Perfecting Security Interests in Intellectual Property

• Publication year: 2003
• Pages: 85

32 Colo.Law. 85 Colorado Lawyer 2003.

2003, April, Pg. 85. Perfecting Security Interests in Intellectual Property

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85

Vol. 32, No. 4, Pg. 85

The Colorado Lawyer
April 2003
Vol. 32, No. 4 [Page 85]

Specialty Law Columns
Technology Law and Policy Review
Perfecting Security Interests in Intellectual Property
by Brendan Chatham

This column is prepared by the CBA Technology Law and Policy Forum Committee. The column provides information of interest to intellectual property attorneys and other attorneys who counsel technology companies, by focusing on developing law applicable to technology businesses

Column Editors

Jim Brogan, Cooley Godward, LLP, Broomfield - (720) 566-4190 jbrogan@cooley.com; and Nathaniel T. Trelease, WebCredenza, Inc., Denver - (720) 937-9930, trelease@webcredenza.com

About The Author:

This month's article was written by Brendan Chatham, Boulder, an associate at Hutchinson Black & Cook, LLC - (303) 442-6514, chatham@ hbcboulder.com.

The perfection of security interests granted in intellectual property may be governed by either federal or state law, depending on the type of intellectual property. This article reviews and outlines the proper methods of perfecting such security interests.

Companies in many industries commonly collateralize their intellectual property assets (separately or in addition to collateralizing their other assets) in connection with various types of secured transactions. Traditional secured transactions involve fixed term loans, credit revolvers, and venture financings in which the lender is granted a blanket security interest in all of the assets owned by the borrower. Other types of transactions in which a party may grant a security interest in its intellectual property as collateral to secure payment and performance obligations include transactions involving the development or exploitation of intellectual property, merger and acquisition transactions, and strategic alliances.

Among the challenges presented by such transactions is ensuring the proper perfection of the security interests granted in the intellectual property. In some instances, perfecting security interests granted in intellectual property is distinct from the manner of perfecting security interests granted in tangible assets and more common intangible assets, such as accounts receivable and chattel paper. This article reviews and analyzes the methods of perfecting security interests in federally-protected intellectual property (including patents, copyrights, and trademarks) and non-federal intellectual property rights (including trade secrets, intellectual property licenses, and domain names).

Overview of Perfection of Security Interests Under The UCC

Secured transactions are governed by Uniform Commercial Code ("UCC") Article 9 ("Article 9"),1 as adopted in each state.2 Under Article 9, a security interest is enforceable against its "grantor"3 and other third-party creditors if it is "attached" to the relevant collateral and "perfected" either prior in time or in a manner otherwise superior, as applicable, to the perfection of any security interests granted in favor of such third-party creditors.4 To become "attached," among other things, the security interest must be expressly granted in a written agreement executed by the grantor.5 To "perfect" a security interest, the secured creditor must take the proper actions prescribed in either the relevant sections of Article 9,6 or such other bodies of law that operate to preempt the relevant sections of Article 9.7

By its own terms, Article 9 acknowledges that its rules for perfection do not apply to security interests granted in certain types of collateral. Such exceptions include personal property accompanied by certificates of title; fixtures; and property covered by federal statutes, regulations, or treaties that preempt the state law set forth in Article 9.8

Categorization of Collateral

Depending on how Article 9 categorizes the collateral, perfection may include any of the following on the part of the secured creditor: (1) filing properly completed UCC-1 financing statements against the grantor in the proper filing office;9 (2) taking and maintaining "possession" of the collateral;10 (3) establishing and maintaining "control" over the collateral;11 or (4) mere "attachment" alone without any further action.12 Therefore, to determine which method of perfection applies, it is essential to determine how Article 9 categorizes the relevant collateral.

Under Article 9, intellectual property falls into the residual category of personal property known as "general intangibles."13 Thus, absent preemption by an applicable federal statute, regulation, or treaty, the proper method of perfecting a security interest in intellectual property governed by Article 9 is to file a properly completed UCC-1 financing statement against the grantor in the proper filing office. If the grantor is a "registered organization," Article 9 requires that the UCC-1 financing statement be filed against the grantor in the state in which the grantor is organized.14

The federal statutes pursuant to which certain types of intellectual property are created and protected - including the Lanham Act15 pertaining to trademarks, the CCopyright Act,16 and the Patent Act17 - are silent on the issue of preemption with respect to the perfection of security interests granted in intellectual property. This means that the issue must be resolved judicially. As discussed in this article, federal courts have weighed in and largely resolved the issue of preemption and the proper method of perfection of security interests granted in federally-protected intellectual property.

Following is a discussion of the proper methods for perfecting security interests in intellectual property. A summary of these methods is provided in the Table below.

Types of Intellectual Property Body of Law
Governing
Perfection
Method of Perfection

Recommended
Additional Precautionary
Actions

Trademarks
(and Service Marks) UCC Article 9 File UCC-1 financing statement against grantor in the state of grantor's organization Record security agreement against registration number for trademarks at the PTO

Patents UCC Article 9 File UCC-1 financing statement against grantor in the state of grantor's organization Record security agreement against registration number for trademarks at the PTO

Registered Copyrights Copyright Act Record security agreement against registration number and title of copyrighted work at the Copyright Office File UCC-1 financing statement against grantor in the state of grantor's organization

Unregistered Copyrights UCC Article 9 File UCC-1 financing statement against grantor in the state of grantor's organization

Require registration as a condition to secured creditor's obligations to grantor

Include notice requirements and negative covenants regarding the creation, titling, and naming of unregistered copyrights

Trade Secrets UCC Article 9 File UCC-1 financing statement against grantor in the state of grantor's organization N/A

Rights in Intellectual
Property as Licensee UCC Article 9 File UCC-1 financing statement against grantor in the state of grantor's organization N/A

Domain Names or URLs (unsettled as to whether the security interest may be granted in the same) UCC Article 9, if determined that a security interest may be granted in the same N/A

File precationary UCC-1 financing statements against grantor in the state of grantor's organization

Require conditional assignment of domain name or URL consented to by registrar of the same

Perfecting Security
Interests in Trademarks

Under § 1060 of the Lanham Act ("§ 1060"), "assignments" of federally registered trademarks must be recorded in the Patent and Trademark Office ("PTO") to be enforceable against subsequent purchasers. Section 1060 codifies the "bona fide purchaser" concept18 and provides

[a]n assignment [of a federally registered trademark] shall be void against any subsequent purchaser for valuable consideration without notice, unless it is recorded in the Patent and Trademark Office within three months after the date thereof or prior to such subsequent purchase.19

Nonetheless, the trademark cases addressing whether § 1060 preempts Article 9 with respect to perfecting security interests in trademarks uniformly hold that no such preemption exists and that...