Pledge of trade marks and software

A pledge of trade marks and software is the non-possessory security interest by which the owner of a trade mark or of the exploitation rights in software charges them as security for a debt while retaining their use. Article L. 714-1 of the French Intellectual Property Code provides that the rights attached to a trade mark may be pledged, and Article L. 132-34 IPC organises the pledge of the right to exploit software. The substantive regime is that of the general law on pledges of intangible movables in the Civil Code.

Pledge of a trade mark

The pledge covers the registered trade mark or the application, for all or some of the goods and services, and may extend to European Union trade marks under Regulation (EU) 2017/1001. It must be in writing on pain of nullity. It is enforceable against third parties only once recorded in the national trade mark register kept by INPI, or in the EUIPO register for an EU trade mark. The ranking of creditors is determined by the date of recordal. The grantor continues to exploit the trade mark and must keep it in force through genuine use and renewal, since revocation or expiry of the sign deprives the creditor of its security. The trade mark may also be included in a pledge of a business, which extends to the industrial property rights attached to the business where the deed so provides.

Pledge of software

Since software is protected by copyright, it is the right of exploitation that is pledged, not the medium or the code itself. Article L. 132-34 IPC requires writing on pain of nullity and, for enforceability, recordal in a special register kept by INPI. The recordal specifies the collateral, in particular the source code and operating documentation, and ceases to have effect if it is not renewed within a period set by statute. In practice, the security is accompanied by an escrow deposit of the source code with a third party so that the creditor can usefully enforce its security. The protection of software by copyright and the presence of open source components determine the real value of the collateral.

Enforcement and limits

If the debtor defaults, the creditor may have the pledged right sold or have ownership of it vested in itself, by court order or under a foreclosure agreement, at a value set by an expert. The pledge confers no right of exploitation on the creditor before enforcement. Its value depends on the prior valuation of the asset, the robustness of the title and the licences already granted, which bind the acquirer. The regime is comparable to that of the pledge of a patent, with which it is often combined in financings of technology companies.

Key points

A trade mark and the right to exploit software may be pledged by a written deed recorded in the relevant INPI register, recordal determining enforceability and ranking. The grantor retains use and must keep the right in force. Before lending against such an asset, check ownership, existing licences, the expiry date and, for software, effective access to the source code.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats is a patent litigation firm. Matters outside that field, such as trade marks, designs, copyright and IT contracts, are handled by practitioners the firm works with regularly, and by the firm itself when they arise in a patent dispute.

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