Security Interests in Trademarks
United States Perspective
Security Agreement
Borrower in need of funds
Lender with money
Trademark owner
to loan
TM / ®
Debtor pledges collateral
to secure indebtedness
Security
agreement
Secured party loans
money and wants
repayment to be secure
Introduction: Business Issues
• Collateral Secures Indebtedness
– Secured party plans to recover from collateral if debt not paid
– Secured party will be reluctant to loan more than collateral value
– Value of the asset (mark) is key
• Any valuation method that is appropriate and permitted
– Value depends on such factors as:
• Length, nature, exclusivity of use
• Existence of federal registrations
• Challenges to ownership, exclusivity and validity of mark
• Due Diligence Issues for Both Debtor and Secured Party
– Debtor will have to make representations to secured party
Relevant Statutes
Uniform Commercial Code (UCC)
• State law
• Each state adopts model statute
(with some variations)
• Article 9 governs secured
transactions
– Attachment (creation)
– Perfection (lien recording system)
– Priority (rights against third
parties)
– Enforcement
Lanham Act
• Federal law
• Co-exists with state
trademark laws
• § 1060 governs assignment
– Assignment recordation
– Rights of third parties
What are the roles of the UCC and the Lanham Act in secured transactions in
which trademarks form part of the collateral?
Threshold Legal Issue: Preemption
• What law governs attachment, perfection,
priority, and enforcement of security interests
in trademarks?
• Does the Lanham Act preempt Article 9 of
the Uniform Commercial Code as adopted
by the states?
Legal Issue: Preemption?
• Supremacy Clause: U.S. Const., Art. IV, cl. 2
• State laws that interfere with or are contrary to federal law
are invalid
• Express preemption: Congress expresses intent to preempt
state law
• Field preemption: Infer preemption when federal regulation
scheme is so comprehensive it leaves no room for state
regulation
• Conflict preemption: Infer preemption when compliance with
both state and federal law is impossible or state law is obstacle
to objectives of Congress
• Congress’s intent to preempt must be both clear and
manifest
Preemption?: UCC Provisions
• The UCC defers to federal law in two ways:
– Article 9 does not apply at all if federal law
preempts all aspects (attachment, perfection,
enforcement, etc.)
• Must analyze federal statute for preemption in toto
– Article 9 perfection rules may be preempted if
federal statute creates lien priority system
• Article 9 would still govern other aspects of security
interests (attachment, enforcement, etc.)
• Must analyze federal statute for preemption of lien
filing system
Preemption?: Lanham Act Analysis
• Express preemption?
– Lanham Act does not expressly state any intent
to preempt state law on attachment, perfection,
priority, or enforcement of security interests in
trademarks
– Lanham Act does not expressly create a national
lien priority system
No express preemption
– What about field/conflict preemption?
Lanham Act Assignment Provision
• An assignment shall be void against any subsequent
purchaser for valuable consideration without notice,
unless the prescribed information reporting the
assignment is recorded in the United States Patent
and Trademark Office (USPTO) within three months
after the date of the assignment or prior to the
subsequent purchase.
• The USPTO shall maintain a record of information on
assignments, in such form as may be prescribed by
the Director.
15 U.S.C. § 1060(a)(4), (5).
Preemption?: Lanham Act Analysis
• No field/conflict preemption
– No evidence of intent to preempt state law on attachment,
perfection, priority, or enforcement of security interests in
trademarks
– Scheme for recordation of assignments only
• No statutory definition of “assignment”
• May record security interest in USPTO Assignment Division
• Case law says security interest ≠ assignment
– No national lien priority system
No field/conflict preemption
•
What is Net Effect?
Lanham Act: Does Not Preempt UCC
• Lanham Act
– Does not preempt UCC Article 9 in toto
– Does not establish preemptive lien priority
system
• Lanham Act does not preempt, so
• UCC Article 9 governs security interests
in marks
Consensus but with Uncertainty
• Mark perfection -- hot topic in UCC circles
– Compare intersection of UCC with other IP statutes
• Copyright Act preempts UCC lien filing system
• Patent Act does not preempt UCC lien filing system
– Case law supporting no preemption conclusion
• Addresses disputes between creditors;
• Does not address disputes between creditor and purchaser for
value
• Best Practice:
– Perfect by filing financing statement in appropriate UCC
filing office
– Backstop by recording in USPTO Assignment Division
for marks that are the subject of federal applications and
registrations
Creation of Security Interest
• Security interest
– Is created by agreement
– Is enforceable against debtor when it “attaches” to
collateral
• Elements of Attachment (enforceability)
– Debtor authenticates (signs) security agreement with
description of collateral
– Debtor has rights in collateral
• Secured party cannot have rights greater than debtor
– “Value” given to debtor
• Loan or other consideration
Security Agreement: Collateral Description
• Description must reasonably identify collateral
– Permitted methods:
•
•
•
•
specific listing
category
type of collateral (some exceptions)
quantity, formula, other ways to reasonably identify
– “All assets” is NOT enough for attachment
• “supergeneric” description is not reasonable identification
• Components of Collateral
– Marks
• Must include goodwill
– indicia of means of manufacture, ability to offer goods/services
• Registrations, applications
– Consider also
• Licenses
• Domain Names
– Depend on security interest in related marks
Security Agreement: Collateral Description
Components of Collateral
– Description of Marks
• Must include goodwill
– indicia of means
goods/services
of
manufacture,
ability
• Registrations, applications
– Consider also
• Licenses
• Domain Names
– May depend on security interest in related marks
to
offer
Security Agreement:
Debtor’s Rights in Collateral
• Due Diligence -- analyze rights before signing
agreement (illustrative)
– Marks
•
•
•
•
•
•
USPTO registrations and applications, Assignment Division
State trademark registrations
UCC filings in state office
Co-existence and other agreements
Court, TTAB, arbitration, decisions
Settlement agreements affecting rights
– Domain Name
• WHOIS database
• UCC filings in state office
Security Agreement:
Debtor’s Rights in Collateral
– License agreements
• PTO Assignment Division (though unlikely)
• UCC filings in state office
• Copy of agreement
–
–
–
–
–
Is debtor licensee or licensor?
Is it exclusive?
Is agreement assignable?
Term, scope of license, territory, payment structure…
Consider enforceability issues
Security Agreement: Structure
• Document as a grant of security interest in
collateral that includes marks
– Debtor retains ownership (legal and equitable title) of
marks
– Does NOT confer right of use on secured party
• Do NOT document as an “assignment” when
collateral includes marks:
– General problems with “assignment” structure
• Present assignment
– Record with PTO within three months
– Lanham Act may preempt
• Assignment in gross if goodwill is not transferred with mark
• Invalidates registration resulting from ITU application assigned
without transfer of associated, existing business
Security Agreement: Structure
– Unique problems with
assignment structures
certain
traditional
• “Conditional” assignment: parties agree title will not
transfer to secured party (or will not be recorded) until
default
– Query value of USPTO recording if no present assignment
– Assignment cannot be automatic under UCC
• “Collateral” assignment: title transferred to secured
party and returned upon discharge of loan
– Assignment + license back → quality control requirement
means risk of naked license and abandonment
Security Agreement: Other Provisions
• Protections secured party will want:
–
–
–
–
–
Right to require debtor to use mark
Right to require/enable renewal of registration
Right to defend (assist in defense of) mark when challenged
Right to limit debtor’s ability to assign, license mark
Priority right over other creditors to get assignment of mark upon
default
• Protections debtor (mark owner) will want:
– Protection against secured party’s ability to dispose of goods in
conflict with mark owner’s right
•
•
•
•
No right to sell without mark owner making first sale
No removal of mark prior to first sale by mark owner
Prohibition against misuse of mark
Take goods bearing mark subject to mark owner’s rights
– Protection of license agreements with third parties
Perfection and Priority
• Perfection: necessary to protect attached security interest
against claims by third parties
– Other secured parties
– Lien creditors (tax liens, judgment liens, etc.)
– Bankruptcy trustee or debtor-in-possession
• Priority: UCC creates priority rules between claimants
• UCC Article 9 creates notice filing system
– Debtor’s state law governs perfection and priority
– UCC financing statements filed with state Secretary of State (SOS)
– Collateral description may be broad:
– “General intangibles” category includes marks, rights to use licensed
property, domain names
– “Accounts” category includes right to payment for use of licensed property
– “All personal property” is sufficient description if accurate
Perfection and Priority
• MUST
– File financing statement
• Appropriate to perfect general intangibles and
accounts
• Different manner of perfection may apply for other
types of collateral
– With adequate description of collateral
– In the appropriate recording office
– Of the state in which the debtor is located
Perfection and Priority
• SHOULD
– Also record short-form security agreement with USPTO
• Not alone sufficient to perfect security interest
• Another avenue to provide notice to third parties
• Record within three months
– May record security interest in international registration
with WIPO under certain circumstances but
• Not all jurisdictions will recognize security interest, so ask local
counsel
– May record security interest in foreign trademark
registrations in foreign trademark offices, but check with
local counsel for enforceability
– Consider notifying domain host and registrar of security
interest
Perfection and Priority
• If non-U.S. debtor owns U.S. marks
– Perfection governed by law of non-U.S. debtor unless
• such law does not condition perfection on giving public notice in a filing,
recording, or registration system; then
• Record financing statement with DC recorder of deeds office
– Record security interest with USPTO
• not sufficient to perfect, but recommended
– Perfect under law of debtor’s country if possible
• If U.S. debtor owns non-U.S. marks
– Perfect by filing financing statement in state office under UCC
– Record security interest with WIPO
– Record security interest with trademark offices in other jurisdictions
where debtor owns mark
– Ask local counsel about perfection requirements in non-U.S.
jurisdictions
Enforcement
• UCC Article 9 remedies
–
–
–
–
Step into debtor’s shoes to collect accounts or enforce contract
Convey debtor’s rights to purchaser, licensee, etc.
Take possession of tangible collateral
Accept collateral in satisfaction of debt
• Challenges to enforcing security interest
– In trademark license when debtor is licensee
• Trademark licenses are often deemed personal
• Personal contracts may not be assignable
• UCC prevents contractual provision or state law from impairing creation,
attachment, or perfection of security interest, but enforceability may be limited
– In inventory if debtor is licensee and manufacturer:
• Investigate whether exhaustion of mark owner rights occurred with respect to
inventory
• Avoid implied reverse passing off by removing marks
– In marks when debtor is licensor and mark owner
• Good faith licensee of non-exclusive rights in ordinary course takes free of
security interest even with actual notice
Enforcement
• Bankruptcy
– Liquidation (trustee)
– Reorganization (debtor-in-possession)
• Property of Estate
– Consists of all debtor’s property
– Trustee succeeds to “all assets”
• Indicia of appurtenant goodwill making further
assignments valid
Enforcement
• Executory contracts → special treatment
– Assignment/Assumption
• General rule
– can be assumed by debtor in possession
– can be assigned to third party
– trustee may assume contracts BUT
• Limited restrictions on assignability without consent
– “personal services” contracts (contracts not assignable under other law)
– trademark licenses are often personal
• Split in application to determine if restrictions apply to a contract
– hypothetical test (prohibit if law prohibits assignment)
– actual test (prohibit only if debtor in possession will assign)
– Rejection
• Trustee may reject license agreement if it is executory
• Bankruptcy Code allows licensees of “intellectual property” to retain
rights BUT
• Trademarks are not within the definition of “intellectual property”
• Whether TM license executory is question of fact