Accepting intellectual property as collateral: best practices to perfect security interests in patents, trademarks and copyright

In business transactions, company assets are often pledged to secure loans or other financing.  In some transactions, the intellectual property is assigned and then leased or licensed back to the debtor.  This article will focus on the lien situation, as it is the more common scenario.

The party lending money (or credit) wants to be sure there is public notice of the lien interest to protect the debtor from selling or transferring any of its interest in the property without paying off the loan or having the new owner assume the debt.  For real property (land and buildings), liens are recorded at the County Clerk’s office in the mortgage records.  For equipment (personal property) liens are recorded at the Department of State with UCC lien records.  For intellectual property, it gets a little murky when you look at the federal and state laws governing intellectual property.  Where do you record the lien?

To perfect a lien in patents, trademarks or copyrights, we recommend the following as best practice:

  1. File a UCC-1 in the state where the debtor is located, being sure to provide a detailed description of the intellectual property being liened; and
  2. File a short-form IP security agreement with the United States Patent and Trademark Office or U.S. Copyright Office (as applicable) to the intellectual property being secured, being sure to have the pertinent terms of the security interest and detailed description of the intellectual property being liened.  This should be done within 90 days for trademarks and patents and within 30 days for copyrights.

For patents, be sure to describe the subject matter of the invention, then include in the property description its equivalents and improvements, as well as all provisional, utility, continuation and foreign patent applications, divisionals, substitutes, reissues and re-examinations, and claims for past and future infringements.

For trademarks, a security agreement should have an expansive definition of trademarks that includes any registration or application for registration of trademarks and service marks, unregistered trademarks and service marks, trade dress, logos, designs, fictitious business names, any business identifiers and any other indicia of origin.  As with patents, the drafting should capture claims for past and future infringements of the secured trademarks.  The security agreement should also define the trademarks to include the goodwill of the business with which the trademarks are associated.

For copyrights, a security agreement should be an expansive definition of copyrights that includes copyright rights to any works of authorship or other copyrighted subject matter, copyright registrations, applications for copyright registrations, rights of renewal and unregistered copyrights as well as claims for past and future infringements.