When do the laws of The Netherlands apply to an international transfer of intellectual property – IP? The general rule of private international law is that the transfer of an international portfolio of intellectual property rights may require compliance with the transfer requirements of each national law in which the IP rights of that portfolio exist and compliance with the law that applies to the underlying sales agreement that creates the obligation to transfer the IP rights. Therefore, it may be that the requirements of the laws of The Netherlands for a valid transfer of rights must be met, when Dutch IP rights are transferred as part of an international IP portfolio or when Dutch law applies to the sale or transfer agreement because it is the chosen law or it is the law of the domicile of the transferring party.
What are the requirements for a valid transfer of IP rights under the laws of The Netherlands? As a matter of Dutch law, a legally valid transfer of ownership is based on two pillars: an obligation to transfer and a deed of assignment. Step 1 is that a legally valid transfer needs to be based on an existing legal obligation to transfer. This is, for example, a sales contract. However, under the laws of The Netherlands the sales contract itself does not make the buyer the owner. That requires a second step. The execution of a written deed of transfer, in which the IP rights are actually assigned to the buyer. Once the deed is signed, the buyer has become the new owner of the IP rights. Even if the deed is not yet registered in the relevant IP registers, which some IP rights have, such as patents, trademarks, design rights and plant variety rights.
What can go wrong? There may be an obligation defect or a deed defect.
When is there an obligation defect? The obligation may not exist: the rights are assigned but without an obligation to do so. The obligation may also be defective. There is a sales contract, but it may be null and void because of coercion, error, or deception. The purchase agreement may also be fraudulent because it was agreed to shortly before a bankruptcy of the transferring party and does not contain a price that corresponds with the fair market value of the IP rights. The obligation should also make clear which IP rights are being sold. The IP rights that are sold should be clearly identifiable. For example, all existing copyrights of an author, or all patents and patent applications for an invention. Are these only the IP rights in the Netherlands or also the European or even worldwide IP rights?
What is the result of an obligation defect? Simply that the transfer has not taken place. The seller has remained the owner, even though the purchase price may have been paid or the deed of transfer has been signed and may even have been registered in the patent or trademark register. The buyer is then left empty-handed and must see to recover the purchase price.
There may also be a deed defect. There is no deed of assignment. A sales contract has been agreed, and the purchase price has been paid, but a deed of assignment has never been properly executed. The deed of assignment may also be defective. There is a signed deed, but it does not clearly state that the rights are transferred or assigned, or it may have been executed under coercion, error, or deception. The deed may also be fraudulently executed before a bankruptcy of the seller. Or the deed was not signed by the seller or the other parties. The deed should be clear on which IP rights are being assigned. The IP rights that are assigned should be clearly identifiable in the deed.
What is the result of a deed defect? Also, in case of a deed defect, the transfer has not taken place. The seller has remained the owner, even though the purchase price may have been paid and a sales contract may exist. The buyer is again left empty-handed and if the purchase price was already paid, the buyer will have to see whether he will be repaid.
When does it go wrong? When may it become clear that a transfer of IP rights was defective? This may be when the original buyer wants to sell the acquired IP rights in the future. The prospective second buyer will do his homework – ‘due diligence’ – and if it turns out that the seller does not actually own the IP rights, that second buyer will walk away. A defective transfer may also come to light when the original seller goes bankrupt. The bankruptcy trustee of the seller will check whether any sales or transfers of IP rights that have taken place before the bankruptcy were legal, valid, and binding, whether the sales price was reasonable and fair and has indeed been paid. If one of these conditions is not fulfilled, the receiver may reclaim the IP rights for the benefit of the joint creditors of the bankrupt seller. Given that there is a bankruptcy, the buyer will probably not be able to get his money back.
Who feels the pain? The risk related to a transfer of IP rights is for the buyer. Seeking advice is therefore the prudent thing to do for any buyer of IP rights.