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Collateralizing your Trademarks

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Multinational corporations as well as SMEs around the world, are leveraging their IP assets in exchange for finance. Bank and non-bank institutions around the world are increasingly extending their business to provide loans on the basis of IP assets.

Most readers are familiar with traditional IP financing tools such as licensing (royalties) and direct sales of trademarks. To that, we remind our readers that, back in June 2020, we saw a complete overhaul of the Cypriot Trademarks law, Cap 268 (the ‘Law’). The amendment with No. 63(Ι) of 2020 brought several significant changes. In this article we will explore a new way provided by the Law, that is trademark pledging.

By now, all trademark owners should have figured out that their registrations are of great importance. This of course, does not hold the same weight for all possible lenders in the market. Thus, let us have a look at some important facts about brands and trademarks.

Brand Finance has published its Global 500 report for 2021. Apple’s brand value has been increased by 87% to an impressive US$263.4 billion. Apple has regained the No. 1 position in this race from Amazon who, despite relinquishing its position at the top, has still managed to record a 15% brand value growth to US$254.2 billion. Google sits in third spot with a brand value of US$191.2 billion.

Brands constitute the stepping stone and the unbreakable link between the company and the customer. Brands infuse to the customer the very first thoughts that come to mind for the specific company and stand as a remainder for the company’s modus operandi and reliability.

Trademarks are the shield and sword of every brand: their legal attaché. Between them exists a parasitic relationship. Trademarks are not just random words or symbols. They represent the sum parts of the company.

The Cypriot IP Registrar statistics report, recorded more than 1000 Trademark registrations up until August 2021 and more than 1200 renewals. These statistics showcase the increasing value attached by corporations and SMEs to trademarks in the international as well as the local market.

Pledging

Pledging may be used by a borrower in order to secure a loan or obtain access to capital, one which could otherwise be denied. In a pledging agreement, the borrower offers the asset as collateral for a loan and the lender secures the debt by recording a pledge over the asset. In a pledge, the borrower holds real control of the asset and the lender, who hypothetically controls it, and has the right to seize possession if the borrower defaults. A valuable asset can be used as collateral. This asset may be any tangible property as well as any intangible property, and as we have already established above, one of the most valuable assets of the company, is undoubtedly its trademarks.

Trademark pledging

Trademark law, Cap 268 notes under Section 20 that a trademark as a proprietary object, may be given as security or become the object of a pledge, a right in rem or levy of execution, irrespective of the undertaking, or may be the subject of insolvency proceedings.

Helping your business

It would therefore appear that if a company attempts to secure a loan, and experiences difficulties in obtaining collateral, using trademarks as pledging material may solve this problem.

However, the vast majority of entrepreneurs are not aware of the fact that intellectual property, and more specifically trademarks, can serve as collateral for a loan.

Let us not forget that trademarks are being used by businesses in everyday trade, through marketing, product distribution and service provision. In this way, the trademark acquires goodwill which is in turn available to be leveraged for licensing and pledging purposes.

So why not utilize this great opportunity by registering your trademark today?

Michael Kyprianou & Co LLC has a leading Intellectual Property practice with a team of experienced lawyers who are able to advise and assist clients in relation to both contentious and non-contentious IP matters.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. If you need any advice in relation to Intellectual Property rights, please contact our Head of IP, Agis Charalambous, at +357 22 4477777 or at agis.charalambous@kyprianou.com

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