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Written by : Alexander Askia
Current : 9706
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welcome to law Pat's legal education videos my name is Damon Murdock I've been a lawyer here for over 10 years today we're going to talk about interrelated license agreements a lot of time when you set up your corporate structure you might have a holding company and then under your holding company you have a subsidiary and that subsidiary is wholly owned or sometimes 100% owned by the parent company sometimes you also have an IP company where the IP company is wholly owned by the holding company and the subsidiary is using the technology of the IP company in any case what you want to do is make sure that your IP is not held by the company that's actually trading the reason is is that your trading company is the company that takes on liability and if something ever happened you don't want to lose all your intellectual property so what most people do is they set it up so that the holding company owns the intellectual property or the IP company holds the other intellectual property and then from there it's licensed from the holding company down to the subsidiary and when you prepare this License Agreement a lot of times it says the subsidiary is allowed to use the intellectual property during the term for a fixed period of time and the subsidiary will pay the holding company and annual royalty now what happens if the subsidiary goes down and it's closed down and all the intellectual property that has been developed by the subsidiary on top of the original IP that was given to it by the holding company well you could lose all that intellectual property so we need to look at how do you protect your IP from a situation where your subsidiary eventually goes in or liquidation I don't like talking about administration or liquidation but that's the fact it's a reality and it happens especially happens in two high-growth companies mostly because of cash flow issues now let's look at this License Agreement what we normally do is we draft in a way that we license the IP down to the subsidiary we pay a royalty from the satheri subsidiary back up to the parent company and we have it for a fixed term we also draft what's called a default event clause the default event Clause says that if anything happens to subsidiary such as it having a debt that it can't pay going into administration liquidator appointed the company decides to wind it up any of those scenarios then the IP that's held by that subsidiary is automatically reverted back to the holding company not only does it revert back up to the holding company of the IP that was originally given to it or licensed to it that includes all the add ons the modifications anything that's been developed on top of that you might even also include client lists what's important is to get it right and if you can get it right it protects you but what's the most important thing to do is to have a PPS a clause that's the personal property Securities Act and you want a clause that secures the parent company interest in the subsidiary that is the PPS a allows companies to register an interest against another company so it's similar to financing your car you buy a car you get finance on your car you have possession in your car but although you own your car there's still a registered charge against it by the finance company if you don't pay your debt now that finance company can come back and take your car from you this is very similar you have a PPS a or PPS AR which is a personal property security registration on behalf of the holding company against the subsidiary so if anything happens to the subsidiary you can walk in and you can take your IT IP back and drink it back up to the holding company now what's also important is once you sign that License Agreement generally speaking you have 20 days to perfect your interests that means that you have 20 days to lodge an application with the PPS or pursuant to the PPS a so then you have that charge registered against your subsidiary what's also important to know is that if you don't register the PPS a and you do nothing until the company the subsidiaries put into administration or put in liquidation there's a real risk that your License Agreement or your protections that you thought you had via the License Agreement won't actually exist and that's because there is a section of the Act which says if you don't put affected in two months from the agreement coming into place and if you do not effect it until six months before the acne winding up or they the liquidation or the appointment of administrator if you put a PPS are against the subsidiary within six months from that event happening there's a good likelihood that the administrator or the liquidator will be able to overturn your registration so at the end of the day it's really important to get a lawyer most likely to look at your license agreement and if you don't get a lawyer to look at a license agreement make sure you get a contract that's be prepared by a lawyer don't just find it off the internet these are very tailored documents that are between related entities thank you for watching our video for more videos make sure you subscribe to the all paths on YouTube channel for more information visit la paz website wwlp.com a year I'll see you next time
Thanks for your comment Enoch Pyfer, have a nice day.
- Alexander Askia, Staff Member
Thanks for this interesting article
Thanks Kristine your participation is very much appreciated
- Alexander Askia
About the author
I've studied european archaeology at Truett McConnell University in Cleveland and I am an expert in space medicine. I usually feel apathetic. My previous job was audiovisual production specialist I held this position for 22 years, I love talking about archery and fat tire biking. Huge fan of Vin Diesel I practice kickboxing and collect fabric and textiles.
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