcurrentlyinvolvedin
bankruptcyproceedings,itwouldbeprudenttoseeifyoubenefitfromthesemechanisms,
therebyremovingyourprotectedpropertyfromthehandsofthirdpartycreditorsthatmaybeat
thefrontoftheline,waitingtohaveafirstgrabatyourintellectualproperty.
2)SeizurebeforeJudgementofIntellectualPropertyinQuébec
InCanada,thecourtsystemisnaturallygovernedbyjurisdiction,andpracticecanvaryprovince
byprovince.Oneparticularityofthesedifferentpracticesisthatifacertaincreditor/debtor
situationhasbecomelitigious,thereisausefulinstrumentavailabletocreditorsintheprovince
ofQuébecthatisgenerallynotavailableinmostothercommonlawjurisdictionsintermsofdebt
collectioninrelationtointellectualproperty.Knownasa“seizurebeforejudgement”,this
procedureisusedtoensurethatassetsareavailabletosatisfyacreditor’sdebtpendingthe
outcomeoflitigationandcanonlybegrantedincertainspecificsituations.4
InQuébec,courtprocedureisgovernedbytheQuébecCodeofCivilProcedure5whichprovides
thataplaintiffmayseizewiththeauthorizationofajudgethe“property”ofadefendantbefore
judgementifthereis“reasontofearthatwithoutthisremedytherecoveryofhisdebtmaybeput
injeopardy”.6
However,thereisalsomorespecificreliefprovidedforseizingmovableproperty,asaplaintiff
mayalsoseizebeforejudgement:(1)movablepropertywhichhehasarighttorevendicate[…],
(4)themovablepropertywhichaprovisionoflawpermitshimtoseizeinordertoassurethe
4Walpertc.CrystalGreetingsLtd.,R.&F.,vol.4,437(1979-CQA).5RSQ,cC-256S733CPC

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4
exerciseofhisrightsuponit,(5)themovablepro
pertywhichaprovisionoflawpermitshimto
seizeinordertoassuretheexerciseofhisrightsuponit”7.
Normally,forotherformsofproperty,inordertoexercisesucharight,onemustputforward
allegationsagainstthedebtorthatapproachfraudoractionsresemblingfraud.8Itistherefore
importanttonotethedifferenceinthecriteriabetween“property”and“movableproperty”in
Québec.Withregardstoproperty,thecourtsneedtoconsiderif“therecoveryofthedebtmay
beputinjeopardy.”Conversely,withregardstomovableproperty,andwithIPbeingconsidered
incorporealpropertyandthereforemoveableproperty,thecreditordoesnotneedtoarguethat
thedebtowedtohimwouldbeindangerwithoutaseizurebeforejudgement.Hemustsimply
meetatleastoneoftheconditionssetforthinthesectiondiscussedabove.9Forexample,the
creditorwishingtoseizeintellectualpropertyinthecaseofdebtcollectionwouldonlyhaveto
demonstratethattheintellectualpropertyconstitutespropertywhichhehasarightto
“revendicate”.
ThisdoesnotapplytoallformsofintellectualpropertyandtheonlyclassofIPexpressly
excludedbythecourtsaretradesecrets.
10
Assuch,theseizurebeforejudgementofintellectualpropertycanbeapowerfulnegotiationtool
indebtcollectionproceedingsassuchaseizuremayinvariablystoptheseizedperson’sability
toproperlyoperatetheircommercialbusiness,ifvaluableintellectualpropertyassetsare
successfullyseized.
TheabovediscussedmechanismspresentageneralviewastohowCanadaallowsforcertain
intellectualpropertyrightsto
bespecificallyexcludedfromdebtcollectionduringbankruptcy
proceedings,whileatthesametimeservingascollateralintheformofaseizurebefore
judgementinQuébec.Itwillbeinterestingtoseeifothercountrieshavelegislatedsimilarly,
takingintoaccountthespecificcharacteristicsofintellectualpropertyrightswhoare,asweall
know,notjustintangibleslikeanyother.
***

7S734CPC8St.LawrenceMechanicalContractorLimitedc.AcadianConsultingCompanyLimited,(1974)C.A.236;(1974)9R.J.T.131(C.A.)9Champagnec.Bouchard,(1987)R.D.J.494(C.A.).10GhalyEliaGideonandGideochemInc.v.Tri-TexCo.Inc.[1999]R.J.Q.2324(C.A.);IntercontinentalForestProductsS.A.c.
Rugo,A.E./P.C.2004-3140(C.Q.).