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From Bowie Securities to Brand Bonds

Apparently David Bowie was one of the first copyright owners to “securitize” his portfolio of copyrights. (He “floated $55 million worth in 1997, backed by 300 song titles, with the interest covered by royalty payments from the songs.”) Now Sears is taking the trend to trademark, announcing a potentially huge financial transaction based on “brand bonds:”

BusinessWeek has learned that Sears has created $1.8 billion worth of securities based on the brand names Kenmore, Craftsman, and DieHard. In essence, it has transferred ownership of the brands to another entity, which it then pays for the right to use the brands. The deal, carried off last May, was the biggest “securitization” of intellectual property in history. . . .

Turns out I’m teaching about “trademark in gross” this week, so the story piqued me. Investment gurus are crediting Sears Chairman Eddie Lampert for “unlocking value” in the company. One consultant “says the potential for a market in bonds backed by intangible assets could be even bigger than the market for junk bonds, given that 70% to 80% of the total value of the stock market rests on intangibles such as intellectual property.”

But critics are worried; according to some accountants, “The company has put the ownership of its three core brands out of the reach of existing bondholders if the retailer ever ends up in bankruptcy[,] [and] ‘Lampert has mortgaged Sears’ crown jewels.'”

The deals raise some interesting issues about how IP law would regulate the relationship between the TM bond owners and the company that issues them. According to the piece, “if Sears were to sell the bonds to outsiders. . . . [it] would be holding up to $1.8 billion in cash, and investors would be holding the bonds.” But who gets to sue if infringement occurs?

7 thoughts on “From Bowie Securities to Brand Bonds”

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  2. Fascinating — and timely. Can I say, simply, that IP “things” strike again?

    But seriously: The article isn’t clear, but it doesn’t sound to me like Sears has sold the brands themselves. Instead, the marks are security in case the bond issuer (Sears) defaults. That raises an interesting question, but it’s not a question of who gets to sue — today — if infringement occurs. If there is a default, and the bondholder takes the security, then is enforcement of the marks prohibited — in the future — by the rule against assignments of trademarks in gross? That likely depends on the terms of the bond indenture: what, exactly, is being held as collateral?

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  4. Thanks, Mike. That does clear things up re the finance side. There is some question in my IP textbook on “what would happen if a lender foreclosed on a trademark,” but they don’t answer it!

    And welcome AboveTheLaw readers!

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