Perfecting Security Interests In Intellectual Property Not As Obvious As You Might Think

The economy has not been kind to many businesses in the last several years. In trying to obtain credit to keep afloat, many businesses have had to secure their loans with not only their tangible assets, but also their intangible intellectual property assets. In order to secure their places in line in the event of bankruptcy or a default on a loan, banks, venture capitalists, and other lenders must perfect their security interests in all of the borrower's assets, including trademarks, copyrights, and patents. However, the proper methods for doing this are not as straightforward as they might seem to be.

The Uniform Commercial Code (UCC) is a set of uniform laws enacted in all 50 states governing the conduct of business and also proscribing procedures for making the appropriate filings to perfect security interests in certain tangible and intangible assets. A security interest in most types of personal property is "perfected" by providing public notice of the interest through filing a UCC-1 Financing Statement with the Secretary of State's Office in the borrower's jurisdiction of organization.

The law has not been uniformly interpreted over the years regarding the appropriate method for perfecting security interests in the different types of intellectual property. The Copyright Act addresses the issue of security interests but neither the Lanham Act (trademarks) nor the Patent Act does. There also does not appear to be any specific method for perfecting a claim of security in a domain name registration. Moreover, the methods for perfection may differ depending on whether a copyright or a trademark is federally registered or unregistered. Thus, even the most sophisticated practitioners can make inadvertent errors in filing documents seeking to perfect security interests if they are unfamiliar with the specialized nature of intellectual property assets.

Copyrights

The Copyright Act protects "original works of authorship fixed in any tangible medium of expression," and the statute sets forth eight categories of copyrightable works: literary works, musical works, dramatic works, motion pictures and other audiovisual works, works of art, sound recordings, choreographic works and pantomimes, and architectural works. Copyright does not protect any "idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in a work." 17 USC 102. A...