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Rights and Remedies Upon Default

ContractStandards Analysis
 Article  Type
   Remedies  Transaction Specific

The Rights and Remedies Upon Default clauses of the Intellectual Property Security Agreement vary significantly in the organization of the general elements of the clauses.  However, when deconstructed, the clauses contain many similar elements with highly similar language.  

The primary purpose of the clause is to spell out the rights of the Secured Party upon default and, to this end, the clauses enumerate at least one, if not all, of several different rights.  The clauses also contain some general elements that lay the foundation for the Secured Party to act on those rights, including the grant of any necessary licenses, a disclaimer of non-exclusivity and any notice requirements.  Lastly, many of the clauses contain some of the optional elements below, a large portion of which are dedicated to laying out the rights and framework involved in a sale of the secured intellectual property.

It should be noted that a significant number of the agreements, in lieu of laying out the terms below, simply reference the another agreement, such as a loan agreement, and reiterate the non-exclusive remedies clause.  The first example clause in the examples section at the end demonstrates this language.

General Standard Clause Elements

Necessary Licenses. Company agrees that Secured Party shall at all times have such royalty free licenses, to the extent permitted by law and Company's existing contracts, for any Collateral that shall be reasonably necessary to permit the exercise of any of Secured Party's rights or remedies upon or after the occurrence and during the continuance of an Event of Default.

Remedies Not Exclusive.  Secured Party provided for herein or in the Loan Agreement or any of the Loan Documents, or now or hereafter existing at law or in equity shall be cumulative and concurrent and  the exercise by Collateral Agent or any Secured Party of any one or more of the rights, powers or remedies provided for in this Agreement[, the Loan Agreement or any of the other Loan Documents,] or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Collateral Agent or any Secured Party, of any or all other rights, powers or remedies.

Notice of Sale. The Collateral Agent shall give the Company 10 days' written notice [which Company agrees is reasonable notice] of the Collateral Agent's intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time and place for such sale. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale. 

OR

Waiver of Notice. The Collateral Agent may dispose of any collateral without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to the Company or right of redemption of the Company, which are hereby expressly waived.

Clause Elements Dealing with Rights

Right to Take Possession. The Secured Party shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Company shall assemble the Collateral and make it available to the Secured Party at places which the Secured Party shall reasonably select, whether at the Company's premises or elsewhere, and make available to the Secured Party, without rent, all of the Company's respective premises and facilities for the purpose of the Secured Party taking possession of, removing or putting the Collateral in saleable or disposable form.

Right to Sell. Without limiting the generality of the foregoing, each Company agrees that the Collateral Agent shall have the right, subject to the mandatory requirements of applicable law and the notice requirements described below, to sell or otherwise dispose of all or any part of the Collateral securing the Obligations at a public or private sale, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. 

OR 

Right to Dispose. The Secured Party shall have the right to operate the business of the Company using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Secured Party may deem commercially reasonable.

Right to Enforce. Secured Party shall have the right, but shall in no way be obligated, to bring suit in its own name, or in the name of any Company, to enforce any Patents, Trademarks or Copyrights and, if Secured Party shall commence any such suit, Company shall, at the request of Secured Party, do any and all lawful acts and execute any and all proper documents reasonably required by Secured Party in aid of such enforcement and the Company shall promptly, upon demand, reimburse and indemnify Secured Party for all costs and expenses incurred by Secured Party in the exercise of its rights under this Section. 

Right to License. Effective upon or after the occurrence and during the continuance of an Event of Default, the Secured Party shall have the right to license and/or sublicense any Collateral, whether general, special or otherwise, and whether on an exclusive or a nonexclusive basis, any of the Collateral, throughout the world for such term or terms, on such conditions, and in such manner, as Secured Party in its discretion shall determine.

Optional Additional Clause Elements

Option to Foreclose. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.

Optional Mechanics of Sale Clause Elements
Company Waives Claims Against Purchasers.
Each such purchaser at any sale of Collateral shall hold the property sold absolutely, free from any claim or right on the part of any Company, and each Company hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which such Company now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

Discretion of Agent During Sale.
At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. 

The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. 

The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. 

Liability of Agent After Sale. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. 

Rights of Secured Party to Purchase. At any public (or, to the extent permitted by law, private) sale made pursuant to this Agreement, any Secured Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Company (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Company as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to any Company therefor. 

No Redemption After Purchase Agreement. For purposes hereof, a written agreement to purchase the Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and Company shall not be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.

All Sales Commercially Reasonable. Any sale pursuant to the provisions of this Section shall be deemed to conform to the commercially reasonable standards as provided in the UCC or its equivalent in other jurisdictions.

Discussion

In the event of the borrower’s default, the lender will usually wish to sell the secured IP to pay off any existing loan obligations of the borrower. Ideally, the underlying security agreement should expressly give the lender a power of sale and power of attorney to deal with the IP in place of the borrower (for example, to enter into an assignment agreement with a third party purchaser). Without an express power of sale, the lender will have to apply to Court for an order of sale or the appointment of a receiver.13 If however, security has been granted by way of a deed, the lender will have a statutory power of sale and right to appoint a receiver,14 exercisable without the need to apply to Court. While the IP remains subject to the fixed charge, the lender should impose restrictions on the borrower’s ability to deal with the asset (for example, the grant of licences over the IP). As title to the IP secured by the fixed charge will remain vested in the borrower however, maintenance of the IP will continue to be the responsibility of the borrower. It is therefore important that the security agreement obliges the borrower not to do or omit to do anything which may put either the enforceability or validity of the IP in jeopardy (including failing to pay renewal fees or take action against infringers).
Vanya Bromfield and John Runeckles, Taking Security over Intellectual Property: A Practical Overview (PDF via White & Case)

Merely taking a security interest [in a trademark] will not in and of itself violate the rule against an assignment “in-gross”, or without goodwill, inasmuch as a security interest is not an assignment. If, however, the debtor defaults and the creditor tries to take title to the mark pursuant to the security agreement, the prohibition against assignments “in-gross” may be triggered. Therefore, taking a security interest in a trademark without the associated goodwill could result in the trademark being voided upon foreclosure if the subsequent assignment also takes place without goodwill. In order to avoid this consequence, secured parties are advised to take a lien on other related assets associated with the products marketed under the trademark, such as accounts receivable, to make certain that in the event of foreclosure, the mere act of assignment would not in and of itself destroy the value of the collateral.38 The secured party need only acquire those assets necessary to ensure that a mark will continue to be connected with substantially the same products with which it has become associated.
Scott J. Lebson, Security Interests in Intellectual Property (via Ladas & Parry LLP)

Examples of Rights and Remedies Upon Default Clause

Rights and Remedies. This security interest is granted in conjunction with the security interest granted to Collateral Agent, for the ratable benefit of the Lenders, under the Loan Agreement. The rights and remedies of Collateral Agent with respect to the security interest granted hereby are in addition to those set forth in the Loan Agreement and the other Loan Documents, and those which are now or hereafter available to Collateral Agent and the Lenders as a matter of law or equity. Each right, power and remedy of Collateral Agent and the Lenders provided for herein or in the Loan Agreement or any of the Loan Documents, or now or hereafter existing at law or in equity shall be cumulative and concurrent and shall be in addition to every right, power or remedy provided for herein and the exercise by Collateral Agent or any Lender of any one or more of the rights, powers or remedies provided for in this Intellectual Property Security Agreement, the Loan Agreement or any of the other Loan Documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Collateral Agent or any Lender, of any or all other rights, powers or remedies.
(Intellectual Property Security Agreement, August 31, 2011, [Careveiw Communications, Inc. and Comerica Bank])

Remedies. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right to exercise all the remedies of a secured party under the Massachusetts Uniform Commercial Code, including without limitation the right to require Grantor to assemble the Intellectual Property Collateral and any tangible property in which Lender has a security interest and to make it available to Lender at a place designated by Lender. Lender shall have a nonexclusive, royalty free license to use the Copyrights, Patents, Trademarks, and Mask Works to the extent reasonably necessary to permit Lender to exercise its rights and remedies upon the occurrence and during the continuance of an Event of Default. Grantor will pay any expenses (including reasonable attorney’s fees) incurred by Lender in connection with the exercise of any of Lender’s rights hereunder, including without limitation any expense incurred in disposing of the Intellectual Property Collateral in accordance with the terms hereof. All of Lender’s rights and remedies with respect to the Intellectual Property Collateral shall be cumulative.
(Intellectual Property Security Agreement, May 21, 2008, [Cyoptics Inc. and Silicon Valley Bank])

Remedies Upon Default.
     (a)     If any Event of Default shall have occurred and be continuing, the Lender may to the full extent permitted by law (1) exercise any and all rights as beneficial and legal owner of the Pledged Collateral, including, without limitation, perfecting assignment of any and all contractual rights and powers with respect to the Pledged Collateral and (2) sell or assign or grant a license to use, or cause to be sold, assigned or licensed any or all of the Pledged Collateral (in the case of Trademarks, along with the goodwill associated therewith) or any part thereof, in each case, free of all rights and claims of Pledgor therein and thereto. In accordance with such rights, the Lender shall have (A) the right to cause any or all of the Pledged Collateral to be transferred of record into the name of the Lender or its nominee and (B) the right to impose (i) such limitations and restrictions on the sale or assignment of the Pledged Collateral as the Secured Parties may deem to be necessary or appropriate to comply with any law, rule or regulation (federal, state or local) having applicability to the sale or assignment, and (ii) any necessary or appropriate requirements for any required governmental approvals or consents.

     (b)     Except as provided in this Section 8 and other express notice provisions of the Loan Documents, Pledgor hereby expressly waives, to the fullest extent permitted by applicable law, any and all notices, advertisements, hearings or process of law in connection with the exercise by the Secured Parties of any of their rights and remedies hereunder.

     (c) Pledgor agrees that, to the extent notice of sale shall be required by law, ten (10) days' notice from the Lender of the time and place of any public sale or of the time after which a private sale or other intended disposition is to take place shall be commercially reasonable notification of such matters. In addition to the rights and remedies provided in this Agreement and in the other Loan Documents, the Secured Parties shall have all the rights and remedies of a secured party under the UCC.

     (d) Except as otherwise provided herein, Pledgor hereby waives, to the fullest extent permitted by applicable law, notice or judicial hearing in connection with the Lender's taking possession or the Lender's disposition of any of the Pledged Collateral, including, without limitation, any and all prior notice and rights to a hearing for any prejudgment remedy or remedies and any such right which Pledgor would otherwise have under law, and Pledgor hereby further waives to the extent permitted by applicable law: (1) all damages occasioned by any such taking of possession; (2) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Secured Parties' rights hereunder; and (3) all rights of redemption, appraisal, valuation, stay, extension or moratorium now or hereafter in force under any applicable law. Any sale of, or the grant of options to purchase, or any other realization upon, any Pledged Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of Pledgor therein and thereto, and shall be a perpetual bar both at law and in equity against Pledgor and against any and all Persons claiming or attempting to claim the Pledged Collateral so sold, optioned or realized upon, or any part thereof, from, through or under Pledgor.
(Intellectual Property Security Agreement (via OneCLE), May 1, 199, [Navsite, Inc. and CMGI, Inc.])