Perfecting Security Interests in Intellectual Property

Early-stage companies seeking to grow, established companies looking to expand or repair facilities, and investment groups seeking to acquire companies often finance transactions with loans that are secured by assets of the company as collateral.  In many such transactions, intellectual property is a large portion of the collateral.  A lender who takes a security interest in IP must perfect its interest in the IP in order to obtain priority over others who might have interests in the IP.

So what are the procedures to perfect a security interest in IP?  It depends on the type of IP that serves as collateral.  Details follow below.

Article 9 of the Uniform Commercial Code (UCC) sets out the general procedures for perfecting security interests — in most cases the method is to file a financing statement with a relevant state agency.  However, this requirement doesn’t apply for items where another law preempts the UCC method.  Thus, the question in each case is whether the statute governing the IP preempts the UCC perfection procedures.

Patents:  The U.S. Patent Act does not expressly require recording of security interests.  Therefore, recording at the USPTO is not required to perfect a security interest in a patent, and UCC filings will perfect the security interest.  However, a lender who does not record a lien at the USPTO still assumes some risk.  Section 261 of the Patent Act states that any assignment or conveyance is void against a subsequent purchaser or mortgagee unless it is recorded with the USPTO within three months of its date or prior to the subsequent purchase or mortgage.  Therefore, a dishonest borrower could assign the patent to someone else, and the lender could lose its ability to obtain the patent if it failed to record the lien with the USPTO.  (In brief:  UCC-1 filing is required. USPTO filing is recommended but not required to perfect.)

Trademarks:  Like the Patent Act, the Lanham Act does not require USPTO recording of security interests in order to perfect.  However, also like the Patent Act, Section 1060 of the Lanham Act states that a trademark assignment is void against a subsequent purchaser unless it is recorded with the USPTO within three months of its date or prior to the subsequent purchase.  Thus, a lender also bears some risk if it does not record a trademark assignment with the USPTO.  In addition to the recording, the lender should ensure that the lien document grants the lender rights not only the mark, but also the goodwill associated with the mark.  (In brief:  UCC-1 filing is required. USPTO filing is recommended but not required to perfect.)

Copyrights:  The law relating to perfecting security interests in copyrights is a bit more complex than that for patents and trademarks.  For registered copyrights, courts addressing the issue have stated that perfection of a lien requires recording evidence of the lien with the Copyright Office.  In contrast, for unregistered copyrights, courts have stated that a UCC filing is all that is required.  To be prudent many lenders record liens in registered copyrights with both the Copyright Office and applicable state financing statement filings, while unregistered copyrights are recorded in state financing statement filings.  (In brief:  For unregistered copyrights, UCC-1 filings are required.  For registered copyrights, Copyright Office filings are required and UCC-1 filings are recommended.)