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Can Intellectual Property Be ‘Imperfected’?

January 5th, 2009 | Author: Danny Dion

Many high-tech companies, particularly smaller ones, borrowed money to fuel their growth during the recent boom. They borrowed money from banks, venture capitalists, friends and family members and used their intellectual property — patents, copyrights and trademarks — as collateral for the loans.

Now that the economy is, colloquially, in the “dumper,” these high-tech companies are defaulting on their loans. The question arises as to who has the earliest perfected security interest in this intellectual property and is, therefore, first in line for the collateral and who has an “imperfected” security interest and is left empty-handed.

Article 9 of the Uniform Commercial Code governs the method of perfecting security interests in personal property, which includes intellectual property. In general, a lender must file a UCC-1 Financing Statement describing the collateral with the secretary of state of the state in which the borrower resides in order to perfect a security interest. However, Section 9-310 (a) specifies that UCC-1 filings are insufficient when a system for perfecting security interests under federal law is established. Thus, the proper perfection of a security interest in IP depends on whether federal law preempts the UCC requirements.

There do not appear to be any statutes or cases expressly addressing the perfection of security interests in domain names. Thus, security interests should be perfected by recording UCC-1 Financing Statements.

There also is no federal statute specifically addressing the issue of perfecting security interests in trademarks, regardless of whether the mark is a common law trademark or a federally registered one. Therefore, the proper method of perfecting a security interest in a trademark is through the filing of a UCC-1.

The U.S. Patent and Trademark Office does provide a system for recording security interest in trademarks. Read full article.

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