Taking Security Interests In Human Reproductive Tissue: Clarifying Lender Options Under Federal And State Law

• Published date: 20 July 2022
• Subject Matter: Intellectual Property, Litigation, Mediation & Arbitration, Food, Drugs, Healthcare, Life Sciences, Copyright, Patent, Trials & Appeals & Compensation, Biotechnology & Nanotechnology
• Law Firm: Goodwin Procter LLP
• Author: Mr Matt Wetzel, Anne Brendel, Zachary Feldman and Simone Otenaike

Can human reproductive tissue ("HRT") held by a fertility clinic serve as collateral for a loan to (or investment in) the fertility clinic? In short, the scope and extent of governmental regulation addressing the sale of or transfer of ownership interests in HRT held by a fertility clinic varies from state to state; however, most state laws would likely prohibit the sale of HRT except in very specified cases. As an extension of this concept, most state laws would also prohibit taking a security interest in the HRT, as would ethical and religious-based concerns triggered by the concept of third-party ownership interests in another person's HRT.

HRT stored by a fertility clinic could include any of the following:

• Human sperm and egg cells that have been provided to a fertility clinic for storage on behalf of the progenitors of those cells, likely for use with in vitro fertilization at a later date. These sperm and egg cells are provided subject to an agreement between the fertility clinic and the progenitor under which the latter pays a reasonable storage fee to the clinic for its storage services.
• Human embryos that have been fertilized in vitro and are in cryo-storage awaiting implantation. These embryos are also provided pursuant to an agreement with the fertility clinic, subject to payment for the clinic's storage services.
• Finally, donated human sperm and eggs that have been provided to a fertility clinic or tissue bank to help other individuals build and grow a family. Typically, these donations are subject to an informed consent whereby the donor indicates the agreed upon uses of the HRT. For example, the donor could indicate whether or not the sperm or eggs could be used in connection with any kind of clinical research.

Uniform Commercial Code Limitations: Article 9 of the Uniform Commercial Code, which governs secured transactions, makes no definitive statement on the topic as to whether HRT can serve as collateral. Article 9 is broad, and "collateral" is defined as "the property subject to a security interest or agricultural lien. The term includes: (A) proceeds to which a security interest attaches; (B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and (C) goods that are the subject of a consignment."¹ The term "property" is not defined. The term "goods" is defined broadly as "all things that are movable when a security interest attaches. The term includes (i) fixtures, (ii) standing timber that is to be cut and removed under a conveyance or contract for sale, (iii) the unborn young of animals, (iv) crops grown, growing, or to be grown, even if the crops are produced on trees, vines, or bushes, and (v) manufactured homes...." Article 9 seems to be drafted so broadly as to permit the grant of a security interest in HRT as property.

A Hofstra Law Review article examined this issue with respect to all human materials in 1991 under the scope of Article 9, concluding that, "unless forbidden by federal or state law, human materials may be used as collateral."² Thirty years later, we draw the same conclusion with respect to security interests in HRT.

Further under Article 9, it is indeed possible to take a security interest in intellectual property, which would fall under the article's definition of "general intangibles." In fact, it is a standard practice of many lenders to encumber the copyrights, trademarks and patents of debtors and record such encumbrance with the U.S. Patent and Trademark Office. This "general intangibles" definition essentially serves a "catch all" category of collateral that covers personal property not more easily categorized elsewhere. By way of example, software is generally considered a "general intangible." While in theory HRT would similarly be classified in this category, we note that HRT cannot be copyrighted or patented under the basic tenets of intellectual property law. Copyrights are generally (i) original, (ii) works of authorship, and (iii) fixed in a tangible medium; HRT on the other hand is...