By Linda Davinson, Esq. Legal Perspectives May 03, 2017
Increasingly, we see financing transactions involving businesses focused on or with a significant amount of intellectual property (“IP”). Lenders will want to take a security interest over some or all of the borrower’s IP assets as part of the collateral package against the loan in these instances. Yes, security can be granted over IP assets like most assets; however, questions often arise regarding perfection of these security interests. Article 9 of the Uniform Commercial Code (the “UCC”) governs perfection of security interests in “general intangibles” which includes IP. However, the UCC also states it is preempted by federal law. The U.S. Copyright Act addresses perfecting security interests but the U.S. Lanham Act and the U.S. Patent Act do not. As best practice, secured creditors should file a UCC-1 financing statement with the appropriate Secretary of State as well as record a short-form IP security agreement with the U.S. Patent and Trademark Office (“USPTO”) for patents and trademarks or the U.S. Copyright Office (“USCO”) for registered copyrights. The short-form IP security agreement will contain the necessary information for the purpose of the filings but protect from public disclosure the details of the transaction. As with other asset classes, it is important for the filings to contain an accurate and thorough description of the IP collateral.
Note, unlike trademarks and patents, a filing with the USCO is required for perfection of a security interest in registered copyrights. The Copyright Act is preempted by federal law in that it specifically addresses a detailed method for recording and transferring an interest in registered copyrights. Unregistered copyrights (also recognized by U.S. law) may be sufficiently perfected by filing a financing statement with the appropriate Secretary of State or County Office as provided for under the UCC. Best practice would be to register the copyright and then record the security interest with the USCO.
Federally registered trademarks are governed by the Lanham Act. However, the Lanham Act does not specifically address the issue of security interests. As such, Article 9 of the UCC is not preempted and most courts have been consistent in holding that filing a UCC-1 financing statement is adequate to perfect a security interest in trademarks. Again, as best practice, lenders or venture capitalists should still timely file a short-form IP security agreement with the USPTO to provide notice to subsequent lenders and purchasers.
Like the Lanham Act (governing trademarks), the Patent Act is silent regarding perfecting security interests in patents. As a result, Article 9 of the UCC remains in play and the lender should file a UCC-1 financing statement with the Secretary of State to perfect its security interest in patents. The Patent Act does address ownership interests in patents and some courts have interpreted it to mean that a security interest should be recorded with the USPTO to perfect and protect against a bona fide purchaser or mortgagee. As such, the lender should still file a short-form IP security agreement with the USPTO to protect against subsequent purchasers and lenders.
In short, it is better to be cautious and have more protection by making both the USPTO filing and the UCC filing with regard to registered trademarks and patents. With copyrights, filing with the USCO is necessary to perfect a security interest as to registered copyrights.