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The Effect of Ipso Facto Reforms on Your IP Agreements

The owners of intellectual property (IP) assets have used various types of agreements to commercialise their assets. The agreements typically allow a third party to use the IP assets in return for payment of a monetary sum. These agreements may take the form of a licence agreement, joint venture or even franchise agreement.

An important protection for the owner of the IP assets has been the typical ipso facto clause that enables the IP asset owner to terminate the agreement when the third party goes into external administration, irrespective of what form the administration takes.  The ability of the IP asset owner to prevent receivers, administrators and liquidators from using their assets is a fundamental protection.

From 1 July 2018 the amendments to the Corporations Act in particular section 451E have placed a stay upon the effect of such clauses.

In summary, an external administrator will retain the usage of IP asset rights upon appointment.  This has serious consequences both as to the ownership of IP assets and also the enforcement of economic rights associated with those assets.

The stay of enforcement of the ipso factor clause will run until:

(a)           the administration ends;

(b)           the administration ends because of a resolution for the company to be wound up when the company’s affairs have been fully wound up;

(c)           when control of the receiver ends; or

(d)           on a date determined by an order of a Court.

There is no time limit restrictions in respect to any Court ordered extended stay.

The Corporation Regulations provide for certain contractual arrangements to be exempt from the stay provisions.  In summary some of these types of contracts include:

  • – contracts and agreements with government;
  • – contracts and agreements for supply of a central or critical goods or services;
  • – contracts relating to securities and financial products;
  • – contracts between sophisticated parties such as those involved in a special purpose vehicle;
  • – contracts relating to commercial charter of a vessel;
  • – contracts relating to the operators of a financial market; and
  • – contracts relating to building and construction agreements.

As a general rule the types of agreements adopted by the owners of IP assets do not fall within any of the exceptions.

As a consequence of these changes, it is an imperative for any owner of an IP asset to have their commercial arrangements revisited and reviewed to ascertain whether the ipso facto provisions will be effective at the very time they are sought to be relied upon.

Of particular note is that termination rights as a result of non‑performance have not formed part of the stay provisions and consequently careful drafting of agreements to maintain this protection is an imperative.

Any company seeking to reply upon an ipso facto clause to terminate a contract entered into after 1 July 2018 should seek advice as such termination may be illegal and may constitute repudiation of the contract exposing the IP asset holder to termination, and an award of damages.  Any and all owner of IP assets should undertake the following tasks:

  • – review each and every agreement in which an ipso facto provision exists;
  • – seek legal advice in relation to any amendments or variations required to the agreement.

We at Madison Marcus are experienced in respect to advising businesses on their IP commercialisation agreements and the interaction with the Corporations Act.  If you have any questions then do not hesitate to contact Stephen Jenkins, Partner – Intellectual Property at Madison Marcus.

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