Securitisation of IP, or IP as security?

I spent Wednesday afternoon at a seminar – Jeremy’s seminar, I almost called it, though I suspect he would claim no proprietary rights in it – on IP rights and the UNCITRAL secured transactions project, documents about which are available here. To cut a long story short, UNCITRAL is working on a Legislative Guide on Secured Transactions, and has been for years. There’s a draft supplement to the Guide dealing with security rights in intellectual property, and work in that area is intended to deal with inconsistencies between the Guide and IP law.
If there are gaps in my understanding (and there certainly are), it’s my fault for going to a seminar without doing much background reading – a habit I fell into at university ... OK, let’s be more precise: I did no background reading, except for glancing at a four-page document put out in advance of the seminar on the tube to Holborn; and while I am confessing, I got round the problem at university by not going to the seminars for which I hadn’t done the reading, which is quite an elegant solution but probably wouldn’t get me very far in the modern world. There’s a lot to read on the subject on the IP Finance blog if you are more diligent than I was.
The note prepared for the seminar identified four areas of inconsistency: integrity of licence provisions, choice of law, the concept of “ordinary course of business” licences and continuous filing obligations. I formed the impression that some at least of the problems might stem from a lack of understanding in some quarters of what intellectual property is all about (and, mounting my favourite hobby-horse, the more fundamental problem that talking about IP can lead to an insufficiently nuanced approach to the individual rights to which the collective name applies), while there also seemed to be some confusion about the differences between secured transactions and securitisation. IP has been used as security for a long, long time with no particular difficulties – indeed, I have today been working on a deed of release of a debenture which charges, inter alia, “all letters patent, trademarks, service marks, designs, utility models, copyrights, design rights applications for registration of any of them and the right to apply for them in any part of the world, In addition [sic] moral rights, inventions, confidential information, know-how and rights of a similar nature arising or subsisting anywhere in the world in relation to all or any of the above (whether registered or unregistered) now or any any time afterwards belonging to the Company”. But that’s not the same as securitisation – a point made by the chairman of the seminar, Prof Graham Penn, who explained (and for this I for one was grateful) that it refers to bundling together a number of assets, vesting them in a special-purpose vehicle (an SPV: nothing to do with motorised variety of vehicles) and hawking the bundle around as security for bonds. Which is what a lot of allegedly clever people did with sub-prime mortgages a while ago, I think, and what David Bowie did earlier with his copyright, which is why he has been blamed by some for the state of the global economy.
I can see that there are problems to do with the rights of licensees when IP is used as security, or (even worse) when it is securitised. The problem is greater, indeed, in a securitisation transaction, because what is being charged is the royalty flow and the integrity of the licences becomes crucial to the ability of the pack of cards to remain standing. If the licensee could terminate, the security would be close to worthless. The secured creditor cannot obtain greater rights than those of the chargor - the basic principle of nemo dat should see to that. The terms of the licence must apply to the secured creditor in the same way that they apply to the chargor (or grantor), and can't be changed without the grantor's consent. But does the licensor retain the ability to terminate the licence (in the event, perhaps, of breach or insolvency of the licensee)? The right to assign intellectual property rights (which seem to include the rights of a licensee) are, according to the UNCITRAL documents, not affected by the law on secured transactions. Quite, right, I think - surely this is something that the covenants need to cover?
Can the licensor have priority over a licensee's secured creditor for the payment of royalties? This does seem, properly, a matter for secured transactions law. The UNCITRAL Working Group floats the idea of an "acquisition security right", but isn't it also something that can be dealt with adequately in the covenants?
The document that creates the charge should also be able to deal with choice of law problems - although, clearly, there needs to be something to prevent rules applying that cold thwart the parties' choice, and of course the weaker party might have no alternative but to accept the offer it cannot refuse. This is probably an area on which international agreement is needed.
The difficulty with having security rights over IP is that a licensee wil take the licence subject to the chargee's rights. It's often inconceivable that the licensee will carry out investigations - for example, the licence might be a software licence which the licensee isn't even likely to read. The Working Group suggests protecting purchasers (my choice of word, though I don't like to use it in this context) of standard-form licences by creating a class of "ordinary course of business" licences which would preserve the rights of the licensee. Provided it is strictly limited to these easy cases, such a development should deal with the problem.
What about registering intersts in IP rights? In the UK, it is possible to get something on the register - but of course this doesn't help with copyright or design right (or, now, Community unregistered design right), and it duplicates the content of registers of security interests. If such registration were compulsory, in which country's register should the interest appear? All of those where IP rights are charged? And how to deal with copyright and other unregistered rights?
I wondered at one stage whether this was just UNCITRAl doing what any bureaucracy is bound to do - find work for itself. Some of the points under discussion don't seem to me to contribute anything to the sum of human happiness. But wider ability to raise finance on the security of intellectual property (whatever that is), including royalty streams from licences and sublicences, is hugely important to the owners of such property - and if people are prepared to lend the money, should we be picky about whether the law should accommodate it or not? The attraction - or perhaps I should say the advertised attraction - of improving the acceptablity of IP as security is said to be the benefit that this will bring to developing nations. I would however hate to see them fall deeper into the debt trap as a result, like sub-prime borrowers enticed into taking out mortgages they could not afford. Is this really the right moment for the IP world to be entering the dodgy territory of secured lending - or, worse still, securitisation?