Security Interests in Intellectual Property

By: John F. Hornick

I. Introduction 

Intellectual property owners seeking loans may find that their most valuable property for use as collateral is their trademarks, copyrights, or patents. In fact, a bank that provides capital or credit to an I.P. owner will most likely require that the I.P. owner’s intellectual property assets be pledged as collateral. Most banks will insist on obtaining a security interest in the I.P. owner’s trademarks, copyrights, and patents using a security agreement that greatly favors the bank and may severely restrict the I.P. owner’s ability to alienate any of its intellectual property assets in the normal course of business.

For a lender to obtain priority over other parties who might have interests in the I.P. owner’s trademarks, copyrights, and patents, the lender must perfect its interest in the intellectual property. One perfects a security interest by filing the right documents in the right place. The perfection of security interests generally is governed by the Uniform Commercial Code (U.C.C.) as adopted by the states. However, the ownership of trademarks, copyrights, and patents generally is governed by federal law. As a result, uncertainty has arisen as to which body of law—federal or state—governs the perfection of security interests in trademarks, copyrights, and patents. This article first examines the two bodies of law and then recommends procedures and considerations for perfecting security interests in intellectual property and drafting security agreements.

II. Rights and Requirements Under the U.C.C.

The Uniform Commercial Code is a cohesive body of law governing commercial transactions. The U.C.C. has been enacted as law by all of the states except Louisiana, as well as by the District of Columbia. However, Louisiana has enacted selected provisions of the U.C.C., including Article 9, which is the focus of this article.1

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