Securing a lien on personal property, whether through the recording of a security interest, or seizing the property post judgment is routinely used by creditor’s to protect their interest in a debtor’s property. However, what if the only asset a debtor has is intellectual property? How do you protect a security interest in that intellectual property against other creditors of that debtor?
In general, to perfect a security interest in any personal property the Uniform Commercial Code, adopted by most states, and your states’ law will control. The UCC provides the steps necessary to perfect that interest, essentially telling the public and other creditors of your priority interest in any asset. Generally, the creditor files a UCC financing statement with the secretary of state in which the debtor is located or organized 1 . However, the UCC also states that “the filing of a financing statement is not necessary to perfect a security interest in property subject to a statute, regulation or treaty of the United States whose requirements for a security interest’s obtaining priority over the rights of a lien creditor with respect to the property preempt Section 9-310(a) 2 .” Therefore, if a federal law establishes a method to perfect a security interest in a certain item, it may preempt state law.
With regard to copyrights, the Copyright Act does specifically set forth the manner in which a security interest in a registered copyright should be perfected by recording it with the U.S. Copyright Office 3 . The Copyright Act specifically provides that any “hypothecation of a copyright or of any of the exclusive rights comprised in a copyright” be recorded in the Copyright Office as a “transfer of copyright ownership 4 .” A “hypothecation” means the “pledging of something as security without delivery of title or possession 5 .” However, a copyright is created at the time a work is created and need not be registered to have value or be protected. Unregistered copyrights are not covered by the Act, and therefore the traditional method of perfecting the interest under state law applies 6 . However, the creditor will remain responsible for checking to see if the copyright has been registered with the U.S. Copyright Office, and thereafter properly recording their interest 7 .
Neither the Lanham Act for federally registered trademarks nor the US Patent Act for patents, specifically set out a method for perfecting a security interest in this property 8 . Therefore, federal law does not preempt state law, and the financing statement should be filed with the secretary of state. However, the U.S. Patent and Trademark Office does provide a method and forms for recording a security interest in trademarks and patents with the USPTO. Also, traditionally, those in the intellectual property field are more likely to search for a trademark or patent with the USPTO. Therefore the security interest registered there may effectively provide notice of your interest, though to be clear, recording the security interest only with the USPTO and not with the state’s secretary of state is insufficient to gain priority over a subsequent creditor who properly perfects it interest 9 . However, it was noted by the Ninth District that with regard to patents, while the UCC method of perfecting a security interest protects the creditor against other creditor’s interests, the US Patent Act does specifically require filing of a security interest to protect against subsequent bona fide purchasers and mortgagees 10 . Therefore, a security interest in a patent should be filed both pursuant to state law and with the USPTO.
If, as a creditor, you were not granted a security interest in the intellectual property of your debtor, but you have obtained a judgment, you can still get to this asset to satisfy your debt. The best way to attach, or force the liquidation of intellectual property is through the appointment of a receiver 11 . Appointment of a receiver is governed by each state’s law 12 , but in general it is the receiver’s duty to acquire and liquidate the assets of the debtor to satisfy the judgment 13 . The order appointing the receiver and setting forth its duties should specifically reference the duty to acquire and sell all intellectual property including copyrights, patents and trademarks.
In summary, it is recommended that all security interests in intellectual property be recorded with the U.S. Copyright Office or USPTO as appropriate, and with the state’s secretary of state to avoid confusion about which law governs, to effectively notify all other creditors, and to avoid against any claim that the security interest was not properly recorded. Post-judgment, the creditor should seek the appointment of a receiver over the company’s assets, with specific authority to acquire and sell the company’s intellectual property to apply toward the satisfaction of the judgment.
1 U.C.C.§§ 9-307; 9-301(1) (2007).
2 U.C.C. §§ 9-310(b)(3); 9-311(a)(1) (2007).
3 17 U.S.C. §§ 101; 205 (2007); In re Peregrine Entm’t, Ltd. v. Capitol Fed. Sav. & Loan Ass’n of Denver, 116 B.R. 194 (CD Cal 1990).
4 17 USC 101, 205(a).
5 Moldo v. Matsco, Inc. (In re Cybernetic Servs., Inc.), 252 F.3d 1039, 1056 (9th Cir. 2001), cert. denied, 534 US 1130 (2002).
6 In re World Auxilary Power Co., 303 F.3d 1120, 1128 (9th Cir. 2002); In re Peregrine Entertainment Ltd.116 B.R. 194 (C.D. Cal. 1990).
7 In re Peregrine Entertainment Ltd.116 B.R. 194 (C.D. Cal. 1990).
8 In re Cybernetic Servs., Inc., 252 F.3d 1039 (9th Cir. 2001); see also In re Pasteurized Eggs Corp., 296 B.R. 283, 292 (Bankr. D.N.H. 2003) (holding that “the Patent Act does not contain any language regarding security interests, and therefore does not preempt state law.”).
9 See In re Together Dev. Corp., 227 B.R. 439, 441 (D. Mass. 1998) (referring to the common practice of recording security interests with the USPTO as a “trap for the unwary.”).
10 Rhone-Poulence Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323 (Fed. Cir. 2002); 35 U.S.C. § 261 (2007).
11 Office Depot, Inc. v. Zuccarini, 596 F.3d 696, 701-2 (2010); see also Palacio Del Mar Homeowners Ass’n, Inc. v. McMahon, 174 Cal.App. 4th 1386, 1391 (2009); Meeker v. Meeker, 2004 U.S. Dist. LEXIS 22986.
12 Office Depot, Inc. v. Zuccarini, 596 F.3d 696, 701-2 (2010) at FN 7.
13 Campbell Investors v. Tpss Acquisition Corp., 152 Ohio App. 3d 218 (2003).