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Use Of Intellectual Property As Collateral Raises Perfection Issues – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Use Of Intellectual Property As Collateral Raises Perfection Issues

Intellectual property rights are those associated with copyrights, trademarks, and patents. In the past, they were not property rights normally associated with secured transactions in a commercial context. However, these multifaceted rights are becoming increasingly utilized as a source of collateral for business transactions. Thus, commercial lenders have become more accepting of intellectual property such as patents, trademarks, and copyrights to secure obligations of prospective commercial customers. This raises the issue of the proper perfection of a security interest in intellectual property.

The perfection of a security interest in collateral typically requires that the secured party provide public notice by filing the documents related to perfection in the office of a government agency. However, if intellectual property is used as collateral, the requirements for perfection become confusing and complicated based on the state UCC-inspired filing system and the federal filing systems for patents, trademarks, and copyrights. How does a commercial lender meet the perfection requirements of both systems? How are the notable discrepancies between both systems clarified and overcome?

Federal courts have indicated that the optimal way to perfect a security interest in patents is the filing of a UCC-1 financing statement with the State of California, as well as the filing of the security interest with the U.S. Patent & Trademark Office (USPTO) and U.S. Copyright Office (USCO) as applicable. The latter would involve a related short-form IP security agreement or confirmatory document.

For trademarks and patents, the filing of an IP security agreement with the USPTO must be within three months from its origin date or before the date of a subsequent purchase/ mortgage to be considered timely. The act of dual filing protects the security interest against future lien creditors, as well as against subsequent purchasers/mortgagees for value. For copyrights, a short-form IP security agreement must be filed with the USCO. Priority is typically awarded to the first executed transfer over the first recorded transfer.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

 

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