Security Interests Over Intellectual
Property Rights: The UCC 9 Approach
in the United States
Steve Weise
Proskauer Rose LLP
Los Angeles
sweise@proskauer.com
March 2015
1
Issues
•Federal v. state law
•Creation of security interest
Assignment of IP rights
•Perfection methods
•Enforcement
•Full citations for court decisions listed
at end
2
Federal v. state law
•Tensions between Federal regulation of IP and
state law through Uniform Commercial Code
 UCC adopted in every state
•Preemption by Federal law
 Express preemption
 Field preemption
 Conflict preemption
•Generally, when there is preemption in this area,
conflict preemption applies
 UCC preempted only to the extent of conflict
3
Kinds of intellectual property
• Intellectual property
 Copyrights
 Patents
 Trademarks
 Domain names
 Trade secrets and know-how
• Rights to use intellectual property
 Licenses ‘in’ vs. licenses ‘out’
- Licensor rights
- Licensee rights
 Exclusive licenses vs. non-exclusive licenses
4
Intellectual property classified
under UCC
•General Intangibles:
Registered and unregistered IP
•Goods:
‘Embedded software’
•Accounts:
License fees/royalties
5
Creation of security interest
•UCC § 9-203(b)(2) requires that the debtor have:
 ‘rights’ in the collateral or
 the power to transfer rights in the collateral to
a secured party
•Effect of IP law on ability of debtor to create a
security interest in the various IP-related rights
 Effect of Federal law
 Effect of anti-assignment provisions in licenses
(license royalties and licensee rights)
6
Anti-assignment issues
•Scope of UCC §§ 9-406, 9-408 provisions
Payment rights
Other contract rights
Recall that Article 9 applies to sales of
accounts
•Effect of contract terms + other laws
•Does not override conflicting Federal law
7
Scope – payment rights –
UCC § 9-406
•‘Security interest’ permitted despite antiassignment provision in:
 Accounts, including royalties (except
health-care-insurance receivable)
-IP royalties not ‘IP’ for purposes of
federal law
 Chattel paper
 Payment intangibles (except sales)
 Promissory notes (except sales)
8
Payment rights: effect of contract
terms – UCC § 9-406
•Ineffective to limit in any way:
Creation + attachment
Perfection
Enforcement
•May not declare default
9
Scope – other contract rights –
UCC § 9-408
•Assignment of rights under:
General intangibles, including licensee’s
rights
Promissory notes (sales only)
Health-care-insurance receivables
•Applies to payment intangible or
promissory note only if a sale of the rights
10
Other contract rights: effect of
contract terms and other laws
•Ineffective to limit in any way:
Creation + attachment
Perfection
•May not declare default
•Does not allow the secured party to
enforce its security interest
11
Creation of security interest – the
IP itself
•No dispute on ability of owner of IP to
create a security interests in the IP
•Perfection issues discussed below
12
Creation of security interest –
copyright licensee
•Harris (9th Cir. 1984) (Bankruptcy trustee could not
assign copyright licenses as ‘mere licensee’ per
Copyright Act of 1909; a license is not an ‘interest’ in a
copyright)
•Nike (9th Cir. 2002) (Exclusive licensee could not assign
copyright licenses per Copyright Act of 1976; entitled
to the ‘protection and remedies’ of the copyright
owner, but not the right to assign)
•Cincom Systems (6th Cir. 2009) (corporate merger
effected an impermissible assignment of a nonexclusive copyright license, applying Federal common
law)
13
Creation of a security interest –
patent licensees
•Federal common law says patent licenses are not
assignable without the consent of the licensor
•Licensees hold ‘personal,’ not ‘property,’ interests in
the patent
 Catapult (9th Cir. 1999) (licensee cannot assign
rights without consent of licensor under
Bankruptcy Code § 365(c))
 CFLC (9th Cir. 1996) (licensee cannot assign rights
without consent of licensor under Bankruptcy
Code § 365(c))
14
Creation of security interest –
trademarks
• Assignment must include transfer of associated goodwill
(no ‘assignments in gross’)
• Trump (Bankr.D.Del. 2015) (rights of trademark licensee not
assignable without affirmative consent of licensor)
• RCR Marketing (M.D.N.C. 2010) (secured party with security
interest in trademarks was not entitled to preliminary
injunction against an alleged infringer, allowing transferee
continued, monitored use if it pays a fee; policy at work?)
• Dixie Mills (N.D. Ga. 2010) (secured party with a security
interest in trademarks and associated goodwill did not have
‘goodwill’ after original trademark owner’s business
operations ceased)
15
Creation of security interest –
other IP type rights
•Domain Names
Kremen (9th Cir. 2003) (domain
name is ‘property’)
16
Perfection - general
•For intangible assets, general rule
under UCC is filing of a financing
statement
File in state of ‘location’ of debtor
-Typically state of organization
Can cover future assets
17
Perfection - patents
• Does the U.S. Patent Act preempt Article 9?
 UCC § 9-109(c)(1) and § 9-311
 35 USC § 261 (‘assignment, grant or other conveyance’
means transfers of ownership only; ‘subsequent
purchaser or mortgagee’ means purchaser, not a trustee
or lien creditor)
• Cybernetics (9th Cir. 2001)
 No preemption as to perfection for patents
 File with Patent and Trademark Ofice anyway to defeat
buyer?
• Coldwave (Bankr. D. Mass. 2007) (follows Cybernetics and
clarifies that PTO filing alone does not perfect)
18
Perfection - copyrights
•Does the U.S. Copyright Act preempt Article 9?
 17 USC § § 101 and 205(c) (‘transfer’ is broadly
defined to include any mortgage or hypothecation,
as well as exclusive licenses)
•Aerocon (9th Cir. 2002)
 Unregistered (until registered) - UCC
 Registered - Copyright Office
 File under UCC anyway?
 See also Peregrine
•Need new filing to cover after-acquired registered
copyrights
19
Perfection - trademarks
•Does the Lanham Act preempt Article 9?
15 USC § 1060 (‘assignment’ means
transfers of ownership only)
•Trimarchi (D. Mass. 2000)
Always UCC
•File with PTO anyway?
•Royalty stream and licensee rights
UCC filing
20
Perfection – domain names
•General intangible
•Always UCC
21
Perfection – copyrights
•Nuts and bolts of a Copyright Office
recordation
 17 USC § 205 + Copyright Office Circulars
 Constructive notice:
-Must reasonably identify the work (would
be revealed by a reasonable search of the
title or registration number)
 Search by work
22
Perfection - royalties
•Royalty stream and licensee rights
Not treated as ‘IP’
Generally governed by UCC
Broadcast Music (9th Cir. 1997)
(copyright royalties were validly
assigned without filing with the
Copyright Office)
23
Priority
•General rule of UCC priority:
 First secured party to file or perfect
•Customary Article 9 lien priority rules apply when
Article 9 applies to collateral, but also note:
 Patent Act 35 USC § 261
 Lanham Act 15 USC § 1060
 Assignments are void against subsequent
purchasers for valuable consideration without
notice
•Copyright Act 17 USC § 205 rules apply when the
Copyright Act applies to collateral
24
Purchase money security interest
•‘Super-priority’ under UCC
•Sometimes available when collateral
is goods – UCC § 9-103(c)
•When is related software included?
‘Integrated’ transaction
25
Chattel paper
•Record evidencing a monetary
obligation and a security interest in
specific goods
•When is software included?
Used in goods
UCC § 9-324(f)
26
Disappearing collateral
•Effect of licensor’s rejection of license in licensor’s
bankruptcy
 Bankruptcy Code § 365(n) (addresses patents,
copyrights and trade secrets as ‘intellectual
property’ under § 101(35A))
 Sunbeam Products (7th Cir. 2012) (allows trademark
licensees to continue to use the IP after rejection)
 Collectively address Lubrizol (4th Cir. 1985)
•Patents – if not enforced
•Trademarks – if not associated with goodwill
27
Enforcement - which law
•Generally state law
•Copyrights:
 Hendrick & Lewis (9th Cir 2014)
•Patents
 Ager (Supreme Court 1881)
 Olive Branch Holdings (Ohio 2009)
•Trademarks and trade secrets
•Domain names
 Office Depot (9th Cir. 2010)
28
Enforcement
•Standing of secured party
 Does secured party have sufficient IP rights to
enforce IP itself?
•Drafting suggestions
 Secured party requires notice of all disputes
 Notice of debtor’s default if intellectual
property pledged
 Consider tri-party agreement with domain
name registrar
29
Case citations (in alphabetical
order)
• Aerocon Engineering, Inc., v. Silicon Valley Bank (In re World
Aux. Power Co.), 303 F.3d 1120 (9th Cir. 2002)
• Ager v. Murray, 105 U.S. 126 (Supreme Court 1881)
• Bank of North Carolina v. RCR Marketing, LLC, 2010 WL
5020502 (M.D.N.C. 2010)
• Braunstein v. Gateway Management Services Limited (In re
Coldwave Systems, LLC), 368 B.R. 91 (Bankr. D. Mass. 2007)
• Broadcast Music, Inc. v. Hirsch, 104 F.3d 1163 (9th Cir. 1997)
• Brown Bark II, L.P. v. Dixie Mills, LLC, 732 F.Supp.2d 1353 (N.D.
Ga. 2010)
30
Case citations (in alphabetical
order)
•Cincom Systems Inc. v. Novelis Corp., 581 F.3d 431
(6th Cir. 2009)
•Everex Systems, Inc. v. Cadtrak Corp. (In re CFLC,
Inc.), 89 F.3d 673 (9th Cir. 1996)
•Gardner v. Nike, Inc., 279 F.3d 774 (9th Cir. 2002)
•Harris v. Emus Records Corp., 734 F.2d 1329 (9th
Cir. 1984)
•Hendrick & Lewis, 766 F.3d 991 (9th Cir 2014)
•Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2003)
31
Case citations (in alphabetical
order)
•Lubrizol Enterprises, Inc. v. Richmond Metal Finishers,
Inc., 756 F.2d 1043 (4th Cir. 1985)
•Moldo v. Matsco, Inc. (In re Cybernetic Services, Inc.), 252
F.3d 1039 (9th Cir. 2001)
•National Peregrine, Inc. v. Capitol Federal Savings & Loan
Association of Denver (In re Peregrine Entertainment,
Ltd.), 116 B.R. 194 (C.D. Cal. 1990)
•Office Depot, Inc. v. Zuccarini, 596 F.2d 6965 (9th Cir.
2010)
•Olive Branch Holdings, LLC v. Smith Technology
Development, LLC, 181 Ohio App.3d 479 (Ohio 2009)
32
Case citations (in alphabetical
order)
•Perlman v. Catapult Entertainment, Inc. (In re Catapult
Entertainment, Inc.), 165 F.3d 747 (9th Cir. 1999)
•Sunbeam Products, Inc. v. Chicago American
Manufacturing, LLC, 686 F.3d 372 (7th Cir. 2012)
•Trimarchi v. Together Development Corp., 255 B.R. 606
(D. Mass. 2000)
•In re Trump Entertainment Resorts, Inc., 2015 WL 756873
(Bankr.D.Del. 2015)
•Valley Bank and Trust Company v. Spectrum Scan, LLC (In
re Tracy Broadcasting Corp.), 696 F.3d 1051 (10th Cir.
2012)
33