Negative Pledge on IP

A Negative Pledge on Intellectual Property (IP) refers to a clause in a loan agreement or financing contract where the borrower agrees not to pledge, sell, or encumber their intellectual property without the lender’s consent. Essentially, it’s a promise that the borrower will not use their intellectual property as collateral for other loans or obligations during the term of the agreement. This is often used to protect the lender’s interests, ensuring that the borrower’s most valuable intangible assets—like patents, trademarks, or proprietary technology—remain unencumbered.

The main purpose of a Negative Pledge on IP is to preserve the intellectual property’s value and ensure that it remains available to the lender in case of default. It can also prevent the borrower from taking actions that might reduce the potential resale value of the IP if the lender needs to exercise its rights to recover the debt.