In this turbulent economy, many companies with valuable intellectual property assets may soon be seeking bankruptcy protection. Unfortunately, the intersection of our nation's lending laws and the federal laws affecting intellectual property rights is complex and still somewhat murky.
Intellectual property generally includes the following: (a) patents, (b) copyrights, (c) trademarks and (d) trade secrets. Until recently, the lack of clarity in the law was a nonissue because lending institutions perceived intellectual property as noncore assets of their customers that had little value. As a result, lenders often did not take the time to identify, nor make a concerted effort to perfect security interests in, their customer's intellectual property assets.
Today, 80 percent of the value in S&P 500 companies comes from intangibles assets. Moreover, an entire industry has developed around mechanisms for the sale of intellectual property, including public in-person intellectual property auctions, online auctions and intellectual property investment bankers that conduct private auctions. Further, as more intellectual property portfolios are sold, lenders are developing a greater comfort level with intellectual property valuations that can now be based on publicly available sales data. As the infrastructure is now in place to dispose of intellectual property collateral, it is critical in this recessionary period that lending institutions identify and perfect security interests in their intellectual property assets.
It is important for lending institutions to understand that filing a UCC financing statement in the relevant office(s) may not be enough to perfect their security interests in federally registered intellectual property assets. In other words, even if a lender obtains a security interest in intellectual property though a UCC filing, the lender's security interest may be voided (i.e., cancelled) if that security interest was not properly perfected.
In general, to perfect security interests in registered intellectual property assets, such as registered copyrights, trademarks and patents, lenders should file both a UCC financing statement and record their security agreement with the Patent and Trademark Office and/or the Copyright Office.
The increased frequency with which bankruptcy laws are utilized today by financially troubled companies makes it highly important for lenders to be properly advised on intellectual property matters in bankruptcy situations. Accordingly, lenders need to be educated about how to identify a customer's intellectual property assets and be armed with the knowledge of the perfection issues addressed in this article to avoid a potential pitfall in future bankruptcy proceedings.