Pledge of Trademarks and
Alternatives for Collateralization
Purposes Under Swiss Law
Dr. Lorenza Ferrari Hofer
Pestalozzi
Trademarks, like other absolute intellectual property rights, can be used for
security purposes. For such purposes, trademark rights are usually pledged and
such pledges entered in the trademark register. However, alternative legal
instruments can also be envisaged.
Trademarks allow the public to distinguish goods and services of different origin
and, for this characteristic, they are important assets of any providers of such goods
and services. However, providers often do not consider trademarks as assets and for
security interests. Until recently, trademarks often had only a nominal value for the
providers, amounting in maximum to the registration and maintenance fees. For
Swiss trademark owners this was the logical consequence of the fact that
trademarks, unlike patent rights, could not be transferred without the transfer of the
business to which they related. Only in 1993, upon the total revision of the
Trademark Act (TA), did trademarks become absolute rights.
Today, trademarks qualify as independent intellectual property rights which can be
enforced against any third parties. As such, they are transferable independently of
the goods and services to which they refer and have their own economic value.
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Accordingly, trademarks can be encumbered with security interests (Art. 19 TA).
Typically, Swiss trademark registrations are pledged and the pledge registered in
the trademark register (Art. 899 para. 1 Swiss Civil Code, CC).
1.
Pledge of Trademarks
The requirements for the pledge of trademarks are similar to those applicable to the
pledge of rights in general.
First of all, the pledge must be specific to any trademark registration – according to
the principle of specialty – and no “floating pledge” can be agreed upon. As a result,
the trademarks to be pledged must be accurately listed, otherwise the security
interest is not validly established. In an international contest, where trademarks
registered in different countries are concerned and Swiss law applies (e.g., as the law
of the residence of the pledge, Art. 105 para. 2 Swiss International Private Law Act,
IPL), this particularity of Swiss law can form an impediment to a quick
implementation of the pledge.
Moreover, a written pledge agreement must be concluded (Art. 900 para. 3 CC),
whereby, in principle, only the pledgor is requested to sign it. Non-observance of the
written form leads to the invalidity of the pledge agreement.
The conclusion of the pledge agreement between the pledgor and the pledgee
already establishes a security interest on the trademark registrations concerned and
no further action is required. Nevertheless, the pledge shall have effect against third
parties acting in good faith only if it is entered in the trademark register (Art. 19
para. 3 TA). In order to avoid any further encumbrance of the trademarks, which
could put at risk the security agreements between the parties, the registration of the
pledge in the trademark register is therefore highly recommended. For Swiss
national trademarks and the Swiss part of international trademarks such registration
is free of charge.
The security interest in trademarks is not limited to the trademark registrations and
their values, but also extends to the periodic revenues relating to the exclusivity
rights of the trademark owner, such as the license fees (Art. 904 para. 1 CC). The
extent of the security, in particular an extension of the same to additional revenues
of the licensor, can be agreed upon according to the parties’ specific requirements. In
this regard it should be kept in mind that security interests can be established in
trademarks which do not belong to the debtor, e.g. in trademarks belonging to an
affiliated company. In this way, the pledge of trademarks can be very interesting for
the financing of activities within a group of companies. Moreover, after notification
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of the previous pledgee in writing, the pledged trademarks can be subsequently
pledged in favour of another party (Art. 903 CC).
Should the pledgor become insolvent and unable to comply with his due payment
obligations, the pledgee is entitled to pay himself from the proceeds of the
realization of the pledge (Art. 891 para. 1 CC). The realization of the pledge can
only take place as part of compulsory execution proceedings, when the appointed
execution officer decides to sell the pledged trademarks on the market instead of
selling them by auction. An appropriation of the pledged trademarks by the pledgee
is not permitted and any agreement entitling him to do so is considered void (Art.
894 CC).
Such compulsory sale of the pledged trademarks to third parties is often a
disadvantage for the pledgor. The value of the trademarks is in most cases, perhaps
with exception of notorious trademarks, intrinsically related to the value of the
goods or the services they distinguish, so that their sale alone, without any related
assets such as the patents or the manufacturing know-how of the trademark owner,
may not meet the financial expectations of the pledgor. For the pledgor, it may be
more advantageous to acquire the pledged trademarks and wait for a better
purchaser (if the pledgor is a bank).
2.
Assignment by Way of Security
Instead of a pledge, trademarks can also be assigned by way of security to the party
provided with the security, which is often the lender. The assignment by way of
security can be structured as (i) a sale with a right to purchase back or (ii) a fiduciary
deal.
For a sale with a purchase right for security purposes, the purchase price agreed
corresponds to the amount of the granted credit. Further, the purchase right is tied
up to the credit security so that it can only be exercised once the payment obligations
of the borrower are satisfied. Such a structure is not very common, in particular
because the security partner becomes entirely responsible for the secured assets and
their maintenance for the duration of the agreement, which is an onerous burden
upon institutional lenders such as financial institutes and banks.
More widespread is the assignment by way of security as a fiduciary deal. In this
case, the assets are assigned to the trustee, but the trustee can dispose of such assets
only as clearly indicated in the fiduciary document. Provided that this is stipulated
in the fiduciary act, the trustee has the obligation to re-assign the assets once the
credit is reimbursed. This is, however, not a legal obligation.
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The security purpose of the fiduciary deal further demands that the mandatory
provisions applicable to pledges also apply, such as the obligation of the trustee to
effectively possess the pledged assets, his liability for the pledged assets and his
right to realize them in case of non-reimbursement. In contrast to the pledgee, the
trustee, as far as this is not agreed by contract, has no limitation in respect of the
realization of the pledged rights. He can freely sell them, put them at auction or
become their definitive owner, and he only has the obligation to give the pledgor
back the value of the assets in excess of the secured credit.
As far as registered trademarks are concerned, the trustee becomes the legitimate
owner of the trademarks in both the described structures of the assignment by way
of security. Accordingly, the assignment of the trademark rights can (and should)
be entered in the trademark register.
In the case of the “sale and purchase back” solution, the preemption or purchase
right of the security provider can be recorded in the trademark register.
With regard to the fiduciary deal, the question arises whether the sole registration of
the assignment of the trademark rights in the trademark register does not put at risk
the (only contractual) right of the security provider to have the trademarks retransferred to him, at least in respect of any potential third party in good faith. As
pursuant to Swiss law no conditional transfer or purchase right can be entered in
public registers, there is no satisfactory way of registering the fiduciary limitation of
ownership of the trustee. As a matter of fact, the registration of a pledge in favor of
the trustee or of a preemption right in favor of the security provider would not
reflect the ownership of the trustee on the trademarks. Further, no precedents exist
in respect of the recordal of the assignment by way of security.
As the assignment by way of security is a commonly used financial vehicle, we have
to assume that today the parties often agree not to enter the assignment by way of
security in the trademark register. It is questionable whether this non-recordal of the
ownership may not in the end result in a circumvention of the public information
purposes of the trademark register.
3.
Summary and Conclusions
Under Swiss law, both the pledge and the assignment of trademarks by way of
security have pros and cons in respect of their implementation, in particular because,
pursuant to Swiss mandatory law, only a limited number of legal instruments with
specific rules can be entered in the trademark register.
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