1. Intellectual property and its objects
There are a lot of scientific and practical researches made in the ambit of intellectual property. However, being a complex rather than simple, the notion of intellectual property (hereinafter – IP) requires to be defined.
Some words about the terms “intellectual property” and its “objects”. The most common definition of intellectual property refers to the right of defined persons to the results of creative and intellectual activity of these persons or other persons.
The definition of IP given by legislation also refers to “the exclusive right of a person or legal entity to creations of the mind as well as equal to them means of individualization of a legal entity, products, works and services of individuals or legal entities (business name, trademark, services mark, etc)” (Article 97 of the Civil Code of Uzbekistan).
At the same time, the civil legislation of Uzbekistan defines three groups of IP objects (please note that here we do not talk about the types but the objects of IP, subject to some extent of conditionality):
1) Results of intellectual activities:
Works of science, literature and art; performances, sound records, broadcasts; computer programs and databases; inventions, utility models, industrial designs, selection achievements, confidential information including ‘know-how’;
2) Means of individualization of economy actors, products, works and services:
Business names, trademarks (service marks); appellations of origin;
3) Other results of intellectual activity and means of individualization of economy actors, products, works and services in cases provided by the Civil Code of Uzbekistan or other legislative acts.
It should be noted that all IP objects, in their turn, are the objects of civil rights the circulation of which is universal.
One should be reminded that the objects of civil rights refer to items including monies and securities, other things, including rights in rem, works and services, inventions, industrial designs, works of science, literature, art and other results of intellectual activity, as well as personal non-property rights and other tangible and intangible benefits.
The objects of civil rights can be freely disposed and transferred in the order of universal continuity (inheritance, reorganization of a legal entity), or by other ways, given that the objects are not removed from and restricted in circulation (Article 82 of the Civil Code of Uzbekistan).
The aforesaid notion will be a starting point for discussing the IP objects as capital contributions in companies.
2. Capital contributions
As it is known, the main form of doing business in almost any country of the world is the creation of a legal entity (commercial and non-commercial organization).
In practice, the most widely spread types of commercial organizations in Uzbekistan within the scope of our discussion is a limited liability company (LLC). Although rarely, one establishes a business structure in the form of a private enterprise (PE) or a commercial partnership (CP).
The limited liability company refers to a company established by one or several persons, the authorized capital (charter fund) of which is divided into shares at the amount as defined by foundation documents of the company.
The authorized capital (charter fund) of an LLC is formed with par value of shares.
Contribution to the authorized capital (charter fund) can be monies, securities, contributions in-kind or rights in rem, or other alienable rights which have monetary value.
The monetary value of contributions in-kind made by the participants of the company shall be approved by the General Meeting of the Participants of the company unanimously.
3. IP objects as capital contribution and specific characteristics of their legal status
Supplement to the abovementioned provision of the Civil Code regarding the universal circulation of the objects of civil rights including those to the IP objects, the Law of Uzbekistan on Limited and Additional Liability Companies also stipulates that in case the founders of the company make contributions in-kind, they shall approve the monetary value of such contributions.
One should admit that the definition of the “contribution” to the authorized capital (charter fund) of the company as given by the Law of Uzbekistan on Limited and Additional Liability Companies, in our opinion, does not precisely determine the scope of its elements. Namely, it remains unclear what can be included to this definition, which specific objects of rights can be made as capital contributions.
At the same time, “rights in rem or other alienable rights which have monetary value” generally enables the IP objects to be included to the elements of this definition. Furthermore, while defining the legal status of a “business entity” as property complex (during the sale of real property), the legislator defined the elements of this definition more broadly and clearly: “the entity being a property complex contains all types of property intended for its activity, including land, buildings, facilities, equipment, inventory, raw materials, products, claims, debts, as well as rights to names which individualize the entity, its products, works and services (business names, trademarks, services marks), and other exclusive rights unless otherwise provided by law”.
We propose to introduce due amendments to Article 15 of the Law on Limited and Additional Liability Companies which would limit the definition to only “the objects of civil rights” or to “tangible and intangible benefits”.
Further we would like to note that the authorized capital (charter fund) of companies including that of an LLC fulfills the function of a guarantee or security in relation to possible creditor claims. By the way, the Law on Limited and Additional Liability Companies says nothing about it, although the Law of Uzbekistan on Stock Companies and Protection of the Rights of Stockholders stipulates that “the authorized capital defines the minimum amount of the company’s assets which secure the interests of its creditors” (Article 19). Therefore, in this case one should speak about the assets which in reality can satisfy possible claims.
According to some experts, professional knowledge and skills, services that have been previously rendered to the company or the promises to render them, good will and cliental base, cannot be served as capital contributions.
At the same time, not only monies (cash or noncash) and other items, but also different property rights which have monetary value, including the rights of use of various items (movables and immovables), rights of use of the results of intellectual activities (objects of copyright and adjacent law, patent law) and other objects of intellectual and industrial property (particularly business name, trademarks, “know-how”) can be served as capital contributions.
Therefore, all IP objects, including such results of intellectual activity as works of science, literature and art, performances, sound records, broadcasts, computer programs and databases, utility models, industrial designs, selection achievements, confidential information including ‘know-how’; means of individualization of economy actors, products, works and services which include business names, trademarks (service marks); appellations of origin; as well as other results of intellectual activity and means of individualization of economy actors, products, works and services, can be served as capital contributions.
The main condition is that those items to have monetary value, i.e. property qualification. Thus, non- property rights, including those related to property cannot be in this capacity (unless it comes to property warranties included in the composition of non-property law, e.g. copyright law).
According to Paragraph 11 of the Regulation on the Procedure of Notice for Registration and Recordation of Entrepreneurs (Attachment to the Decree of the President of Uzbekistan ¹ ÏÏ-357 dated 24.05.2006), “supplement to the documents as listed in paragraph 10 of this Regulation” entities with foreign investments and other entities with foreign capital shall also submit to registration agency a report on the appraisal of their intellectual property “which shall be prepared by appraisal company in accordance with the legislation”. This requirement is due only to capital contribution made by a foreign participant.
As to private enterprise, one should follow Paragraph 2 of Article 12 of the Law of Uzbekistan on Private Enterprises: “monies, securities, other property or rights in rem, or other alienable rights which have monetary value can be capital contributions. The owner himself shall appraise the property which is subject to the authorized capital of a private enterprise”.
The same provision is envisaged in relation to contributions to the authorized capital of commercial partnerships in accordance with Article 10 of the Law of Uzbekistan on Commercial Partnerships. Like in an LLC, the monetary value of contributions in-kind made to the authorized capital (charter fund) of a partnership shall be approved by the General Meeting of the Participants of the partnership unanimously.
4. Conclusion
To sum up, along with such “classic” types of capital contributions of LLCs, PEs, and CPs as monies and other property, the legislation not only allows to pay up various IP objects as capital contributions, but also makes it possible to widely realize this provision taking into account the specifics of a legal status of a particular organizational form.
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