VZCZCXRO1638
PP RUEHRN
DE RUEHUNV #0525/01 3221522
ZNR UUUUU ZZH
P 181522Z NOV 09
FM USMISSION UNVIE VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 0307
INFO RUEHVI/AMEMBASSY VIENNA 1495
RUCNDT/USMISSION USUN NEW YORK 1792
RUEHBS/AMEMBASSY BRUSSELS 0332
RUEHRN/USMISSION UN ROME 0077
RUEHXX/GENEVA IO MISSIONS COLLECTIVE
RUEHFR/AMEMBASSY PARIS 1167

UNCLAS SECTION 01 OF 03 UNVIE VIENNA 000525 
 
DEPT FOR L/PIL, L/CID, L/EB 
EMBASSIES FOR ECON/POL 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: AORC EINV ETRD UNCITRAL AU UN
 
SUBJECT: UNCITRAL SECURED TRANSACTIONS NEGOTIATIONS NEARING 
COMPLETION 
 
¶1.  Summary.  Excellent progress was made during the November 2-6 
United Nations Commission on International Trade Law (UNCITRAL) 
Working Group (WG) discussions on a Supplement to the 2007 UNCITRAL 
Legislative Guide on Secured Transactions ("the Guide") that deals 
with security rights in intellectual property (IP).  Work is 
expected to be completed at the February 2010 WG session.  The 
Supplement is then expected to be adopted at the next Commission 
session in July 2010.  The WG also discussed the plans of the 
Secretariat for the International Colloquium on Secured Transactions 
in Vienna, March, 1-3, 2010, concerning the WG's future work program 
after completion of the IP Supplement.  End Summary. 
 
----------------- 
WG Makes Progress 
on Supplement 
----------------- 
 
¶1.  WG VI (Secured Transactions) continued its ongoing work on the 
preparation of a supplement to the 2007 Guide on security rights in 
IP ("Supplement") in Vienna from November 2-6.  At its 40th Session 
in 2007 UNCITRAL decided that the WG should undertake work on 
security rights in IP in response to the desire to provide specific 
guidance to States regarding the appropriate coordination between 
secured transactions law as reflected in the Guide and IP law.  The 
WG made excellent progress and was able to complete a third reading 
of the entire draft Supplement.  At the conclusion of the session, 
the WG was of the view that it should be able to complete its work 
on the draft Supplement at its February 8-12, 2010 session.  The WG 
would then be in a position to submit the Supplement to the 
Commission for final approval and adoption at its 2010 session. 
 
----------------------- 
Special Priority Rights 
Issue Resolved 
----------------------- 
 
¶2.  The WG was able to resolve one of the key remaining 
issues-whether the Supplement should recommend that the law should 
provide for special priority rights for acquisition security rights 
in IP in the same way that the Guide recommends special priority 
rights for acquisition security rights in tangible assets.  Even 
though the proposal goes beyond U.S. law under Article 9 of the 
Uniform Commercial Code (which provides such "superpriority" for 
purchase-money security interests only for security interests in 
goods), it was agreed that, for the same reasons the Guide provides 
for an acquisition security right in tangible assets, the Supplement 
should provide for an acquisition security right in IP or a license 
of IP whereby the acquisition secured creditor would have priority 
over competing security rights in the same IP previously granted by 
the same grantor so long as the acquisition secured creditor follows 
the applicable procedural requirements set forth in the Guide. 
 
¶3.  The WG also decided that the Supplement should not depart from 
the approach followed in the Guide by providing more favorable 
rights for acquisition secured creditors with respect to IP than the 
Guide provides for such secured creditors with respect to tangible 
assets (and, thus, rejected the suggestion that the "superpriority" 
of an acquisition security right in IP should extend further to 
proceeds of that IP than is the case for acquisition security rights 
in tangible property).  A number of States took the position that it 
was essential for the Guide and Supplement to provide one 
acquisition financing regime for all types of assets and not to 
introduce several regimes depending on the type of asset involved-a 
result that would make the Guide and Supplement very difficult to 
understand and apply. Moreover, it was pointed out that it would be 
too risky for the Supplement to adopt an approach for IP that would 
change the balance established in the Guide after discussions over a 
long period of time among the interests of the various credit 
providers and that essentially was not followed in any legal 
system. 
 
---------------------------------- 
Non-Exclusive Licenses in Ordinary 
Course of Business Tackled 
---------------------------------- 
 
¶4.  U.S. law under Article 9 of the Uniform Commercial Code provides 
that a non-exclusive licensee who obtains its license in ordinary 
course of business takes free of a security interest granted by its 
licensor.  The Guide had previously adopted a recommendation along 
the lines of U.S. law.  Delegates from European countries and some 
IP stakeholders had argued, however, that the concept of protecting 
 
UNVIE VIEN 00000525  002 OF 003 
 
 
"ordinary course licensees" does not exist in IP law and therefore 
has no place in law governing security rights in IP.  Accordingly, 
the WG accommodated this objection and decided to bring about 
substantially the same result by a different means.  The WG decided 
that, in the context of IP, the Supplement should supplant the 
Guide's recommendation with a new recommendation that would 
implement the results that would be brought about by the Guide, but 
without use of the term "ordinary course of business."  Instead, the 
Supplement would provide that a non-exclusive licensee that obtains 
its license in a transaction available to all from a rights holder 
who has previously granted a security right in the licensed IP 
(e.g., a consumer who purchases "off the shelf" copies of 
copyrighted software) may enjoy its rights notwithstanding 
enforcement of the security right so long as the licensee fulfills 
all of its obligations on the license contract.  While the precise 
wording of the provision will need to be resolved at the next 
session, the language will carefully indicate that this provision in 
no way validates a license that is unauthorized under IP law (e.g., 
a "pirated" license). 
 
-------------------------- 
Thorny Issue of Applicable 
Law Still to Be Resolved 
-------------------------- 
 
¶5.  The WG also made process on the most difficult remaining 
conceptual issue concerning the choice of law for security rights in 
IP.  The Guide provides that all issues relating to security rights 
in intangible property are governed by the law of the State in which 
the grantor is located.  There has been general recognition, 
however, that this matter needed additional study for security 
rights in IP.  Several rules had been under consideration prior to 
this meeting, ranging from a pure "lex protectionis" approach 
pursuant to which all matters relating to security rights in IP 
would be governed by the State under whose laws the IP is protected, 
to an approach like that of the Guide, to a variety of "blended" 
approaches pursuant to which "lex protectionis" would govern some 
issues while the law of the grantor's location would govern other 
issues.  Several EU countries, along with some IP stakeholders, have 
argued that the "lex protectionis" should govern all issues 
concerning security rights in IP (creation, third-party 
effectiveness, priority, and enforcement of a security right). 
Others argued that applying the law of the grantor's location to 
those matters (the general rule for security rights in intangibles 
under the Guide) would provide the optimal result, since in typical 
transactions in which the collateral consists not only of IP rights 
but also of other intangible rights it would generally result in the 
application of a single law for all issues.  A third option-proposed 
by the Permanent Bureau of the Hague Conference on Private 
International Law and supported in principle as a possible solution 
by the USDEL-would provide a blended approach under which the law of 
the grantor's location would govern most issues, but the third-party 
effectiveness and priority of a security right in IP as against a 
buyer or similar transferee of the intellectual property would be 
governed by "lex protectionis."  At present there is no consensus 
approach but variations of the blended approach appeared to gain 
traction at the session, including among some IP stakeholders. 
 
-------------------- 
Agenda for 2010 
Colloquium Discussed 
-------------------- 
 
¶6.  The WG also briefly discussed the upcoming UNCITRAL 
International Colloquium on Secured Transactions which will be held 
in Vienna, March 1-3, 2010. The Secretariat stated that the purpose 
of the Colloquium-consistent with the decision taken by the 
Commission at its July 2009 session-is to develop a recommendation 
for a future work program based on the views of governments, 
international organizations and the private sector.  The proposals 
that will be discussed at the Colloquium include the following: 
(a) A supplement to the Guide on security rights in securities not 
covered by the Convention on Substantive Rules for Intermediated 
Securities ("UNIDROIT") (i.e., so-called indirectly held 
securities); 
 
(b) A legislative guide on security rights registries, supplementing 
the work of UNCITRAL's Legislative Guide on Secured Transactions. 
(Note.  This project might be similar to the project resulting in 
the recently-adopted OAS model registry regulations.  End note.); 
 
(c) A guide on secured financing contracts and agreements, including 
 
UNVIE VIEN 00000525  003 OF 003 
 
 
a discussion of the issues that should be addressed in such 
agreements and a set of rules that would be applicable in the 
absence of contrary agreement of the parties; 
 
(d)  A guide on IP licensing contracts and agreements (the 
Secretariat stated that this project would need to be conducted 
jointly with the WIPO Secretariat); 
 
(e) A model law on secured transactions incorporating the 
recommendations of the Guide and the Supplement on IP; and, 
 
(f)  A text on franchising (initially proposed by Mexico) addressing 
general practices including those relating to trademarks and taking 
into account the UNIDROIT Model Franchise Disclosure Law. 
 
¶7.  The Commission will take a decision on the future work program 
for the WG at its July 2010 session in Vienna based upon the 
recommendations in the Secretariat report of the Colloquium.  (Note. 
 The USDEL generally has informally supported the model registry 
regulations option as the next work program for the WG because it 
would provide an important framework for implementation of the 
Guide.  The vast majority of countries in the world do not have 
general registries for secured transactions.  End note.) 
 
------- 
Comment 
------- 
 
¶8.  In initial negotiating sessions, discussions over the text of 
the Supplement with European delegations and U.S. IP stakeholders 
were difficult.  These delegations and stakeholders repeatedly 
expressed concern about the effects of the Guide on IP law. 
However, through close cooperation with U.S. IP stakeholders, 
including through a series of public meetings, innovative drafting 
solutions, and with the Supplement nearing completion, negotiations 
have moved more quickly and a consensus approach appears to be 
achievable on all issues.  A key point has been to explain to IP 
stakeholders that the Guide and Supplement defer to and will not 
interfere with rights established under IP law.  USDEL will continue 
to make this point in the WG to concerned parties. 
 
DAVIES