Task Force Introductory Report and Background
Considerations
Model Intellectual Property Security Agreement
Contents
1 Introduction ..........................................................................................
1.1 Purpose .........................................................................................
1.2 Limited Scope ...............................................................................
1.2.1 Loan Agreement ..................................................................
1.2.2 Single Parties.......................................................................
1.2.3 Stand-Alone Agreement.......................................................
1.2.4 U.S. Intellectual Property Only ...........................................
1.2.5 Broad Grant ........................................................................
1.2.6 Strict Representations and Covenants .................................
2 Intellectual Property—Basic Concepts and Terminology ......................
2.1 Overview.......................................................................................
2.1.1 IP Assets..............................................................................
2.1.2 United States vs. Foreign Intellectual Property ...................
2.1.3 Registered vs. Unregistered Intellectual Property ................
2.1.4 Value of Intellectual Property..............................................
2.2 Copyrights.....................................................................................
2.2.1 What Law Governs?............................................................
2.2.2 What Is a Copyright? ..........................................................
2.2.3 Registration .........................................................................
2.2.4 Assignment and Transfer ....................................................
2.2.5 Duration..............................................................................
2.3 Patents ..........................................................................................
2.3.1 What Law Governs?............................................................
2.3.2 What Is a Patent?................................................................
2.3.3 Obtaining a Patent ..............................................................
2.3.4 Assignment and Transfer ....................................................
2.3.5 Duration..............................................................................
2.4 Trademarks ...................................................................................
2.4.1 What Law Governs?............................................................
2.4.2 What Is a Trademark?.........................................................
2.4.3 Registration .........................................................................
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2.4.4 Assignment and Transfer ....................................................
2.4.5 Duration..............................................................................
2.5 Trade Secrets.................................................................................
2.5.1 What Law Governs?............................................................
2.5.2 What Is a Trade Secret? ......................................................
2.5.3 Maintaining a Trade Secret .................................................
2.5.4 Duration..............................................................................
2.6 Domain Names .............................................................................
2.6.1 What Law Governs?............................................................
2.6.2 What Is a Domain Name?...................................................
2.6.3 Registration .........................................................................
2.6.4 Duration..............................................................................
3 U.C.C. Article 9—Basic Concepts and Terminology .............................
3.1 Overview.......................................................................................
3.2 Security Interests...........................................................................
3.3 Attachment and Title ....................................................................
3.4 Perfection ......................................................................................
3.5 After-Acquired Collateral ..............................................................
3.6 Priority ..........................................................................................
3.7 Override of Anti-assignment Clauses ............................................
3.8 Enforcement..................................................................................
4 Intersection of Federal IP Law and U.C.C. Article 9.............................
4.1 Perfecting a Security Interest.........................................................
4.1.1 Which Law Applies? ...........................................................
4.1.2 Preemption..........................................................................
4.2 Reasons for Dual Filing.................................................................
4.2.1 Copyrights...........................................................................
4.2.2 Patents and Trademarks......................................................
4.3 Assignment Language vs. Granting Language ...............................
4.4 Federal Recording vs. U.C.C. Filing Systems ................................
4.5 Security Interests in “Non-assignable” IP Licenses ........................
4.6 IP License Considerations .............................................................
4.6.1 Article 9 “Licensee in Ordinary Course” .............................
4.6.2 Exclusive Copyright Licenses ..............................................
4.6.3 Nonexclusive Copyright Licenses........................................
4.6.4 Patent and Trademark Licenses ..........................................
4.7 Enforcement of IP Security Interests .............................................
5 Drafting Process ....................................................................................
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I. INTRODUCTION
Once a kind of collateral handled only by specialists, intellectual property (IP)
now occupies a significant position in commercial finance arrangements. Almost
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every business has IP1 rights, whether as an owner or as a licensee, ranging from
off-the-shelf software products to patents on the next big advance in biotech.
The business name or website address can function as a trademark, and copyrights can exist in just about any written text or artwork, including marketing
materials, employment manuals, and computer code.
A business will often use its intellectual property as collateral for loans and
other financing arrangements. In venture capital financing, intellectual property
such as a software program or a patent application may be the debtor’s only valuable asset. Film financing may be based on the value of the copyrighted script or
film treatment. In other contexts, a loan may finance the debtor’s acquisition, development, or commercialization of particular IP assets. In almost all syndicated
credit facilities, a debtor’s intellectual property is included as a matter of course
in an all-assets collateral package, often without particular reliance on the value
of the intellectual property or its usefulness in the debtor’s business.
Although these financing arrangements are not unusual, they may still present
hurdles for the parties’ counsel. Many lawyers who regularly represent lenders
and secured parties are familiar with Article 9 of the Uniform Commercial
Code (U.C.C.)2 but have only a vague understanding of the laws applicable to
intellectual property. On the other hand, many IP lawyers are knowledgeable
about the laws covering their clients’ IP assets but have avoided dealing with
the U.C.C. since law school. U.C.C. lawyers and IP lawyers speak different languages; negotiation of IP collateral arrangements can be treacherous without a
translation manual.
1.1 PURPOSE
The accompanying Model Intellectual Property Security Agreement (the
Model Agreement) attempts to bridge the gap between U.C.C. and IP lawyers
by offering—and explaining—provisions the lawyers should consider in documenting a secured loan when the collateral includes intellectual property. The
Model Agreement was produced by a task force (the Task Force) organized by
the Commercial Finance and Uniform Commercial Code Committees of the
American Bar Association Business Law Section.
Some model agreements can be used as forms, with only minimal changes to
adapt them for particular transactions. The types of intellectual property and their
importance for any transaction are so varied, however, that a one-size-fits-all approach will not work. The Model Agreement is therefore largely a teaching tool, supplying basic provisions for an idealized hypothetical transaction that involves solely
1. In this report and the footnotes to the Model Agreement, we generally use “IP” as an abbreviation for “intellectual property” when used as an adjective.
2. Unless otherwise indicated, all references to the “U.C.C.,” the Uniform Commercial Code, or
any Article of the U.C.C. are to the Official Text approved by the American Law Institute and the
Uniform Law Commission most recently before the date of this report. References to earlier versions
of the Uniform Commercial Code mean the Official Text most recently approved and in effect in the
year stated. References to “Former Article 9” refer to the Official Text as approved and in effect immediately prior to July 1, 2001.
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IP collateral. The footnotes address issues that often arise in practice and suggest
modifications that may be negotiated to fit the needs of the parties in various
real-world situations.
To assist users of the Model Agreement, this report summarizes some basic
U.C.C. and IP concepts and terminology, and briefly discusses some issues
that often arise when the two bodies of law interact. We have tried to explain,
or at least identify, some of the most relevant legal issues, but neither the
Model Agreement nor this report is intended as an exhaustive treatise on IP
law or U.C.C. Article 9, “Secured Transactions.” The summaries in section 2
(IP basics) and section 3 (U.C.C. basics) merely point out the most salient
and topical issues. The Model Agreement should be used with care; particular
transactions may raise legal or practical issues making some provisions inappropriate or incomplete.
1.2 LIMITED SCOPE
For simplicity and clarity, the Task Force decided to limit the scope of the
Model Agreement and to make certain assumptions about the hypothetical secured transaction. The most important of these limitations and assumptions are:
1.2.1 Loan Agreement
The Model Agreement assumes that the IP assets are being pledged as collateral for loans made under a separate loan agreement that will provide most of the
substantive terms of the parties’ agreement. The Model Agreement focuses on the
IP collateral, and defers to the loan agreement for more general terms to be negotiated by the parties, such as the matters that will be treated as “material” and
the events and circumstances that will constitute events of default.
1.2.2 Single Parties
The Model Agreement contemplates a single U.S. borrower that owns the collateral and a single lender (which could be a single collateral agent acting on behalf of a group of lenders).
1.2.3 Stand-Alone Agreement
The Model Agreement deals solely with IP collateral and the directly associated rights and property. We do not, however, intend to perpetuate the historical
practice of using both a “regular” security agreement and a separate IP security
agreement for a single transaction. We believe that the historical bifurcated practice grew in part from the U.C.C. lawyer’s limited knowledge of IP law and the IP
lawyer’s limited understanding of U.C.C. Article 9. To promote efficiency, eliminate inconsistent language, and conform terminology, we recommend including
non-IP and IP assets in a single security agreement.
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If the transaction documents include a single security agreement for all types
of collateral, then the IP-specific provisions of the Model Agreement can be
folded into it, replacing or supplementing the general terms.
1.2.4 U.S. Intellectual Property Only
Intellectual property is recognized under local law on a country-by-country
basis. In light of the global nature of many businesses, lenders usually want to
include foreign IP assets owned by the debtor, such as counterparts of U.S. patents issued in other nations or trademarks registered in other countries, in the
collateral package. However, the legal regimes for establishing, protecting, and
enforcing liens on intellectual property vary widely by country. While the
Model Agreement includes foreign IP assets in the collateral package (through
broad granting language covering all the debtor’s IP assets), the Task Force decided to leave for another day contractual provisions to establish, protect, and
enforce the lender’s rights in foreign intellectual property. Lenders should consult with local counsel as to the requirements for liens on foreign intellectual
property.
1.2.5 Broad Grant
The Model Agreement covers virtually every kind of intellectual property that
a debtor might have, regardless of the intellectual property’s value or its importance to the debtor’s business or the secured party’s credit decision. To the extent
that certain types of intellectual property are not important for the transaction,
parts of the Model Agreement can be deleted. For example, if patents form an
insignificant part of the collateral, then provisions applicable to patents can be
deleted or patents can be expressly excluded from the definition of “Intellectual
Property.” The Model Agreement also permits the parties to list property (either
by class or item-by-item) that is to be excluded from the collateral package.3
1.2.6 Strict Representations and Covenants
The Model Agreement’s representations and warranties, scheduling obligations, and covenants are relatively strict, with few limitations. The result is a
document that appears to read more favorably to the lender than the borrower,
in the sense that the borrower will be more likely to breach a representation or
covenant due to the absence of “wiggle room.” The Task Force took this approach for instructional purposes because it allows the Model Agreement to
present straightforward provisions that highlight the issue being addressed, uncluttered by qualifications. The first draft in a loan transaction is likely to favor
the lender in any event, because counsel for the lender generally drafts the loan
agreement. The Model Agreement includes footnotes explaining how and when a
3. See section 1.2.1 (“Scheduled Excluded Property”) of the Model Agreement.
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borrower may want to delete particular provisions, or modify them to include
materiality, knowledge, or other limitations.
2 INTELLECTUAL PROPERTY—BASIC CONCEPTS
2.1 OVERVIEW
AND
TERMINOLOGY
2.1.1 IP Assets
“Intellectual property” is a catchall term for various types of intangible rights
recognized under federal, state, or foreign law. Different types of intellectual
property are created and obtained in different ways, have different characteristics, and are subject to different laws.
The most common types of U.S. statutory intellectual property are copyrights,
patents, and trademarks. Copyrights4 protect works of creative expression such as
novels, motion pictures, music, or artworks; patents5 protect inventions; and trademarks6 and service marks protect the exclusive rights to use names, images, or slogans to identify products and services. Although trade secrets are not separately protected by statute, they also constitute intellectual property and can take many forms
(such as customer lists, recipes, or production know-how). Some types of intellectual property are specialized, in that they pertain only to particular industries or particular assets, and may be subject to different or additional requirements.7 Such specialized types of intellectual property are not excluded from the granting language
and are thus included in the collateral package, but for simplicity the Model Agreement does not contain any special representations or covenants for those assets or
the industries in which they are used. Sections 2.2 to 2.6 below briefly summarize
some of the basic characteristics of different types of intellectual property.
2.1.2 United States vs. Foreign Intellectual Property
Intellectual property rights are territorial and protected on a country-by-country
basis. U.S. patents, for example, are issued by the United States Patent and Trademark Office (PTO) and provide the right to exclude others from practicing the invention claimed in the patent in the United States only. Companies with worldwide businesses often have large IP portfolios consisting of registrations in
multiple countries. U.S. companies can file for IP registrations in foreign IP filing
offices and foreign corporations can register intellectual property in the United
States. Local counsel is generally engaged to prosecute IP filings outside an applicant’s home jurisdiction.8
4. See infra section 2.2.
5. See infra section 2.3.
6. See infra section 2.4.
7. Examples are plant variety patents (patents for distinct and new varieties of asexually reproduced plants that are not tuber-propagated or found in an uncultivated state); “mask works” (semiconductor chip product designs, which are protected under copyright laws); and vessel hull configurations (original designs of vessel hulls, which are protected under copyright laws).
8. As noted in supra section 1.2.4, the Model Agreement includes foreign intellectual property in
the collateral, but does not attempt to provide for protecting or enforcing that lien under non-U.S.
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2.1.3 Registered vs. Unregistered Intellectual Property
Copyrights and trademarks can be registered or unregistered. (U.S. patents
can only arise upon issuance by the PTO.) Copyright protection arises automatically when the copyrightable work is fixed in a tangible medium of expression,
but copyrights can be registered in the United States Copyright Office. Trademarks may also arise under common law through use of the mark in commerce.
In the United States, trademarks can be registered nationally in the PTO or locally in most states, usually through the secretary of state’s office.9
While IP rights can exist in unregistered copyrights and trademarks, registration provides certain legal advantages, and registered intellectual property is
often perceived as more valuable. (The benefits of registering copyrights and
trademarks are discussed in sections 2.2.3 and 2.4.3 below.)
2.1.4 Value of Intellectual Property
IP rights tend to be integral to the particular business in which they are used.
Accordingly, their value apart from the business as a whole can be difficult to
calculate. For these reasons, intellectual property may not be assigned much
value in determining how much debt a company’s assets can support. Nevertheless, it is risky for a lender to leave intellectual property outside the collateral
package if it hopes to sell the debtor’s business as a going concern in the event
of a foreclosure.
2.2 COPYRIGHTS
2.2.1 What Law Governs?
The genesis of copyright law in the United States is Article 1, Section 8 of the
U.S. Constitution, which provides that “Congress shall have the power . . . [t]o
promote the Progress of Science and Useful Arts, by securing for limited times to
Authors and Inventors, the Exclusive Right to their respective Writing and Discoveries.” Copyright protection is provided under the U.S. Copyright Act.10
2.2.2 What Is a Copyright?
Copyrights apply to original works of authorship fixed in a tangible medium
of expression, including works of poetry and prose, motion pictures, musical
compositions, sound recordings, paintings, drawings, sculptures, photographs,
law. Different countries’ approaches to IP collateral vary greatly. See generally UNITED NATIONS COMM’N
ON INT’L TRADE LAW, UNCITRAL LEGISLATIVE GUIDE ON SECURED TRANSACTIONS: SUPPLEMENT ON SECURITY
RIGHTS IN INTELLECTUAL PROPERTY (2010), http://www.uncitral.org/uncitral/uncitral_texts/security/ipsupplement.html.
9. Although some trademarks and other IP assets may be recognized, registered, and/or regulated
under the laws of some states, this report generally focuses on the legal issues raised by the pledge of
IP property that is created, registered, and/or regulated under federal law.
10. 17 U.S.C. §§ 101–1332 (2012). Some pre-1976 sound recordings, however, are excluded from
the Copyright Act requirements, and thus possibly governed by state law, until 2067. Id. § 301(a).
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computer software, and other works.11 Copyright protects only the expression of
an idea, and not the idea itself.12 For that reason, there can be many ways of expressing the story of star-crossed lovers from feuding factions, i.e., the overall
plot line of Romeo and Juliet, without infringing the copyright in Shakespeare’s
play (even if his copyright were still in force).
A copyright holder has the exclusive right to:
• reproduce the copyrighted work;
• prepare derivative works based upon the copyrighted work;
• distribute copies of the copyrighted work; and
• display or perform the copyrighted work publicly.13
A copyright arises in favor of a human author unless it is a “work for hire.”
Works for hire include works prepared by an employee in the course of his
or her employment and certain works prepared on commission or special
order.14 The hiring or commissioning party is considered the author of a
work for hire. Most standard form employment agreements state that copyrightable works created by the employee in the scope of employment are works for
hire and, as a back-up, also contractually obligate the employee to assign to
the employer the copyright in all such works.
2.2.3 Registration
Because a copyright automatically attaches to a work of authorship when the
work is reduced to tangible form, it is not necessary for the work to be either
published or registered with the Copyright Office. Generally, however, registration of the copyright is a prerequisite to the right to sue for infringement.15
Remedies for infringement of copyright include actual damages, statutory damages, attorney’s fees, injunction against infringement, recovery of the infringer’s
profits, and seizure of copies.16 In general, statutory damages and attorney’s fees
are available only for infringements occurring after the copyright is registered.17
2.2.4 Assignment and Transfer
The ownership of a copyright may be transferred, in whole or in part, by any
means of conveyance or by operation of law, and may be bequeathed by will or
pass under the applicable laws of intestate succession.18 A written instrument or
memorandum of the transfer must be duly signed by the transferor, unless own11.
12.
13.
14.
15.
16.
17.
18.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
Id.
§ 102(a) (listing examples of types of works of authorship).
§ 106.
§ 101.
§ 411.
§§ 502–504.
§ 412.
§ 201(d)(1).
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ership is transferred by operation of law.19 A signed transfer instrument may be recorded in the Copyright Office. If the copyright has been registered and the transfer
instrument identifies the work by title or registration number so that, after the document is indexed, it would be revealed by a reasonable search under the title or registration number, the recorded document will give all persons constructive notice of
the facts stated therein.20 Any “assignment, mortgage, exclusive license” or other
“conveyance, alienation, or hypothecation” of a copyright (or any of the exclusive
rights comprised in a copyright) is a “transfer of copyright ownership” as defined
in the Copyright Act and will be subject to these transfer and recording provisions.21
The Copyright Act provides that a “transfer of copyright ownership” will “prevail” over a later conflicting transfer if the first transfer is properly recorded22 in
the Copyright Office (i) within one month after the effective date of the transfer
(or within two months if the transfer is executed outside the United States) and
(ii) at any time before the later transfer is recorded. Otherwise, the later transfer
will prevail, if it is properly recorded and if the later transferee takes its copyright
interest in good faith, for valuable consideration (or for a binding promise to pay
royalties), and without notice of the first transfer.23
2.2.5 Duration
Copyrights have a limited, albeit lengthy, duration. The copyright term depends
on several factors, including when the work was first published or renewed.24 No
renewal or maintenance payments are necessary to keep a copyright (or registration) in force for its full term.
The author of a copyrighted work (other than a work for hire) who has transferred or licensed the copyright on or after January 1, 1978, has the non-waivable
right to terminate the transfer (i.e., to rescind the transaction) during the five-year
period beginning thirty-five years after the transfer or license.25 This means that
authors and their heirs retain a residual interest in their copyrights, even if they
have sold them or granted long-term licenses. This right to recapture copyright
ownership could override assignments, licenses, and liens previously granted
by the author or the author’s heirs.26
19. Id. § 204.
20. Id. § 205(a), (c). A transfer of copyright ownership (or other document pertaining to a copyright) can be recorded in the Copyright Office even if the copyright has not been registered, but the
recording will only give constructive notice if it relates to a registered copyright. Note that identifying
the copyright only by title may not satisfy the requirements for constructive notice if there are numerous registered works with the same title and many recorded documents referring to the title.
21. Id. § 101.
22. For convenience, this report sometimes uses the term “properly record” to mean that the relevant document is recorded in the Copyright Office in the form and manner required to give constructive notice of the facts stated therein.
23. Id. § 205(d). For a recorded transfer to “prevail over” another transfer, the recording must give
constructive notice, which can only happen if the copyright is registered. See supra note 20. Thus,
only documents pertaining to registered copyrights can “prevail” under these rules.
24. 17 U.S.C. §§ 302–305.
25. Id. § 203(a).
26. Id.
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2.3 PATENTS
2.3.1 What Law Governs?
Patent protection, like copyright, traces its roots to Article 1, Section 8 of the
U.S. Constitution.27 Today, the right to obtain and enforce patents is governed
by the U.S. Patent Act.28 There is no state patent law or any common law patent
rights.
2.3.2 What Is a Patent?
A patent is a right granted by the United States government permitting the inventor “to exclude others from making, using, offering for sale, or selling the invention
throughout the United States or importing the invention into the United States”29
for a limited time in exchange for public disclosure of the invention when the patent is granted. Patents provide a competitive advantage during their term; after the
expiration of a patent, anyone is free to use the invention. Only a patentee (the original owner or a successor-in-title) can bring an action for infringement.30
2.3.3 Obtaining a Patent
To obtain a patent, the inventor, or a person to whom the inventor has assigned
(or is under an obligation to assign) the invention, files an application in the PTO.31
An inventor’s employer typically obtains and records a written assignment from the
inventor in order to be recognized as the patent owner in the PTO.
A patent application must contain the information necessary for the PTO examiner to determine if the invention is eligible for a patent.32 Patent examinations are notoriously rigorous and patents can take years to issue. The attorney
for the applicant “prosecutes” the patent application by responding to the PTO
examiner’s concerns and modifying the scope of the patent application until the
PTO examiner is satisfied. During this “patent prosecution” process, the breadth
of the invention initially described in a patent application is often narrowed in
order to accommodate the examiner’s concerns. If and when the examiner determines that the invention as then described meets all the requirements, the application is approved and the patent issued.33
An application for a patent is generally kept in confidence by the PTO for eighteen months after its filing date.34 Once a patent is issued, the invention is publicly
available and will no longer be protectable as a trade secret.
27. See supra section 2.2.1.
28. 35 U.S.C. §§ 1–390 (2012).
29. Id. § 154(a)(1); see also id. § 271(a) (“whoever without authority makes, uses, offers to sell, or
sells any patented invention . . . infringes the patent”).
30. See id. §§ 100(d), 281.35.
31. Id. §§ 111, 118.
32. Id. §§ 111–115.
33. Id. § 131.
34. Id. § 122.
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2.3.4 Assignment and Transfer
A patent, patent application, or other interest in a patent can be assigned by a
written instrument, and a patentee, applicant, or assignee may grant or convey
all or part of its rights under the patent or application.35 Any such “assignment,
grant, or conveyance” of patent rights will be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the PTO within three months from its date or before the subsequent
purchase or mortgage.36
2.3.5 Duration
A patent is generally valid for 20 years from its application date.37 Maintenance
payments are due periodically (at 3.5, 7.5, and 11.5 years after the issuance date)
in order to continue the patent in force.38 The validity of the patent can be challenged by third parties at any time by bringing an inter partes review in the PTO.39
2.4 TRADEMARKS
2.4.1 What Law Governs?
Trademarks are protected under U.S. federal law, common law in most states,
statutes in some states, and international law. The federal law is the Lanham Act
(also referred to as the Trademark Act).40
2.4.2 What Is a Trademark?
Trademarks are words, phrases, symbols, designs, or a combination thereof
that identify and distinguish the source of one party’s goods from those of others.41 A trademark used in connection with services, rather than goods, is sometimes referred to as a “service mark,” and each may be referred to as a “mark.”42
Trademark law protects consumers by making it easier to recognize a particular
business, product, or service.43 Trademark law also protects the trademark owner’s valuable property rights in the mark and the goodwill associated with the
consumer’s recognition of the mark.44
35. Id. § 261.
36. Id.
37. Id. § 154(a)(2).
38. Id. § 41(b).
39. Id. § 311.
40. 15 U.S.C. §§ 1051–1141 (2012).
41. Id. § 1115(a).
42. Id.; see also id. § 1053.
43. J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION §§ 5.1, 2.7 (4th ed.
2007) (as originally conceived the purpose of trademark law was to prevent fraud and deceit by unfair competition).
44. See, e.g., Inwood Labs. v. Ives Labs., 456 U.S. 844, 854 n.9 (1982) (an infringer deprives
trademark owner of goodwill earned by owner’s efforts and deprives consumers of ability to distinguish among competitors’ products).
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In the United States, trademarks can be registered if they are used in commerce. However, a company can reserve a trademark before actually offering
products under that mark by filing an application to register it in the PTO on
the basis of a bona fide “intent to use” the mark.45 The mark must then be put
into commercial use in interstate commerce within three years from the examiner’s approval of the application.46
2.4.3 Registration
Registration is not required for trademark rights to attach to a mark that is
used in connection with a business, product, or service. Registration of a trademark47 in the PTO does, however, provide important advantages:
• constructive notice of a claim of ownership of the mark;
• a legal presumption of ownership of the mark and therefore the exclusive
right to use the mark nationwide on or in connection with the goods/services
listed in the registration;
• the ability to bring an action concerning the mark in federal court;
• the use of the U.S. registration as a basis to obtain registration in foreign
countries;
• the ability to record the U.S. registration with the U.S. Customs and Border Protection Service to prevent importation of infringing foreign goods;
• the right to use the federal registration symbol ®; and
• listing in the PTO’s online databases.48
2.4.4 Assignment and Transfer
A registered trademark can be assigned, but only along with the goodwill of
the business in which the trademark is used (or with the goodwill of the part
of the business connected with the use of and symbolized by the trademark).49
A trademark for which an application to register has been filed can be assigned
in the same way, except that an “intent to use” (ITU) application can only be
assigned to a successor to the applicant’s ongoing and existing business (or relevant part of that business) to which the trademark pertains.50 The assignment
45. 15 U.S.C. § 1051(b).
46. Id. § 1051(d)(1)–(2) (explaining the timing of usage and the extensions of time available).
47. The PTO maintains both a “principal register” and a “supplemental register” for trademarks.
Some trademark applications may not meet the requirements for the principal register, but may be
recorded in the supplemental register, which provides a lower level of protection. This report and
the Model Agreement do not distinguish between the two, but use the term “registered” to refer to
the principal register, unless otherwise specified.
48. See id. §§ 1072, 1111, 1114(a), 1115(a), 1124.
49. Id. § 1060(a)(1).
50. Id. § 1060(a); 37 C.F.R. § 3.16 (2015).
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must be in a signed writing and contain the information required by the PTO.51
An assignment will be void against a subsequent purchaser for valuable consideration, without notice, unless the assignment (including the required information) is recorded in the PTO within three months after the date of the assignment
or before the subsequent purchase.52
Patent and trademark assignees may be subject to laws in addition to the recording provisions of the Patent Act or Lanham (Trademark) Act; for example, a
new trademark owner may be subject to a license granted by the previous trademark owner, even if the license is not recorded and the new owner has no
knowledge of the preexisting license.53
2.4.5 Duration
Trademark registration can theoretically remain effective as long as use of the
mark continues in connection with the products and services claimed in the registration, periodic affidavits and declarations are filed when required, and the
trademark is not “abandoned.”54 A trademark can become abandoned if it is
not used, and a federally registered trademark may be presumed to be abandoned
after three consecutive years of non-use.55 Trademark protection can also be lost
if the trademark owner engages in “naked licensing” (i.e., not adequately monitoring the use of the mark by its licensees) or fails to take adequate steps to prevent unauthorized use by others.56 For example, because the owners of the
marks “aspirin” and “escalator” did not take steps to protect against infringements, the names ultimately became generic terms available for anyone to use.57
2.5 TRADE SECRETS
2.5.1 What Law Governs?
Trade secrets have traditionally been protected and enforced under state law.
Virtually all states have adopted the Uniform Trade Secrets Act (U.T.S.A.) and
many courts still refer to guidance under section 757 of the original Restatement
of Torts or section 39 of the Restatement of Unfair Competition. As of May 11,
2016, federal law recognizes a cause of action for misappropriation of trade
51. 15 U.S.C. § 1060(a)(3).
52. Id. § 1060(a)(4).
53. See infra section 4.6.4.
54. 15 U.S.C. §§ 1059(a), 1058(a)–(b).
55. Id. § 1127. If the registration is not challenged, however, the trademark will remain on the registry indefinitely, as long as the owner files an affidavit or declaration of use between five and six years
after registration, and by the end of every ten-year period after registration. Id. §§ 1058, 1059.
56. E.g., Eva’s Bridal, Ltd. v. Halanick Enters., 639 F.3d 788 (7th Cir. 2011) (trademark owner
must have quality control over licensee’s use to maintain consistent quality, not necessarily high quality, of goods and services using the trademark); Barcamerica Int’l USA Trust v. Tyfield Imps., Inc.,
289 F.3d 589 (9th Cir. 2002) (trademark owner engaged in naked licensing and thus forfeited its
rights in the mark, resulting in the cancellation of registration).
57. 15 U.S.C. § 1064(3); Bayer Co. v. United Drug Co., 272 F. 505 (S.D.N.Y. 1821); Haughton
Elevator Co. v. Seeberger (Otis Elevator Co.), 85 U.S.P.Q. 80 (Comm’r Pat. 1850).
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secrets under the Defend Trade Secrets Act of 2016 (D.T.S.A.).58 While virtually
all states have adopted a variation of the Uniform Trade Secrets Act (U.T.S.A.),59
many courts still refer to guidance under section 757 of the original Restatement
of Torts or section 39 of the Restatement of Unfair Competition.
2.5.2 What Is a Trade Secret?
Trade secrets are defined in the U.T.S.A. as information that derives independent value from not being generally known or readily ascertainable by proper
means by others (the novelty test) and that is the subject of reasonable efforts
to maintain its secrecy (the secrecy test).60 If both tests are met, information
such as formulas, patterns, programs, methods, devices, techniques, and processes are cited by the U.T.S.A. as potential trade secrets. Often information
that would not qualify as a true trade secret because it fails to satisfy the novelty
or secrecy test can be protected by contractual non-disclosure agreements or covenants not to compete from employees (if permitted under applicable state law).
Unlike a patent, which permits the owner to exclude others from using the patented information, ownership of a trade secret does not prevent the independent
development of the same information by others. Accordingly, a trade secret is
only protected against “misappropriation”61—the acquisition of a trade secret by
“improper means,”62 such as industrial espionage, breach of a confidentiality agreement, or theft by an employee. The U.T.S.A. does not, however, expressly prohibit a
company’s competitor from analyzing or reverse-engineering the company’s product
or process in order to use it in the competitor’s own business; reverse engineering by
itself is not considered improper means.63 If a trade secret is incorporated into a
product that will be publicly used or distributed, the owner may consider protecting
it under patent law (if possible) rather than attempting to claim it as a trade secret.
2.5.3 Maintaining a Trade Secret
Trade secrets cannot be protected by filing or registering them in any state or
federal jurisdiction. Rather, the owner of a trade secret must take reasonable steps
to maintain the secrecy of the information. In certain cases, those steps may include limiting access to the information to only those employees who have a
need to know the information in the course and scope of their work, providing
locks and other physical security to the location at which the information is held,
or obtaining confidentiality agreements from vendors or contractors who must
58. 114 P.L. 153, 130 Stat. 376. The D.T.S.A. amends the Economic Espionage Act, 18 U.S.C.
§§ 1831–1839 (2012), which was formerly solely a criminal statute. Among other things, the D.T.S.A.
creates a federal civil cause of action for trade secret misappropriation, in parallel with state law. See
D.T.S.A. § 2(f) (“Nothing in the amendments made by this section shall . . . preempt any other provision
of law.”).
59. U.T.S.A. refers to the Uniform Trade Secrets Act with 1985 amendments.
60. U.T.S.A. § 1(4).
61. Id. § 3.
62. Id. § 1(2).
63. Id. § 1(1).
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use the trade secret in performing services for the owner. Additionally, the owner
of a trade secret may sue to enjoin another from revealing or utilizing its trade
secrets. Under the U.T.S.A. as adopted in most states, in an appropriate case
the owner would be entitled to enjoin the use or distribution of the trade secret
and would also be able to recover damages for misappropriation.
2.5.4 Duration
A trade secret will last as long as the owner is able to maintain the secrecy of
the information so that it does not become lawfully available to the public.
2.6 DOMAIN NAMES
2.6.1 What Law Governs?
Ownership of domain names is governed by state common law. The use of
domain names and websites may be subject to regulation under federal law,
however, as well as rules established by international organizations, such as
the Internet Corporation for Assigned Names and Numbers (ICANN).
2.6.2 What Is a Domain Name?
A domain name is a part of the address of a website on the internet that helps a
user to access the site. The complete address, including the domain name, is
known as a URL, for Uniform Resource Locator. The domain name is the part
of the address consisting of a single word, followed by a period and a short alphabetical indicator known as a top-level domain. For example, americanbar.org
is a domain name and org is the top-level domain. Every computer or device on
the internet has a unique internet address, consisting of a string of numbers, that
allows it to connect with others. The domain name system allows more comprehensible letters and words to be associated with the numeric internet addresses.
The creation, registration, and use of a domain name, along with the operation
and maintenance of the website, generally involves an interlocking set of contracts among the owner, the domain name registrar, internet service providers,
network operators, and the like.
2.6.3 Registration
Domain names are registered with one of several registrars recognized by
ICANN, and the registration can be transferred from one registrar to another.
Most courts have considered a registered domain name to constitute intangible
personal property,64 although a few have held that domain names are contractual
64. See, e.g., Kremer v. Cohen, 337 F.3d 1024 (9th Cir. 2003) (under California law, a domain name
is intangible personal property and can be subject to claim for conversion); Harrods, Ltd. v. Sixty Internet Domain Names, 302 F.3d 214 (4th Cir. 2002); Caesars World, Inc. v. Caesars-Palace.com,
112 F. Supp. 2d 502 (E.D. Va. 2000) (registered domain name is property subject to in rem action
under Anti-Cybersquatting Consumer Protection Act); Schott v. McLear (In re Larry Koenig &
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rights.65 The owner of a domain name may also have trademark rights in the
name if it is used in marketing the owner’s business.
2.6.4 Duration
Registration is effective for the period provided in the registrar’s contract for
services. Ten years is a common period, and renewal is generally permitted.
3 U.C.C. ARTICLE 9—BASIC CONCEPTS
3.1 OVERVIEW
AND
TERMINOLOGY
The U.C.C. as a whole is generally intended to simplify, clarify, and modernize the law governing various kinds of commercial transactions and to make that
law uniform among the various jurisdictions.66 One of the ways that U.C.C. Article 9 simplified commercial finance transactions was by collecting and consolidating various traditional but somewhat uncertain methods of using personal
property as security.67 The term “security interest” was created as a generic replacement for all those common law arrangements, including chattel mortgages,
installment sales, title retention, conditional assignments, collateral assignments,
and the like.68 Since its creation in the mid-twentieth century, Article 9 has been
revised several times to maintain its modern outlook, and was comprehensively
revised in 2001.69
In reality, Article 9 is quite complex, not necessarily uniform, and definitely
not simple. The following is a brief overview of the Article 9 concepts that are
most relevant in discussing issues affecting the use of IP assets (especially federally registered intellectual property) as collateral.
Like the federal IP legal systems, U.C.C. Article 9 has its own terminology; both
the differences and the unintended similarities can cause confusion when IP interests are used as collateral.
3.2 SECURITY INTERESTS
Under Article 9, a debtor enters into a security agreement that grants a security
interest in personal property collateral to a secured party, generally to secure the
Assoc., LLC), No. 01-12829, 2004 Bankr. LEXIS 2311, at *1 (Bankr. M.D. La. Mar. 31, 2004) (domain name and contractual right to use name are property rights under Louisiana law); Sprinkler
Warehouse v. Systematic Rain Inc., 859 N.W. 2d 527 (Minn. Ct. App. 2015) (domain names and
copyright-protected material on websites are subject to garnishment).
65. See, e.g., Dorer v. Arel, 60 F. Supp. 2d 558 (E.D. Va. 1999) (registered domain name is not
personal property that can be the object of a judgment lien); Network Solutions, Inc. v. Umbro
Int’l, Inc., 529 S.E.2d 80, 87 (2000) (registered domain name is not personal property subject to garnishment, but “the product of a contract for services” between the registrant and the registrar).
66. U.C.C. § 1-103(a).
67. U.C.C. § 9-101 cmt. (1972).
68. See id. § 9-102 & note.
69. Revised Article 9 was approved in 1995 and effective in most states on July 1, 2001. The most
recent amendments to Article 9 were approved in 2010 and became effective in most states on July 1,
2013.
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payment or performance of an obligation of the debtor to the secured party.70
Article 9 honors substance over form; any transaction creating a security interest
(regardless of how the interest may be described) is subject to Article 9 unless
excepted.71
3.3 ATTACHMENT
AND
TITLE
A security interest attaches to, and becomes enforceable against, whatever
rights the debtor has in the collateral described in a signed security agreement
once value has been given; the title to the collateral is not necessarily determinative.72 The security agreement must reasonably identify the collateral, but in
most cases does not need to be specific, and can even use the collateral types
defined in Article 9 (accounts, goods, general intangibles, inventory, etc.)73
The security agreement can cover collateral acquired later by the debtor.74 For
example, the description of the collateral in the security agreement can be as general as “all present and future copyrights” of the debtor.
3.4 PERFECTION
The secured party perfects its security interest in most kinds of collateral under
Article 9 by filing an appropriate financing statement in the appropriate filing office
in the applicable state or other jurisdiction determined under Article 9’s governing law rules.75 Perfection helps protect the secured party’s rights in the collateral against claims by other creditors. A financing statement must contain the
names of the debtor and the secured party and must “indicate” the collateral.76
In almost all cases, the financing statement need not describe the collateral specifically, and can even indicate only that the collateral consists of all the debtor’s
personal property (an “all-assets” filing).77 If authorized by the debtor, the financing statement can be filed before the security interest is created.78 Financing
statements are indexed by the name of the debtor, not the nature or type of collateral; potential creditors need only search under the debtor’s name to find any
financing statements filed with respect to the debtor’s personal property.79
70. U.C.C. §§ 9-102(a), 1-201(b)(35).
71. Id. § 9-109.
72. Id. §§ 9-203, 9-202.
73. Id. § 9-108.
74. Id. § 9-204.
75. See id. §§ 9-301, 9-501.
76. Id. § 9-502(a).
77. Id. §§ 9-504, 9-108(c). Such a general “all assets” description will not, however, be effective in
a security agreement to identify the collateral.
78. Id. § 9-509(a).
79. Id. § 9-519(c).
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3.5 AFTER-ACQUIRED COLLATERAL
A filed financing statement is effective against the indicated collateral at the
time the security interest attaches to the collateral, even if attachment comes
after the financing statement is filed.80 This means that a secured party can
file a single financing statement covering present and future items of collateral,
without having to refile or specifically describe after-acquired property. For example, if a security agreement covers the debtor’s interests in all present and future patents, and the financing statement indicates “all patents” as the collateral,
then the security interest will be enforceable against (i.e., will attach to) the debtor’s rights in both those patents existing when the security agreement is signed
and any patents issued after that date, even if the invention is created and the
patent granted after the financing statement is filed.
3.6 PRIORITY
Article 9 has extensive rules to determine which creditors have priority—that
is, the right to satisfy their obligations out of the collateral before other creditors.
The priority rules depend on many factors, including the type of collateral,
method of perfection, and the nature of the transaction.81 Generally, however,
and subject to several exceptions and conditions:
• A security interest has priority over a general unsecured claim.
• A perfected security interest has priority over an unperfected security
interest.
• A perfected security interest has priority over the claims of a person (including a bankruptcy trustee) who becomes a lien creditor82 after the security interest is perfected.83
• A perfected security interest has priority over a later-perfected security
interest.84
The most prominent exceptions to these rules are:
• A secured party who finances the debtor’s acquisition of some kinds of tangible property or software may, by following certain procedures, have priority as to that property over an earlier-perfected security interest.85
• Third parties acquiring collateral subject to an existing security interest,
including a buyer of goods in the ordinary course of business86 and a “li80. Id. §§ 9-308(a), 9-502 cmt. 2.
81. See id. §§ 9-317–9-339.
82. Id. § 9-102(a)(52).
83. Id. § 9-317(a).
84. Id. § 9-322(a)(1).
85. Id. §§ 9-103 (defining purchase-money security interest), 9-324 (priority of purchase-money
security interest).
86. Id. §§ 9-320, 1-201(a)(9).
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censee in the ordinary course of business,” may take the collateral free of
the security interest in certain circumstances.87
3.7 OVERRIDE
OF
ANTI-ASSIGNMENT CLAUSES
Article 9 overrides certain contractual restrictions on a debtor’s ability to use
certain intangible property as collateral. Many contracts contain “anti-assignment”
provisions that prohibit a party from “assigning” its contract rights to a third party
without the other party’s consent, and provisions of state or federal law may prohibit “assignment” of governmental permits or licenses without the consent of the
governmental authority. Such provisions often do not clearly distinguish between
a party’s absolutely assigning away its rights under contracts or permits and merely
granting a security interest in those rights.
Article 9 facilitates a debtor’s ability to pledge these intangible assets by making certain anti-assignment provisions included in contracts or created by law
ineffective to prevent the creation, attachment, perfection, or, in some cases, enforcement of a security interest in these assets.88
The extent to which Article 9 overrides an anti-assignment clause depends in
part on the nature of the collateral.89 If the collateral is a right to payment from a
third party (an “account” or “payment intangible”90), an anti-assignment provision is ineffective to prevent a secured party taking a security interest in those
rights and, in some circumstances, collecting payments in place of the debtor
after default.91
For collateral consisting of “general intangibles”92 (a catch-all category of intangible assets that would include copyrights, patents, trademarks, software,
IP licenses, and some other forms of intellectual property), the secured party
can take a security interest in the debtor’s rights in the general intangibles, despite an anti-assignment clause, but the secured party’s enforcement rights
will be significantly limited. Generally, without consent from the other party
to the contract:
• The secured party cannot enforce the security interest against the other
party;
• The other party does not assume any duty to the secured party;
• The other party does not have to recognize the security interest, render
performance to the secured party, or accept performance by the secured
party; and
87. Id. § 9-321; see infra section 4.6.1.
88. Id. §§ 9-406(d)–(e), 9-408.
89. The nature of the transaction—as a true sale or a secured payment obligation—is also relevant
in some cases. Id. §§ 9-406(e), 9-408(b).
90. Id. § 9-102(a)(2), (61).
91. Id. § 9-406(a), (d).
92. Id. § 9-102(a)(42).
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• The secured party may not use or assign the debtor’s rights under the
contract.93
3.8 ENFORCEMENT
Under Article 9, after default, a secured party may sell, lease, license, or otherwise dispose of collateral, subject to certain conditions.94 The disposition can be
private or public, but every aspect of the disposition must be commercially reasonable.95 While the requirement of commercial reasonableness cannot be
waived,96 the security agreement may set the standards by which commercial
reasonableness will be measured, provided that the standards are not themselves
manifestly unreasonable.97
The secured party generally cannot purchase the collateral at a private sale,98
and it cannot simply take or keep the collateral to satisfy the secured debt without satisfying certain conditions, including the debtor’s written consent after the
default.99
The secured party may also collect amounts payable on the collateral and enforce the debtor’s rights under contracts included in the collateral.100 The secured party’s rights to enforce a contract against the other party will generally
be subject to the other party’s defenses and rights of setoff against the debtor,
and it may be further restricted if the contract prohibits assignment by the
debtor.101
4 INTERSECTION OF FEDERAL IP LAW AND U.C.C. ARTICLE 9
4.1 PERFECTING A SECURITY INTEREST
4.1.1 Which Law Applies?
The federal IP registration systems are generally intended to create a “chain of
title” to each IP asset, allowing the current position to be traced back to the original registration. Assignments, mergers, and name changes generally must be recorded with the applicable IP filing office in order for subsequent owners of the
intellectual property to be put on notice. The Copyright Office and the PTO will
also accept lien filings (and lien releases) for recording as long as they refer to the
93. Id. § 9-408(d)(1)–(4), (6); see also id. § 9-408 cmt. 2, ex. 1.
94. Id. §§ 9-601–9-624.
95. Id. § 9-610(b).
96. Id. § 9-602(7).
97. Id. § 9-603(a).
98. Id. § 9-610(c)(2) (secured party can purchase collateral at private sale only if the collateral is
of a kind that is customarily sold on a recognized market or the subject of widely distributed standard
price quotations).
99. Id. § 9-620. Generally, the debtor cannot waive its rights in connection with the secured
party’s acceptance of collateral in satisfaction of the debt, and can only waive certain other rights
in an authenticated record after default. Id. §§ 9-602(10), 9-624.
100. Id. § 9-607(a).
101. See id. § 9-408(d); supra section 3.6.
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registration or application information for each item.102 There is uncertainty,
however, regarding the extent to which the federal systems for registering transfers of title are intended to cover transfers of partial interests, such as security
interests.
One source of confusion is the lack of a common terminology. The federal
rules and recording systems were established well before the original version
of U.C.C. Article 9, and the few modifications have not dealt with the use of
IP assets as collateral.103 Key U.C.C. concepts, such as perfection, do not
seem to have any analogue in the federal system, while some common terms
have different meanings in the federal IP laws and U.C.C. Article 9.
The federal IP statutes generally speak of “assignments” or “transfers” of IP assets, but do not use the U.C.C. terms “security interest,” “secured party,” or “purchaser”; the statues thus address the rights of “assignees,” “transferees,” and even
“mortgagees” in some cases, but not the rights of “secured parties.”104
Under the federal IP statutes, it is not clear whether “assignment” and “transfer” apply to a transfer of a partial interest, such as a security interest; some
courts have interpreted the terms to refer solely to ownership transfers,105 but
the question remains unsettled. The U.C.C., on the other hand, explains that,
depending on the context, “assignment” or “transfer” may refer to the outright
assignment/transfer of an ownership interest or to the assignment/transfer of a
security interest or other limited interest.106
4.1.2 Preemption
Under Article VI of the U.S. Constitution, the federal laws of the United States
“shall be the supreme law of the land.” If the federal IP laws govern transfers of
102. The PTO accepts only specific types of documents for recording, and it then cross-references
each recorded document to the original registration; the PTO can therefore generate a report showing
all documents recorded against a particular patent or trademark. The Copyright Office will record any
document “pertaining to a copyright” (17 U.S.C. § 205(a)), as long as it contains the original registration number. The Copyright Office does not cross-reference or link the recorded documents and
registrations, but can generate a report showing every document that refers to a particular registration
or party.
103. See, e.g., Moldo v. Matsco, Inc. (In re Cybernetic Servs.), 252 F.3d 1039, 1044 (9th Cir.
2001) (“As is often true in the field of intellectual property, we must apply an antiquated statute
in a modern context.”).
104. For instance, although U.C.C. Article 9 had been in effect for several decades when the Copyright Act was comprehensively amended in 1976 (effective January 1, 1978), the amendments did not
specifically address “security interests.” Instead, the amendments defined mortgages, hypothecations,
and exclusive licenses as “transfers of copyright ownership,” and addressed the priority of claims of
transferees. The Copyright Act does recognize “security interests” as such, but only in a limited context related to collective bargaining agreements. 28 U.S.C. § 4001(c) (2012).
105. See, e.g., Cybernetic Servs., 252 F.3d at 1049–50 (discussing historical meanings of assignment, grant, and conveyance as transfers of title, and equating “hypothecation” to a security interest).
106. See U.C.C. § 9-102 cmt. 26 (regarding the terms “assignment” and “transfer,” “no significance
should be placed on the use [in Article 9] of one term or the other. Depending on the context, each
term may refer to the assignment or transfer of an outright ownership interest or to the assignment or
transfer of a limited interest, such as a security interest.”).
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partial or limited interests107 like security interests in registered IP assets, they
would preempt the U.C.C. rules; the federal recording system would then provide the only means to give public notice of an interest akin to a U.C.C. security
interest.
The U.C.C. recognizes, as it must, the preemptive power of federal law: Article 9 “does not apply . . . to the extent that a statute, regulation, or treaty of the
United States preempts” it. However, the U.C.C. defers to federal law “only when
and to the extent that it must.”108
Article 9 excepts from its perfection rules certain transactions that are subject
to other legal systems. In particular, the filing of a U.C.C. financing statement “is
not necessary or effective to perfect a security interest in property subject to . . . a
statute, regulation, or treaty of the United States whose requirements for a security interest’s obtaining priority over the rights of a lien creditor with respect to
the property preempt” Article 9’s requirement for a filed financing statement.109
Courts addressing this preemption issue have generally found that:
• the Copyright Act includes requirements for a security interest to obtain
priority over the rights of a lien creditor, and those requirements preempt
Article 9’s perfection-by-filing requirements for federally registered copyrights,110 but
• neither the Patent Act nor the Lanham (Trademark) Act includes requirements for a security interest to have priority over the rights of a lien creditor and therefore neither act preempts Article 9’s perfection rules.111
107. The federal IP laws generally permit the owner of a registered IP asset to transfer “partial”
interests in the nature of different kinds of rights (e.g., performance rights and distribution rights
in a copyrighted work) or rights that can be exercised only in certain geographic areas (e.g., exclusive
right to use a trademark in Texas and Oklahoma). The federal laws do not necessarily govern all of
the contractual rights among transferors and transferees. See infra note 133. The question here is
whether a security interest is the kind of “partial interest” that would be governed by the federal
IP laws.
108. U.C.C. § 9-109(c)(1) cmt. 8.
109. Id. § 9-311 (addressing federal preemption as to methods of perfection).
110. Aerocon Eng’g, Inc. v. Silicon Valley Bank (In re World Auxiliary Power Co.), 303 F.3d 1120,
1126 (9th Cir. 2002) (Copyright Act’s use of “mortgage” as a type of “transfer” is properly read to
include security interests under U.C.C. Article 9); In re Nacio Sys., Inc., 410 B.R. 38 (Bankr. N.D.
Cal. 2009); see also In re AEG Acquisition Corp., 127 B.R. 34 (Bankr. C.D. Cal. 1991) (as to registered
copyrights), aff’d, 161 B.R. 50 (9th Cir. BAP 1993); In re Peregrine Entm’t, Ltd., 116 B.R. 194 (C.D.
Cal. 1990) (same).
111. See, e.g., In re Tower Tech, Inc., 67 F. App’x 521 (10th Cir. 2003) (filing with PTO is ineffective to perfect security interest in patents); Moldo v. Matsco, Inc. (In re Cybernetic Servs.), 252 F.3d
1039 (9th Cir. 2001) (U.C.C. filing is effective to perfect security interest in patents); Trimarchi v. Together Dev. Corp., 255 B.R. 606 (D. Mass. 2000) (U.C.C. filing is necessary to perfect security interest
in trademark and PTO recording is ineffective); In re Coldwave Sys. LLC, 368 B.R. 91 (Bankr. D. Mass.
2007) (U.C.C. filing is necessary to perfect security interest in patents); In re 199Z, Inc., 137 B.R. 778
(Bankr. C.D. Cal. 1992) (U.C.C. filing is necessary to perfect security interest in a trademark and PTO
recording was ineffective); In re Chattanooga Choo-Choo Co., 98 B.R. 792 (Bankr. E.D. Tenn. 1989)
(U.C.C. filing, not federal registration, is required to perfect security interest in trademarks); In re
Roman Cleanser Co., 43 B.R. 940 (Bankr. E.D. Mich. 1984) (U.C.C. filing is sufficient to perfect security interest in trademark and PTO recording is not necessary), aff’d, 802 F.2d 207 (6th Cir. 1986).
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Although only a few courts have addressed these perfection issues, the rulings
cited above have been prominent and persuasive enough that the general understanding among finance and IP lawyers is that a security interest in registered
copyrights can only be perfected by a filing in the Copyright Office, while a security interest in patents or trademarks can only be perfected by a U.C.C. filing.112
Perfection will protect a security interest against claims of lien creditors (including a bankruptcy trustee) and unperfected and later-perfected security interests.113 Perfection is a term of art under U.C.C. Article 9, however, and the extent to which perfection will also protect the secured party against the claims of
licensees and good-faith purchasers of federally registered intellectual property
remains unsettled. Accordingly, the current practice for a cautious secured
party with federally registered IP collateral is to file both a U.C.C. financing statement in the appropriate state office and a security document in the appropriate
federal filing office.114 The following sections discuss the reasons for this
caution.
Secured parties often take precautionary approaches, seeking maximum protection by trying to comply with all competing and potentially contradictory
legal systems, protocols, and practices affecting perfection.115 This approach,
along with due diligence and careful drafting, can address some of the risks,
but compliance with multiple filing systems can be duplicative, expensive, and
time-consuming. Parties often seek to balance the risks and benefits by negotiating carve-outs, limitations, exceptions, and other terms. Some examples of
such provisions are included in the Model Agreement.116
4.2 REASONS
FOR
DUAL FILING
4.2.1 Copyrights
For Article 9 perfection purposes, compliance with the Copyright Act’s requirements for obtaining priority over the rights of a lien creditor is “equivalent”
to filing an Article 9 financing statement.117 Nonetheless, secured parties will
also want to file an actual financing statement covering all copyright collateral
in the appropriate U.C.C. filing office. An “equivalent” federal recording may
not cover non-copyright collateral, such as proceeds and other rights. More important, it probably will not cover unregistered copyrights.
112. The federal IP laws do not use the term “perfection”; references here to “perfecting a security
interest” in a copyright through a filing in the Copyright Office mean that the filing will be sufficient
to give the secured party’s interest priority over lien creditors (including a bankruptcy trustee) and
unperfected and later-perfected security interests.
113. See supra section 3.6.
114. The exhibits to the Model Agreement include short-form security agreements for recording
liens in the relevant federal IP filing offices.
115. I.e., the secured party’s well-known “belt and suspenders.”
116. See, e.g., section 1.4 (“After-acquired Collateral”), note 30 (possible knowledge and materiality qualifications), and note 65 (possible limitation on perfection requirements) in the Model
Agreement.
117. U.C.C. § 9-311(b).
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Some courts have recognized that it is a practical impossibility to register all
copyrightable material; a copyright can attach immediately to any tangible expression of an idea, regardless of whether the expression will remain in that initial form. These courts have held that the Copyright Act does not preempt Article 9 as to perfection of a security interest in an unregistered copyright.118 The
prevailing view now is that an unregistered copyright is a general intangible in
which a security interest is perfected by filing a financing statement in accordance with Article 9, not by recording in the Copyright Office.119
The risk remains, of course, that a security interest in an unregistered copyright perfected by a U.C.C. filing will become unperfected if the copyright is
later registered. The Model Agreement includes provisions intended to reduce
that risk, including procedures facilitating the secured party’s ability to record
its security interest in the Copyright Office immediately upon the debtor’s registration of a copyright or filing of a copyright application.120
4.2.2 Patents and Trademarks
Filing a financing statement covering patents or trademarks in the appropriate
U.C.C. filing office should give a secured party priority over an unperfected or
later-perfected security interest and a later lien creditor, including a bankruptcy
trustee. But the extent to which Article 9’s other priority rules might be preempted by federal patent or trademark law remains an unsettled question, especially where a later purchaser or licensee of the intellectual property claims that it
takes free of the security interest under federal law.
To some extent, the federal patent and trademark laws protect a purchaser
who records the transfer of the IP asset in the federal filing office against claims
of later transferees; a purchaser whose transfer is not recorded may be subject to
the rights of a later transferee that acquires the IP asset in good faith, for value,
and without knowledge of the first purchase.121
118. See, e.g., Aerocon Eng’g, Inc. v. Silicon Valley Bank (In re World Auxiliary Power Co.), 303
F.3d 1120, 1131 (9th Cir. 2002).
119. A few older cases had held that recording in the Copyright Office would be necessary to perfect a security interest in materials for which a copyright application could be, but had not been, filed
with the Copyright Office. In re AEG Acquisition Corp., 127 B.R. 34 (Bankr. C.D. Cal. 1991), aff’d,
161 B.R. 50 (9th Cir. BAP 1993); In re Avalon Software, Inc., 209 B.R. 517 (Bankr. D. Ariz. 1997).
These decisions temporarily led some secured parties to impose the impracticable requirement that
debtors register all their copyrights. These decisions were heavily criticized and have been generally
discredited. The Aerocon court expressly rejected the holdings in AEG Acquisition and In re Avalon that
recording in the Copyright Office would be necessary to perfect a security interest in an unregistered
copyright. See also MCEG Sterling, Inc. v. Phillips Nizer Benjamin Krim & Ballon, 646 N.Y.S.2d 778,
780 (Sup. Ct. 1996) (Peregrine ruling is “questionable” as to the need to register security interests in
accounts receivable arising from copyrights).
120. See section 1.4.4 (“Notice of Copyright Applications”) and notes 16 & 17 of the Model
Agreement.
121. See supra sections 4.2.1 (Copyright Act) & 4.2.2 (Patent and Lanham Acts). Although the
language used in the different statutes is not identical, this kind of “bona fide purchaser” is essentially
the opposite of a lien creditor, such as a bankruptcy trustee, who does not acquire an asset in good
faith and does not provide value.
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873
These are not the results one would expect under Article 9. For example, suppose a secured party files a financing statement covering a patent in the appropriate U.C.C. filing office, but does not record a security document in the PTO.
Six months later, a third party purchases the patent without actual notice of the
security interest, and it records its interest in the PTO. If all patent priority issues
are determined under Article 9, as state law,122 then the purchaser’s interest in
the patent will be subject to the earlier perfected security interest regardless of
the lack of a PTO recording.123 But if the U.C.C. determines priority only as
among secured parties and lien creditors, with federal IP law determining the respective rights of secured parties and purchasers, then the purchaser would take
free of the unrecorded security interest.124
Because of this uncertainty, many secured parties record security interests in
patents and trademarks in both the U.C.C. filing office and the PTO. If a court
were to hold that federal law preempts Article 9 as to claims of parties acquiring
ownership of a patent or trademark, the secured party’s timely federal recording
could provide notice of its security interest to potential purchasers searching the
federal records.
4.3 ASSIGNMENT LANGUAGE
VS.
GRANTING LANGUAGE
Historically, lenders’ counsel unsure about the federal statutory provisions
dealing with the “assignment” of IP interests would use assignment and conveyance language to create a security interest. Another traditional approach was to
structure a secured transaction like an assignment of real property rents: The
borrower would “assign” the intellectual property to the lender, who would license the intellectual property back to the borrower, who could exercise all
the rights of an owner until a default, which would terminate the license.125
In light of the prevailing case law, it is not necessary to use assignment language to create a security interest in registered IP assets.126 In addition, assignment language has possible drawbacks:
122. See U.C.C. § 9-311 cmt. 5 (perfection of a security interest under a preemptive federal statute
has all the consequences of perfection under Article 9); Moldo v. Matsco, Inc. (In re Cybernetic
Servs.), 252 F.3d 1039, 1058 n.9 (9th Cir. 2001) (former U.C.C. section 9-302(3) governs only
the “where to file” question, while issues left unresolved by the federal statute, such as priority,
are resolved by looking to Article 9).
123. U.C.C. § 9-317(d).
124. See In re Transp. Design & Tech., Inc., 48 B.R. 635, 639 (Bankr. S.D. Cal. 1985) (U.C.C.
governs perfection of a security interest in a patent, but federal law governs rights of bona fide purchasers, and they would prevail over security interest not recorded in the PTO).
125. For instance, in Clorox Co. v. Chemical Bank, 40 U.S.P.Q.2d 1098 (T.T.A.B. 1996), the
transaction at issue was structured as this kind of “assignment-with-license-back.” See infra note 131.
126. See, e.g., In re Roman Cleanser Co., 43 B.R. 940 (Bankr. E.D. Mich. 1984) (security interest in
a trademark is not equivalent to an assignment under the Lanham (Trademark) Act), aff’d, 802 F.2d
207 (6th Cir. 1986).
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• A secured party that is an assignee of a patent may be considered an
owner and successor-in-title and thus be a necessary party to any infringement suit.127
• A secured party that is an assignee of a trademark may be considered the
trademark owner and licensor. As such, the secured party would be required to exercise quality control over the products and services bearing
the trademark, whether provided by the debtor or its licensees, at the risk
of invalidating the mark.128
• An assignment of a trademark without the accompanying goodwill of the
business (sometimes called an “assignment in gross”) can invalidate the
mark or weaken its enforceability and value.129 If a secured party is an
assignee of a trademark, the security interest could constitute an assignment in gross, with negative consequences for both the secured party and
the debtor.130
• Since a secured party is not operating the debtor’s business, an assignment of trademark collateral that inadvertently includes an ITU application may invalidate both the application and the mark itself.131 In the absence of law positively stating that creating a security interest is not the
kind of assignment that would threaten the trademark application and
any resulting registration, the practice has developed of conditionally
excluding ITU applications from the collateral package, but only to the
extent that, and as long as, the security interest would be treated as a prohibited assignment.132
127. See 35 U.S.C. §§ 281.35 100(d) (2012); In re Neurografix (360) Patent Litig., 5 F. Supp. 3d
146 (D. Mass. 2014) (an assignee that only has exclusionary right cannot bring infringement suit without joining the assignor patentee). For recording purposes, the PTO treats a “conditional assignment” as
an “absolute assignment” regardless of whether the condition, such as payment of money, has been fulfilled, and the “assignment” can only be cancelled by both parties or a court order. 37 C.F.R. § 3.56
(2015). If a security interest in a patent is structured as a conditional assignment and recorded, the secured party could be treated as an assignee.
128. See supra text accompanying note 56.
129. See 15 U.S.C. § 1060(a) (2012); Brown Bark II, L.P. v. Dixie Mills, LLC, 732 F. Supp. 2d
1353 (N.D. Ga. 2010) (secured party that bid on debtor’s trademarks at its own Article 9 foreclosure
sale but did not actually use the marks in business had received an “assignment in gross” and had no
enforceable rights in the marks).
130. Roman Cleanser Co., 43 B.R. at 947 (security interest in a trademark along with formulas and
customer lists satisfied the goodwill requirements of the Lanham (Trademark) Act).
131. See supra section 2.4.4; 15 U.S.C. § 1060(a). In Clorox, the trademark collateral included an
intent-to-use (ITU) application, which had been filed in the PTO, but for which the required evidence of use of the trademark had not been accepted by the PTO. Clorox Co. v. Chemical Bank,
40 U.S.P.Q.2d 1098, 1100 (T.T.A.B. 1996). In response to a later challenge, the court found that
the trademark registration itself (not merely the lien) had been invalidated by the premature “assignment” of the ITU application without the corresponding goodwill and operating business. Id. at 1105.
Because Clorox dealt with an actual “assignment” of the trademarks and ITU application, the same
analysis would not necessarily apply to the grant of a security interest that is not structured as an
“assignment.”
132. See section 1.2.2 of the Model Agreement.
Model IP Security Agreement Introductory Report
4.4 FEDERAL RECORDING
VS.
875
U.C.C. FILING SYSTEMS
The federal IP recording systems are based on the specific registered item, not
the name of the person with an interest in the item. Consequently, a secured
party’s document recorded in the Copyright Office or PTO would not be effective
if it merely described the debtor’s collateral by category (e.g., “all registered copyrights” or “all patents” or “all registered trademarks”); rather, the recorded security
document must specifically identify each item of collateral, generally by registration or application number. Similarly, potential creditors cannot easily determine
the lien status of all of a debtor’s IP assets by simply searching in the debtor’s
name, but must usually search item-by-item and then work through the sometimes chaotic results. Moreover, transfer and assignment documents must include
the item’s registration number; therefore, a transfer or assignment of (or security
interest in) future rights in IP assets cannot be effectively recorded, since no registration number would exist. (These requirements prevent the kind of floating
lien often used in inventory financing.) All this is in marked contrast to the
U.C.C. filing system, which indexes security interests by the debtor’s name,
does not require item-by-item identification of collateral, and permits perfection
by filing against future collateral.
As with real property collateral, a secured party will want to search the IP filing office records, not only to discover other liens, but to make sure that the
debtor has good title to its IP assets. Searches are somewhat easier in the
PTO, which maintains an online database of recordings against each registration,
so that the chain of title can be followed. The Copyright Office records are not so
well-organized; a search and the necessarily detailed review of search results can
take much longer and cost much more than a U.C.C. search.133
Specific identification of each IP registration or application included in the
collateral is thus necessary for recording a lien in the Copyright Office or
PTO. The common practice is to identify each item of registered intellectual
property in schedules to the security agreement and then attach the schedules
to the documents to be recorded. The schedules also give the secured party information for monitoring the status of collateral registrations and applications
and exercising its rights to collect on or dispose of collateral after default.
4.5 SECURITY INTERESTS
IN
“NON-ASSIGNABLE” IP LICENSES
IP licenses are often described as “non-assignable” in a kind of shorthand to
indicate that the license contains provisions prohibiting the licensee’s assignment
of the license without the licensor’s consent. Even if a license is silent as to the
licensee’s ability to assign its rights, IP lawyers consider the license to be non-
133. In the Copyright Office, there is a significant lag time between the submission of a nonelectronic document for recording and its actual recording. Consequently, the “chain of title” reflected in the records of the federal IP recording offices may not be complete or correct. For copyright assignments (which cannot be submitted electronically), the lag can be as much as one year.
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assignable.134 Under federal case law, generally, unless the license agreement
provides otherwise, a nonexclusive patent, trademark, or copyright license gives
the licensee only personal rights to, not property rights in, the licensed intellectual
property; the license would thus not be assignable without the licensor’s consent.
These are not statutory rules, but judicially developed contract interpretation default rules; the parties can (but generally do not) contract around them.135
Despite the presumption of non-assignability in IP practice, an anti-assignment
provision in an IP license may not prevent the licensee’s grant of a security interest
in the license. U.C.C. Article 9 views a party’s creation of a security interest in its
rights under a contract as different from the type of “assignment” that may be prohibited by the contract terms. Thus, Article 9 generally permits a debtor to grant a
security interest in its rights under a contract even if the contract or a statute prohibits “assignment.” However, Article 9 severely limits the rights of the secured
party against the other party to the contract, thus averting many of the negative
consequences faced by an IP licensor if its licensee assigns the license to an unapproved third party.136
Although courts have not directly determined whether federal law preempts the
U.C.C. so as to make an anti-assignment clause in an IP license effective to prevent
the grant of a security interest,137 courts frequently rule that not all issues related
to IP contracts are necessarily governed by federal law.138 Even if federal law preempts Article 9 on this point, a court may still interpret the policy underlying Article 9’s rules of free assignability with limitations as compatible with federal policy, and find that a security interest in a licensee’s or licensor’s rights under an IP
license need not be treated as a prohibited assignment in all circumstances.139
134. See, e.g., Elaine D. Ziff, The Effect of Corporate Acquisitions on the Target Company’s License
Rights, 57 BUS. LAW. 767 (2002).
135. In re XMH Corp., 647 F.3d 690 (7th Cir. 2011) (rule that trademark licenses are not assignable without authorization is a sensible default rule); In re Trump Entm’t Resorts, Inc., 526 B.R. 116,
124 (Bankr. D. Del. 2014) (parties to a trademark license agreement are free to contract around the
default rule of non-assignability); In re Golden Books Family Entm’t, 269 B.R. 311 (Bankr. D. Del.
2001) (nonexclusive copyright licenses do not create ownership rights and are not assignable over
the licensor’s objection).
136. See supra section 3.7.
137. But see U.C.C. § 9-408 cmt. 9 (“This section does not override federal law to the contrary.
However, it does reflect an important policy judgment that should provide a template for future federal law reforms.”).
138. See, e.g., as to copyrights, Ryan v. Editions Ltd. W., Inc., 786 F.3d 754, 761 (9th Cir. 2015)
(Copyright Act does not generally preempt contract-based claims under state law); Gaiman v. McFarlane, 360 F.3d 644, 652 (7th Cir. 2004) (citing Saturday Evening Post Co. v. Rumbleseat
Press, Inc., 816 F.2d 1191, 1194–95 (7th Cir. 1987)) (like a suit to enforce a copyright license, a
suit for an accounting of profits between copyright co-owners arises under state law, not federal
law, and there is no issue of copyright law); Broadcast Music Inc. v. Hirsch, 104 F.3d 1163,
1167–68 (9th Cir. 1997) (state law, not federal law, determined the effect of copyright owner’s assignment of royalties).
139. See Valley Bank & Trust Co. v. Spectrum Scan, LLC (In re Tracy Broad. Corp.), 696 F.3d
1051 (10th Cir. 2012). In confirming the validity of a debtor’s grant of a security interest in proceeds
of its FCC license notwithstanding federal statutory prohibition of an assignment of such a license
without FCC consent, the court found support in U.C.C. section 9-408, stating that section 9-408
“does for state licenses what FCC policy does for FCC licenses,” and noting that section 9-408 and
its comments recognize that a lien on the right to sale proceeds of a government license can attach
Model IP Security Agreement Introductory Report
877
The Model Agreement leaves these arguments open by excluding from the collateral package an IP license if (and only as long as) it is subject to a provision of
law or of the IP license that is effective and enforceable to prevent the grant of a
security interest, whether or not the provision would prevent an absolute assignment of all the debtor’s rights.140
Disputes about retention and assignability of IP licenses often arise in bankruptcy
cases, when a debtor wants to assume and/or assign its rights under an IP license. In
bankruptcy, a secured party with collateral consisting of a debtor’s rights as licensee
under an IP license faces an inherent risk that this collateral may evaporate if the
licensor objects to the debtor’s assumption or assignment of the license.141 The treatment of IP licenses in bankruptcy involves unresolved issues, and it is beyond the
scope of this report.142
4.6 IP LICENSE CONSIDERATIONS
The collateral may include intellectual property licensed by the debtor to licensees or licensed by third parties to the debtor. The rights of a secured
party holding a security interest in a debtor’s rights under an IP license will depend on whether the debtor is a licensor or a licensee, the type of IP asset licensed, and whether the license is exclusive or nonexclusive. Federal law addresses some of these factors, by statute or otherwise, with results that can
differ from the results expected under Article 9.
If the debtor is a licensor, the secured party will be concerned that the debtor’s
licensees might take the licensed intellectual property free of the security interest, or that licenses granted by the debtor would remain effective after foreclosure of the security interest. If the debtor is a licensee, the secured party will
be concerned about limitations on the debtor’s rights under the license, in addition to possible restrictions on the debtor’s ability to assign or grant a security
interest in its licensee rights.143
when a lender extends credit to a licensee, so long as the governmental interest in regulation of the
license is not infringed. Id. at 1064; see also U.C.C. § 9-408 cmt. 9.
140. See section 1.2.3 (“Restricted IP Licenses”) of the Model Agreement.
141. See, e.g., In re Trump Entm’t Resorts, Inc., 526 B.R. 116, 124 (Bankr. D. Del. 2015) (debtor
trademark-licensee cannot assume or assign trademark license because trademark law prohibits assignment without consent of licensor). Although courts differ widely as to the correct statutory analysis, Bankruptcy Code section 365 generally permits a bankruptcy trustee or debtor in possession to
“assume” and/or “assign” some kinds of existing contracts even if “applicable law” would otherwise
“prohibit, restrict, or condition the assignment” of the contract, with an exception for circumstances
where the “applicable law” would still bar assumption or assignment of the particular contract at
issue. 11 U.S.C. § 365(f) (2012); see, e.g., Perlman v. Catapult Entm’t (In re Catapult Entm’t), 165
F.3d 747 (9th Cir. 1999) (debtor licensee could not assume patent license over licensor’s objection).
Although the language in Bankruptcy Code section 365 and in U.C.C. section 9-408 as to laws or
contract terms that prohibit, restrict, or condition the assignment of a contract may be similar, Article 9 does not include the same exceptions as the Bankruptcy Code.
142. Other Bankruptcy Code provisions deal with intellectual property. See, e.g., In re Crumbs Bake
Shop, Inc., 522 B.R. 766 (Bankr. D.N.J. 2014) (despite debtor’s sale of all its assets, non-debtor trademark licensees could still elect to maintain licenses in place, under Bankruptcy Code section 365(n),
even though it technically does not cover trademarks).
143. See supra section 4.5.
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4.6.1 Article 9 “Licensee in Ordinary Course”
Under Article 9, an IP licensee generally takes the licensed IP rights subject to
any previous security interest.144 There is, however, an exception to this rule: If
the license is nonexclusive, a “licensee in ordinary course of business”—that is, a
person that in good faith, without knowledge that the license violates the rights
of another person, acquires the license in the ordinary course from a person in
the business of licensing such property—will take the licensed intellectual property free of a previously perfected security interest, even if the licensee knows of
the security interest.145 The federal IP laws take a different approach.
4.6.2 Exclusive Copyright Licenses146
Debtor as licensor. Under Article 9, an exclusive licensee is not a licensee in
ordinary course of business; accordingly, the exclusive license would be subject
to any security interest that attaches to the licensed property.147 However, under
federal law, an exclusive licensee of a copyright may in some circumstances take
free of a security interest.
Under the Copyright Act, the grant of an exclusive license of a copyright is a
type of “transfer of copyright ownership.” Most recent courts decisions have also,
explicitly or implicitly, viewed a security interest in a copyright as being a “transfer of copyright ownership.”148 A secured party and an exclusive licensee from
the debtor would thus be competing transferees of the license, subject to the
rules on “conflicting transfers.”149
If the secured party properly records its security interest in a registered copyright in the Copyright Office within the applicable one or two-month grace period, the recorded security interest should prevail over a later conflicting exclusive license.150 But if the secured party does not properly record within the grace
period, a later exclusive license could prevail over the earlier security interest if
the licensee takes its license in good faith, for valuable consideration, and without notice of the security interest, and properly records its license before the secured party records its security interest.
A secured party that immediately and properly records its security interest
may be surprised to find itself behind an earlier exclusive licensee if the licensee
144. U.C.C. §§ 9-201(a), 9-315(a)(1).
145. Id. § 9-321(a), (b).
146. Relevant Copyright Act provisions on recording, registration, priority, and related matters addressed in this section 4.6 are summarized in supra section 2.2.4.
147. U.C.C. § 9-315(a)(1).
148. See supra note 109.
149. The circumstances in which the respective interests of a secured party and an exclusive licensee would “conflict” in a way that would allow one of them to “prevail over” the other are not
clear. Possibly there is no “conflict” until the secured party forecloses its lien. Possibly no conflict
arises unless both transfers are of the same type or unless the grants are identical. Notwithstanding
these theoretical concerns, a secured party will likely be content with a perfected security interest
covering the debtor’s rights to collect royalties or license fees generated under the license. See
supra note 118.
150. See supra section 2.2.4.
Model IP Security Agreement Introductory Report
879
records its license within the applicable grace period. For example, if a security
interest is granted on January 20 and properly recorded that same day, the secured party may still find itself behind an undisclosed exclusive licensee that
took its license on January 10 but did not record until January 30. An earlier
exclusive license still in its grace period is like a secret lien, in that a search of
Copyright Office filings would not reveal it.151
Debtor as licensee. If the debtor is an exclusive licensee of a registered copyright, the secured party should consider having the debtor record its license
in the Copyright Office against the copyright registration, and then record its security interest in the recorded license. This two-step process minimizes the risk
that a transferee of the debtor’s license rights (or a transferee of the licensed
copyright itself) would take those rights free of the security interest. Courts
have not yet addressed these issues. As a practical matter, however, outside
some industries, such as motion pictures152 or music, or with respect to exclusive copyrights that are essential to the transaction or the debtor’s business, secured parties do not generally record liens in the Copyright Office against copyrights licensed to the debtor.153
4.6.3 Nonexclusive Copyright Licenses
While the grant of a nonexclusive copyright license is not a “transfer of copyright ownership” under the Copyright Act, the Act protects a nonexclusive licensee, even if the license is not recorded and the licensee does not provide
value to the licensor.154
If a debtor grants a security interest in a copyright and later grants a third
party a written nonexclusive license to use the copyright, and the license and
the security interest conflict with each other,155 the licensee will prevail if the
license is taken in good faith without notice of the security interest and before
the security interest is recorded.156 If the debtor’s written grant of a nonexclusive
copyright license precedes its grant of the security interest, the licensee will prevail, regardless of whether the security interest or the license are recorded.157
151. Documents submitted to the Copyright Office may not be recorded for several months. The
date of recording, however, is the date when the proper document, in proper form, and fees are all
received in the Copyright Office. 37 C.F.R. § 201.4(e) (2015).
152. In film financing, for instance, the owner of the film copyright may grant an exclusive license
in (or assign) the rights to distribute the film (and collect royalties) to a separate distribution company. A lender to the distribution company is likely to require the recordation of both the exclusive
license (or assignment) and the security interest in the Copyright Office.
153. Parties may also resist recording licenses when they would prefer to avoid the public disclosure of their relationships and other business terms.
154. 17 U.S.C. § 101 (2012).
155. See supra note 149.
156. 17 U.S.C. § 205(e) (2012).
157. See, e.g., CERx Pharm. Partners, LP v. RPD Holdings, LLC (In re Provider Meds, LP), No. 1330678-BJH, 2014 Bankr. LEXIS 3519, at *10–13 (Bankr. N.D. Tex. Aug. 20, 2014) (in lender’s suit
against debtor for fraudulent inducement and tortious interference, alleging that debtor had reduced
software collateral value by granting perpetual, royalty-free licenses to third parties, court held that
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These results under the Copyright Act differ from the results under Article 9.
Under Article 9, a nonexclusive licensee will take free of an existing security interest only if its licensor created the security interest, is in the business of licensing such property, and grants the license in the ordinary course of its business.158
The Copyright Act’s protections, in contrast, do not depend on who created the
security interest or the nature of the licensor’s business or the license transaction.
On the other hand, the licensee’s knowledge of the security interest would leave it
unprotected under the Copyright Act, whereas Article 9 protects a licensee with
knowledge of the security interest as long as the licensee does not have knowledge that the license violates another person’s rights in the copyright license.159
4.6.4 Patent and Trademark Licenses
Neither the Patent Act nor the Lanham (Trademark) Act directly addresses the
rights of licensees. However, under well-established U.S. patent and trademark
law principles, a license grant, whether exclusive or nonexclusive, continues in
force when title to the patent or mark is transferred to a new owner, even if the
new owner had no knowledge of the license and even if the license is not
recorded.160
A security interest, of course, can only attach to the rights that the debtor has
in the collateral. A secured party thus could find that its security interest in patent or trademark collateral loses to patent and trademark licenses previously
granted by the debtor, and also loses to nonexclusive licensees qualifying as licensees in the ordinary course of business under Article 9.
4.7 ENFORCEMENT
OF
IP SECURITY INTERESTS
For copyright, patent, or trademark collateral, a secured party will typically be
able to use Article 9’s normal enforcement rules after default. Federal law generally does not preempt state law as to foreclosures and contract enforcement.161
the licenses did not create “encumbrances,” and that debtor therefore had not breached its representations or covenants as to priority and absence of encumbrances).
158. U.C.C. § 9-321(a).
159. Id. § 9-321(a), (b).
160. See, e.g., Moldo v. Matsco, Inc. (In re Cybernetic Servs.), 252 F.3d 1039, 1052 (9th Cir.
2001) (citing Keystone Foundry v. Fastpress Co., 272 F. 242, 245 (2d Cir. 1921) (patents)); ICEE
Distributors, Inc. v. J&J Snack Foods Corp., 325 F.3d 586, 593 (5th Cir. 2003) (trademarks).
This rule also has been applied to covenants not to sue and settlement agreements. See, e.g., Jardin v.
Datallegro, Inc., No. 08cv1462-IEG-RBB, 2009 U.S. Dist. LEXIS 3339, at *6–7 (S.D. Cal. Jan. 20,
2009) (new patent owner was bound by prior settlement agreement and could not bring infringement
action); V-Formation, Inc. v. Benetton Grp. SpA, Civ. A. No. 02-cv-02259-PSF-CBS, 2006 U.S. Dist.
LEXIS 13352, at *18–21 (D. Colo. Mar. 10, 2006) (new patent owner could not bring infringement
suit even though new owner was not aware of covenant not to sue granted by prior owner).
161. See, e.g., Republic Pictures Corp. v. Security-First Nat’l Bank of L.A., 197 F.2d 767 (9th Cir.
1952) (federal court does not have jurisdiction to foreclose copyright mortgage); Moore v. Willis, No.
14cv1602 BTM (RBB), 2014 U.S. Dist. LEXIS 127543, at *4–5 (S.D. Cal. Sept. 8, 2014) (state law
applies to determine if copyrights are subject to execution to satisfy a judgment); Mayfair Wireless
LLC v. Celico P’ship, No. 11-772-SLR-SRF, 2013 U.S. Dist. LEXIS 124206, at *17–18 (D. Del.
Model IP Security Agreement Introductory Report
881
If the debtor is a licensor, its rights to payment from licensees would be “accounts” or “payment intangibles” under the U.C.C., and the secured party
should be able to collect payments generated by the licensee’s use of the intellectual property, even if the license prohibits assignment by the licensor.162
If the debtor is a licensee, however, its rights under the license would likely be
“general intangibles.” Most IP licenses—especially trademark licenses—expressly
or implicitly prohibit assignment by the licensee; even if U.C.C. section 9-408
allows the licensee to grant a security interest,163 the secured party’s ability to
use the licensed intellectual property or enforce the license would be severely
limited.164 A secured party that contemplates using or enforcing the debtor’s
IP licenses upon default should get the licensor’s consent to assignments before
the transaction closes, not after default.
Sometimes an agreement involving rights in intellectual property, but not
titled “security agreement,” may contain language purporting to forfeit or transfer
the intellectual property to the secured party automatically upon the debtor’s default. Finance lawyers tend to see this kind of provision as an attempt (possibly
unwitting) to evade Article 9’s required foreclosure procedures.165 If the substance of the agreement creates a security interest, then regardless of what the
arrangement is called, the party seeking to take the IP asset must comply with
Article 9’s enforcement rules, unless federal law preempts the Article 9 enforcement system. Not all courts, however, recognize Article 9’s substance-over-form
approach in the IP context.166
5 DRAFTING PROCESS
The Task Force was co-chaired by Katherine Simpson Allen and Matthew
Kavanaugh, with David Fournier, John E. Murdock, and Elaine D. Ziff serving
as vice chairs and Howard Darmstadter as editor.
The Task Force met jointly with the Commercial Finance Committee’s Intellectual Property Financing Subcommittee at the ABA annual meetings from
Aug. 30, 2013) (federal law determines validity and terms of an assignment of a patent, but state law
applies to a transfer of patent ownership by operation of law if it is not deemed an assignment).
162. See U.C.C. § 9-406(a), (d); supra section 3.6.
163. See supra section 4.2.
164. See U.C.C. § 9-408(a); supra section 3.6; see also supra section 4.5 (Bankruptcy Risks).
165. See, e.g., Sky Techs. LLC v. SAP AG, 67 U.C.C. Rep. Serv. 2d 802 (E.D. Tex. 2008) (where
patent security agreement was recorded in the PTO, purchaser from secured party’s assignee at foreclosure sale acquired patents by operation of law—U.C.C. Article 9—notwithstanding absence of
written assignment or recorded transfer from original debtor to purchaser); In re Coldwave Sys.
LLC, 368 B.R. 91 (Bankr. D. Mass. 2007) (U.C.C. Article 9, not patent law, governs secured party’s
exercise of remedies, and secured party was not allowed to transfer the IP collateral to itself without
debtor’s consent, or waiver, as required for a strict foreclosure under U.C.C. section 9-620).
166. See Corsair Special Situations Fund, L.P. v. Engineered Framing Sys., Inc., 694 F. Supp. 2d
449, 459 (D. Md. 2010) (court construed security agreement provision that patent collateral would
“become an absolute assignment” after default to effectuate an automatic transfer of title upon default); but see Steven O. Weise & Stephen L. Sepinuck, Personal Property Secured Transactions, 70
BUS. LAW. 1243, 1265 n.218 (Corsair decision allowing collateral to be automatically assigned to secured party on default, as provided in security agreement, is “simply wrong”).
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2009 through 2013, the Business Law Section’s spring meetings in 2011, 2013,
2014, and 2015, and the Business Law Section’s annual meetings in 2014 and
2015. Beginning in 2012, the Task Force also held monthly meetings by conference call.
Guided by John Murdock, the first few meetings in 2010 and 2011 focused on
using a document assembly software program to construct a model agreement by
collecting provisions in similar agreements available in the EDGAR database and
analyzing their relative frequency of use. The initial 2012–2013 working drafts
were based in large part on this system, but for various reasons the Task Force
ultimately reverted to a more traditional drafting approach.
Co-chair Kathi Allen, vice chair Elaine Ziff, and editor Howard Darmstadter
acted as a de facto drafting committee. Kathi prepared initial drafts, Elaine provided expert commentary on IP law and practice, and Howard edited each draft
to streamline and simplify the language.
Revised drafts of the agreement and/or the accompanying report were distributed to the Task Force, and posted on the Task Force website, a few days before
each Task Force meeting (whether held in person or by telephone), and the new
drafts were discussed at the meeting. Based on the issues raised and discussed at
the meeting, the process of revision, distribution, and discussion was repeated
for the following meeting.
In addition to its co-chairs, co-vice chairs, and drafting committee, the Task
Force was supported in its work by members of the Task Force and members
of the Commercial Finance Committee’s IP Financing Subcommittee. (Lists of
members are available on the respective website home pages for the Task
Force and Subcommittee.) The following members of both groups provided especially critical support by attending meetings frequently, reviewing drafts, sending comments, correcting errors, drafting sections, explaining legal technicalities,
updating practice tips, offering solutions to drafting problems, and resolving occasional differences of opinion:
Warren E. Agin
Leianne S. Crittenden
Patrick A. Guida
Kiriakoula Hatzikiriakos
Marilyn C. Maloney
Pamela J. Martinson
Peter S. Munoz
Stephen L. Sepinuck
Pauline M. Stevens
Stephen T. Whelan
The Task Force also enjoyed the support of successive chairs of its sponsoring
Committees: Lynn A. Soukup, James Schulwolf, and Neal J. Kling of the Commercial Finance Committee, and Penelope L Christophorou, Norman M. Powell,
and Kristen David Adams of the U.C.C. Committee.
Model Intellectual Property Security Agreement
Contents
Parties .......................................................................................................
Background...............................................................................................
Agreement.................................................................................................
1 Security Interest ....................................................................................
1.1 Grant and Collateral....................................................................
1.2 Excluded Property.......................................................................
1.2.1 Scheduled Excluded Property .........................................
1.2.2 Trademark Intent-to-Use Applications ............................
1.2.3 Restricted IP Licenses......................................................
1.2.4 Absence of Conditions ....................................................
1.3 Perfection and Priority ................................................................
1.3.1 U.C.C. Filing Offices.......................................................
1.3.2 IP Filing Offices ..............................................................
1.3.3 Perfection and Priority ....................................................
1.4 After-acquired Collateral .............................................................
1.4.1 Notice of After-acquired Collateral; Addenda .................
1.4.2 Secured Party’s Right to Provide Addenda......................
1.4.3 IP Security Documents....................................................
1.4.4 Notice of Copyright Applications....................................
1.4.5 Commercial Tort Claims .................................................
1.5 Further Assurances .....................................................................
2 Representations and Warranties............................................................
2.1 The Collateral..............................................................................
2.1.1 Copyrights.......................................................................
2.1.2 Patents ............................................................................
2.1.3 Trademarks .....................................................................
2.1.4 Domain Names and IP Licenses......................................
2.1.5 Other Intellectual Property..............................................
2.1.6 Ownership ......................................................................
2.1.7 Restrictive Provisions ......................................................
2.1.8 Existing or Threatened Claims; Infringement..................
2.1.9 IP Notices........................................................................
2.1.10 Standards of Quality .......................................................
2.1.11 Proprietary Software........................................................
2.1.12 No Government Funding................................................
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2.2
3
4
5
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Debtor.........................................................................................
2.2.1 Existence; Power; Authority ............................................
2.2.2 Debtor Information .........................................................
Covenants .............................................................................................
3.1 No Transfers of Collateral ...........................................................
3.2 No Liens on Collateral ................................................................
3.3 No Restrictive Provisions ............................................................
3.4 Registration of Copyrights and Trademarks; Pursuit of Patents ..
3.5 Recording of Assignments and IP Licenses .................................
3.6 Protection of Collateral ...............................................................
3.6.1 Compliance with Law .....................................................
3.6.2 General............................................................................
3.6.3 IP Notices........................................................................
3.6.4 Trademark Quality Control.............................................
3.6.5 Performance of IP Licenses .............................................
3.6.6 Protection of Trade Secrets .............................................
3.6.7 Infringements by Others .................................................
3.6.8 Challenges and Suits by Others ......................................
3.7 Escrow Agreement ......................................................................
3.8 Change of Debtor Information....................................................
3.9 Maintenance of Records; Audit and Inspection...........................
Events of Default; Remedies..................................................................
4.1 Events of Default.........................................................................
4.2 Enforcement, Collection, and Disposition of Collateral ..............
4.3 License to Secured Party to Use Intellectual Property.................
4.4 Access to Debtor’s Systems and Expertise...................................
4.5 General Remedy Provisions.........................................................
4.5.1 U.C.C. Remedies .............................................................
4.5.2 Remedies Cumulative......................................................
4.5.3 Reasonable Notice ...........................................................
4.5.4 Application of Proceeds ..................................................
4.5.5 No Marshaling ................................................................
Secured Party’s Other Rights.................................................................
5.1 Power of Attorney .......................................................................
5.2 Indemnity....................................................................................
5.3 Costs and Expenses ....................................................................
5.4 Non-Disturbance of Permitted Licenses ......................................
5.5 Limited Obligations of Secured Party..........................................
General Provisions ................................................................................
6.1 Term of Agreement .....................................................................
6.2 Reinstatement..............................................................................
6.3 Entire Agreement ........................................................................
6.4 Notices and Communications .....................................................
6.4.1 General Notices...............................................................
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Model Intellectual Property Security Agreement
885
6.4.2 Electronic Communications ............................................
6.5 Successors and Assigns ...............................................................
6.6 Amendments and Waivers ..........................................................
6.7 Governing Law............................................................................
6.8 Severability..................................................................................
6.9 Jurisdiction; Venue......................................................................
6.10 Jury Waiver.................................................................................
7 Definitions and Usages..........................................................................
7.1 Defined Terms ............................................................................
7.2 Usages .........................................................................................
Signatures .................................................................................................
Schedules ..................................................................................................
917
917
917
918
918
918
918
918
918
921
923
923
Defined Term
Addendum, 893
Agreement, 886
Associated Property, 889
Bankruptcy Code, 918
Bankruptcy Law, 918
Business Day, 919
Claims, 915
Collateral, 889
Copyright, 886
Copyright Office, 919
Debtor, 886
Domain Name, 887
Domain Name Contract, 919
Effective Date, 886
Event of Default, 909
Excluded Property, 889
Governmental Authority, 919
Insolvency Proceedings, 919
Intellectual Property, 889
IP Filing Office, 919
IP License, 888
IP Security Document, 919
IP-Related Right, 888
Jurisdiction, 920
License-In, 920
License-Out, 920
Lien, 920
Loan Agreement, 886
Loan Documents, 920
Loans, 886
Material Adverse Effect, 920
Other Intellectual Property, 887
Patent, 887
Permitted License, 920
Permitted Lien, 899
Permitted Transfer, 900
Person, 920
Primary license, 912
Proceeds, 889
PTO, 920
Restrictive Provision, 920
Secured Obligations, 886
Secured Party, 886
Security Interest, 886
State, 921
Trademark, 887
Transfer, 921
U.C.C., 921
United States, 921
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Intellectual Property Security Agreement1
[DATE] (the Effective Date2)
PARTIES
• [DEBTOR NAME], a [JURISDICTION] [ENTITY] (Debtor)
• [SECURED PARTY NAME], a [JURISDICTION] [ENTITY] (Secured Party)
BACKGROUND
Secured Party has agreed to make Loans to Debtor under the Loan Agreement
dated the Effective Date between Debtor and Secured Party.
A condition to Secured Party’s obligation to make the Loans is Debtor’s execution
and delivery of this Intellectual Property Security Agreement (this Agreement).
AGREEMENT
The parties agree as follows:
1 SECURITY INTEREST
1.1 GRANT AND COLLATERAL
To secure Debtor’s performance of its present and future obligations under the
Loan Documents (the Secured Obligations), Debtor grants Secured Party a security interest3 (the Security Interest) in all Debtor’s present and future rights
and interest in any:
Copyrights, meaning any United States or foreign4:
(a) copyrights, whether registered or unregistered, whether in published or
unpublished works of authorship,
1. This model agreement was prepared by the Model Intellectual Property Security Agreement
Task Force, as a joint project of the Commercial Finance and Uniform Commercial Code Committees
of the American Bar Association Business Law Section. The model agreement should be used in conjuction with the Task Force’s Introductory Report and Background Considerations (the “Report”),
which provides helpful analysis and additional commentary.
2. Most capitalized defined terms are defined in context throughout the agreement. See the index
of defined terms following the table of contents. Other words and phrases are defined in section 7.1
(Defined Terms) or described in section 7.2 (Usages).
3. The model agreement provides for the debtor to simply “grant a security interest” in the collateral, avoiding the unnecessary and ambiguous verbs historically included in IP security agreements
(e.g., assign, transfer, convey, pledge, mortgage, hypothecate, remise). See Report § 4.3.
4. As discussed in the Report, the model agreement focuses on U.S. intellectual property, as opposed to IP rights created by or subject to the laws of jurisdictions other than the United States or its
states (generally referred to as “foreign intellectual property”). If the secured party is taking the value
of the foreign intellectual property into account in its credit decision, local counsel should be consulted in each relevant jurisdiction. If the secured party is not relying on foreign intellectual property,
exceptions to the representations and warranties, covenants, and scheduling obligations may be appropriate. See Report §§ 1.2.4, 2.1.2.
Model Intellectual Property Security Agreement
887
(b) copyright registrations or applications in any IP Filing Office,
(d) copyright renewals or extensions, and
(e) rights throughout the world analogous to the foregoing;
Patents, meaning any United States or foreign:
(a) issued patents (whether utility, design, or plant), patent applications, or
certificates of invention in any IP Filing Office,
(b) continuations, continuations-in-part, divisions, extensions, reissuances, or
reexaminations of a patent or patent application in any IP Filing Office,
(c) inventions described and claimed in any patent or patent application, and
(d) rights throughout the world analogous to the foregoing;
Trademarks, meaning any United States or foreign:
(a) trademarks, service marks, certification marks, trade names, or other
types of source identifier, whether arising under a statute or under
common law, and whether registered or unregistered,
(b) corporate and company names, business names, trade styles, designs,
logos, or trade dress,
(c) the goodwill of the business connected with the use of or symbolized by
the trademark or service mark,
(d) any registrations, renewals, applications, and other filings for any trademarks in any IP Filing Office, and
(e) rights throughout the world analogous to the foregoing;
Domain Names, meaning any Internet domain names;
Other Intellectual Property, meaning any intellectual property recognized under
or established by the laws of any Jurisdiction other than a Copyright, Patent,
Trademark, or Domain Name, whether statutory or common law, registered or
unregistered, published or unpublished, including
• a mask work (i.e., a layered blueprint of the circuitry in a computer chip
as protected under Chapter 9 of Title 17 of the United States Code),5
5. Mask works are not copyrights, although they are partially protected under certain provisions
of Title 17 of the U.S. Code, codifying the Semiconductor Chip Protection Act of 1984, 17 U.S.C.
§§ 901–914 (2012). A mask work is defined as a series of images representing the three-dimensional
topography of a semiconductor chip. This Act has turned out to have limited utility. Only the actual
chip design is protected under the Act—not any idea, procedure, process, system, method of operation, concept, principle, or discovery that may be described, explained, illustrated, or embodied in
the mask work. Id. § 902(c).
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• a trade secret or other proprietary or confidential information or data,
• rights with respect to software, programming codes, inventions, technical
information, procedures, designs, design registrations, know-how, data
and databases, processes, models, drawings, plans, specifications, and records, and
• rights of publicity and privacy with respect to natural persons;
IP Licenses, meaning any agreements, whether or not styled as a “license,”
(a) that grant a Person an exclusive or nonexclusive license or other right to
use or exercise rights in Intellectual Property other than software to the
extent the software constitutes “goods” under section 9-102(a) of the
U.C.C.,6 or
(b) that obligate a Person to refrain from using or enforcing any Intellectual
Property, including settlements, consents-to-use, non-assertion agreements, and covenants-not-to-sue;
IP-Related Rights, meaning, for any Copyright, Patent, Trademark, Domain
Name, Other Intellectual Property, or IP License, any
(a) rights to royalties, revenues, income, or other payments arising therefrom,
(b) rights with respect to claims described at any time on Schedule K, and
(c) all other accrued and unaccrued causes of action (whether in contract,
tort, or otherwise) or rights to claim, sue or collect damages for, or enjoin or obtain other legal or equitable relief for, an infringement, misuse, misappropriation, dilution, violation, unfair competition, or other
impairment (whether past, present, or future) thereof, including expired
items;7
6. The model agreement does not address software that is embedded in or so closely related to
specific goods that it is treated as part of the goods for Article 9 purposes. See U.C.C. § 9-104(a)(22).
7. This definition is intended to incorporate these related rights in any defined type of IP collateral,
even though they may be described differently for different types of intellectual property. The collateral description expressly includes the right to sue for past infringement or other violation of the
debtor’s IP rights because generally such an action can only be brought by the owner of the intellectual property. See 17 U.S.C. § 501(b) (2012) (only a legal or beneficial owner of an exclusive right in
copyright can bring an infringement action); 35 U.S.C. § 281.35 (2012) (only a patentee can bring an
infringement action); id. § 100(d) (a patentee is the person to whom the patent was originally issued
or a successor-in-title); see also Silvers v. Sony Pictures Entm’t, Inc., 402 F.3d 881 (9th Cir. 2005)
(assignee of accrued claim for copyright infringement lacked standing because assignee had no
legal or beneficial interest in copyright itself).
Model Intellectual Property Security Agreement
889
Associated Property,8 meaning any
(a) accounts, deposit accounts, general intangibles, instruments, investment property, or other personal property at any time constituting, evidencing, or arising under or with respect to Intellectual Property (as defined below) or IP Licenses,
(b) commercial tort claims related to Intellectual Property or IP Licenses
and described in this Agreement or another record authenticated by
Debtor as required by U.C.C. Article 9,
(c) books, records, information, and data with respect to Intellectual Property or IP Licenses, and
(d) substitutions and replacements for any such property; and
Proceeds of any of the foregoing, meaning
(a) “proceeds,” as defined in Article 9 of the U.C.C., and
(b) additional or replacement collateral provided during, or payment or
property received in, an Insolvency Proceeding on account of any “secured claim” (within the meaning of section 506(a) of the Bankruptcy
Code or similar Bankruptcy Law).
Copyrights, Patents, Trademarks, Domain Names, and Other Intellectual Property are, collectively, Intellectual Property. All Intellectual Property, IP Licenses,
IP-Related Rights, Associated Property, and Proceeds subject to the Security Interest and not excluded under the following section 1.2 are the Collateral.
1.2 EXCLUDED PROPERTY
Notwithstanding anything to the contrary in this Agreement, the following
rights and property (Excluded Property) are excluded from the Collateral to
the extent set forth in this section 1.2:
1.2.1 Scheduled Excluded Property
Any right or property identified on Schedule A, “Scheduled Excluded Property.”9
8. To guard against the unintentional omission of any form of intellectual property collateral
under Article 9 because of an inadequate description, clauses (a) and (b) describe the collateral
using the relevant collateral types defined in U.C.C. Article 9. See U.C.C. § 9-108(b)(3) (use of defined collateral types as sufficient collateral descriptions).
9. The model agreement gives the secured party a security interest in all of the debtor’s intellectual
property. The parties may, however, want to limit the security interest to a particular category of intellectual property (e.g., certain patents) or to IP rights in particular assets (e.g., a specified film or
musical work); alternatively, the parties may want to exempt certain categories or assets. Schedule
A provides a convenient way to impose such limitations or exemptions (though conforming changes
will be necessary in other parts of the agreement). The secured party should consider any such limitations or exemptions carefully, since a single asset may be protected by multiple types of IP rights.
For example, a software program may be patented as a novel “business method,” the code or “look
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1.2.2 Trademark Intent-to-Use Applications
A Trademark application filed in the PTO on the basis of Debtor’s intent to use
the Trademark before evidence of use of the Trademark has been filed with and
accepted by the PTO pursuant to the Lanham Act (15 U.S.C. § 1051 et seq.), but
only for so long as granting a security interest in the Trademark application before the filing of evidence of use of the Trademark would adversely affect the enforceability or validity of the Trademark application or the resulting Trademark
registration.10
1.2.3 Restricted IP Licenses
Debtor’s rights under an IP License that is subject to or contains a Restrictive
Provision that is effective against Debtor despite sections 9-406 through 9-409 of
the U.C.C. or other applicable law, but only for so long as the Restrictive Provision is effective and enforceable.11 Debtor’s rights under any IP License treated as
Excluded Property under this section 1.2.3 will constitute Collateral if the Restrictive Provision is not effective and enforceable.
1.2.4 Absence of Conditions
The Security Interest will immediately attach to any item of property treated as
Excluded Property under section 1.2.2 or 1.2.3 to the extent that the conditions
in that section cease to exist or cease to apply to that item.
and feel” of the program may be protectable under copyright law, the source code may be a trade
secret, and the logo or name of the program may be a trademark or service mark.
10. This section 1.2.2 is intended to address a longstanding concern that granting a security interest in an ITU application before evidence of use of the trademark has been accepted by the PTO could
constitute an “assignment” that might impair the enforceability or validity of the trademark or the ensuing registration. This section thus excludes the application until the required evidence of use has
been accepted by the PTO, but only to the extent (if any) that the grant of the security interest would
compromise the ITU application or registration. See Report § 4.3.
11. “Restrictive Provision” is defined in section 7.1 (Defined Terms). The definition tracks the language in U.C.C. sections 9-406 and 9-408 describing the kinds of contractual provisions or provisions of law that purport to restrict a party’s assignment of its rights in collateral such as licenses.
(For convenience, these restrictive provisions under applicable law or in a contract are generally referred to as anti-assignment or non-assignment provisions or clauses.) IP attorneys often describe IP
licenses as non-assignable without realizing that U.C.C. sections 9-406 and 9-408, if applicable,
could make certain non-assignment provisions in a contract or law at least partly unenforceable,
so that the provisions would not be triggered by an “assignment” in the form of a security interest.
See Report § 4.5 (discussing non-assignable licenses). If an anti-assignment provision is effective, neither the secured party nor the debtor will want the grant of a security interest to cause the IP license
to be terminated or declared in default. To avoid unintended consequences of violating an effective
anti-assignment provision, this section 1.2.3 excludes IP licenses to the extent (but only to the extent)
such a provision is enforceable.
Model Intellectual Property Security Agreement
1.3 PERFECTION
AND
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PRIORITY
1.3.1 U.C.C. Filing Offices
Debtor authorizes Secured Party to file U.C.C. financing statements for any Collateral in such filing offices as Secured Party reasonably deems advisable to perfect
or protect the Security Interest. Debtor ratifies and confirms Secured Party’s authorization to file any such U.C.C. financing statements before the Effective Date.
1.3.2 IP Filing Offices
For any IP Collateral that is the subject of a registration or application in an IP
Filing Office, Debtor will, at Secured Party’s request, execute and deliver to Secured Party an IP Security Document, which Secured Party may file in the IP Filing Office.12
1.3.3 Perfection and Priority13
Debtor represents and warrants to Secured Party that:
(i) The Security Interest in each Copyright that is the subject of a registration or application in the Copyright Office will be perfected upon the
filing of an IP Security Document in the Copyright Office.14
12. The form and content of a document to be filed or recorded with the federal filing office will
depend in part on the type of IP collateral and the administrative rules of the filing office. For copyright transfers, the statute allows the recordation of “a note or memorandum of the transfer,” 17 U.S.C.
§ 204(a) (2012), and the criteria for constructive notice set forth in 17 U.S.C. § 205 arguably could be
satisfied by either a notice or an agreement. The Copyright Office rules, however, require a document
pertaining to a copyright to be “complete by its own terms,” although other documents may be identified or incorporated by reference. 37 C.F.R. § 201.4(c)(2) (2015). The Copyright Office rules also
recommend, but do not require, that a document submitted for recording be accompanied by its Recordation Document Cover Sheet (Form DCS). Id. § 201.4(b). For patents, the statute refers to a “recorded” assignment, 15 U.S.C. § 261 (2012), but the cover sheet required by the PTO rules provides
the option to record a “security agreement” as well as an “assignment.” For trademarks, the statute requires only that “information regarding the transfer” be recorded in the PTO, id. § 1060(4), but the PTO
form of cover sheet describes the document to be recorded as a “notice of security interest.” Both the
Copyright Office and PTO have other specific recording requirements, and the filing office rules should
be consulted before submitting a document for recordation.
13. Representations and warranties as to perfection and priority of the security interest are customary. However, the representations and warranties usually provide little comfort to the secured
party; they merely state legal conclusions that are likely to be as much within the secured party’s
knowledge as the debtor’s (especially when the secured party will be making the required filings).
The model agreement has a separate event of default (section 4.1(iii)) that makes a failure of perfection or priority an immediate event of default, thus obviating much of the reason for the representation and warranty. We have kept the representation, however, because of the slim possibility
that there may be other reasons for non-perfection or non-priority that are known to the debtor
and that could form the basis for a misrepresentation action. The representation also serves as a
kind of roadmap for the parties’ lawyers, who may be unfamiliar with the perfection rules applicable
to IP assets. To the extent that a secured party does not feel the need for such a roadmap and believes
a misrepresentation claim is unlikely, it may wish to drop this section 1.3.3.
14. The prevailing legal view is that a security interest in registered copyrights can only be perfected
by recording in the Copyright Office. See Report § 4.1.2. Secured parties generally file U.C.C. financing statements also, to cover related rights and proceeds.
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(ii) The Security Interest in all other Collateral will be perfected upon
• the filing of a U.C.C. financing statement with the information required by U.C.C. § 9-502(a) in the applicable U.C.C. filing offices
listed on Schedule I,
• for each Patent issued by or pending in the PTO, the filing of an IP
Security Document in the PTO, and
• for each Trademark registered or pending in the PTO, the filing of an
IP Security Document in the PTO.15
(iii) For each item of Collateral, the Security Interest thus perfected will
have priority over a competing security interest in the item if
• when such U.C.C. financing statement is filed, there is no effective
filed financing statement for the competing security interest,
• for such Copyrights, the IP Security Document is recorded in the
Copyright Office within one month after the Security Interest attaches and the competing security interest is not recorded in the
Copyright Office before the end of that one-month period, and
• for such Patents and Trademarks, the IP Security Document is recorded in the PTO within three months after the Security Interest attaches and the competing security interest is not recorded in the PTO
before the end of that three-month period.16
1.4 AFTER-ACQUIRED COLLATERAL17
1.4.1 Notice of After-acquired Collateral; Addenda
Debtor will notify Secured Party of each acquisition after the Effective Date of
an interest in
15. The weight of authority supports the conclusion that federal filing is not required for perfection of security interests in patents and trademarks, but a debtor (or debtor’s IP counsel) may still be
reluctant to make a representation on this legal issue. This representation contemplates both state
U.C.C. filing to perfect and a backup federal filing to provide notice. This approach allows the debtor
to make the representation without having to make legal determinations. See Report § 4.2.2. Of
course, the debtor’s representation does not eliminate the need to determine the appropriate method
of perfection and take appropriate actions.
16. The one-month period for copyrights and the three-month period for patents and trademarks
in this section are based on the recording periods established by federal law for determining the relative priorities of certain third-party rights in the same IP asset. 17 U.S.C. § 205(d) (2012) (transferees of copyright ownership); 35 U.S.C. § 261 (2012) (subsequent purchasers and mortgagees of patents); 15 U.S.C. § 1060(a)(4) (2012) (subsequent purchasers of trademarks). See Report §§ 4.1, 4.2.
17. Because the grant clause in the agreement includes the debtor’s after-acquired intellectual
property, new intellectual property becomes part of the collateral package immediately upon its acquisition by the debtor. However, additional recordings in the IP filing offices will be necessary to
perfect the security interest in newly acquired registered or applied-for copyrights, and may be advisable if the new intellectual property consists of patents or trademarks even if the additional recording is not required for perfection. The notice and filing provisions in section 1.4 of the model agreement are intended to balance the secured party’s interests against the burden imposed on the debtor,
especially if the debtor’s business involves frequent IP filings.
Model Intellectual Property Security Agreement
893
• a registered or applied-for Copyright, Patent, Trademark, or Domain
Name, or
• an IP License of a type required to be listed on a Schedule on the Effective
Date.
Debtor will provide the notice by the 10th Business Day following the end of the
calendar quarter in which the interest was acquired, along with addenda to
Schedules B through G (each an Addendum), as appropriate, listing the acquired
interests.18 Each Addendum will become part of the relevant Schedule effective
upon Secured Party’s receipt of the Addendum.19
1.4.2 Secured Party’s Right to Provide Addenda
Without limiting Debtor’s obligations, Secured Party may at any time unilaterally
provide an Addendum to any of Schedules B through G, as appropriate, to include
any such after-acquired Collateral, whether or not Debtor has notified Secured Party
of its acquisition. Each such Addendum will become a part of the relevant Schedule
effective upon Secured Party’s sending a copy of the Addendum to Debtor. Debtor’s
or Secured Party’s failure to provide an Addendum will not limit or detract from the
Security Interest in the after-acquired Collateral or other Collateral.
1.4.3 IP Security Documents
With each Addendum delivered to Secured Party, Debtor will also deliver (unless previously delivered under the following section 1.4.4) executed IP Security
Documents for the Intellectual Property listed on the Addendum, which Secured
Party may file with the applicable IP Filing Office.20
1.4.4 Notice of Copyright Applications
Debtor will notify Secured Party at least 10 Business Days before Debtor files an
application to register Copyright Collateral with the Copyright Office.21 The notice
18. If the debtor has an extensive IP portfolio, a three-month reporting period is commonly used
for after-acquired trademarks and patents, in part because recording in the PTO is not considered
necessary for perfection, but acts as a backup. See Report §§ 2.3.4, 2.4.4, 4.2.2. A secured party
will be likely to require more frequent reporting for copyrights, however, both because the similar
grace period for copyrights is only one month, 17 U.S.C. § 205 (2012), and because a security interest in registered copyrights can only be perfected by filing in the Copyright Office. Section
1.4.4 therefore requires the secured party’s lien notice to be submitted to the Copyright Office
with, not after, the debtor’s copyright application. See Report §§ 2.2.4, 4.1.2.
19. Many of the debtor’s representations, warranties, and covenants will only apply to the new
collateral when it is listed on a schedule. See infra the introductory language to section 2.
20. Some security agreements place the federal recording obligations on the debtor. However, since
the secured party has the greater incentive to keep its lien recordings up-to-date, it is more logical for it
to undertake the filing tasks, regardless of where the loan documentation places the obligation. In either
case, the debtor typically bears the recording costs. See infra section 5.3 (Costs and Expenses).
21. The parties may negotiate an exception to this requirement to allow the debtor to file a copyright application without prior notice to the extent that registration of the copyright is a prerequisite
to proceeding against a potential infringer on an expedited basis.
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will include the title of the copyrighted work as it will appear on the application
and the date the application will be filed. Prior to filing, Debtor will execute and
deliver to Secured Party any IP Security Documents that Secured Party reasonably
requests to maintain the perfection and priority of the Security Interest in the
Copyright. At Secured Party’s request, Debtor will file such lien documents in
the Copyright Office concurrently with filing the application, and provide Secured
Party with copies of the filed copyright application and lien documents.22
1.4.5 Commercial Tort Claims
Debtor will promptly notify Secured Party of any commercial tort claim with
respect to any Collateral in a signed writing that gives brief details of the claim
and grants Secured Party a security interest in the claim and any proceeds, all
upon the terms of this Agreement.23
1.5 FURTHER ASSURANCES
Upon Secured Party’s request, Debtor will promptly and duly execute and deliver such further instruments and documents and take such further actions as
Secured Party reasonably deems appropriate to obtain the full benefits of this
Agreement, including
• using reasonable efforts to obtain third-party consents and approvals for
Debtor to grant a security interest in any item of Collateral to Secured
Party, or for Secured Party to enforce the Security Interest or exercise
other rights and remedies under this Agreement,24 and
22. The debtor may find it burdensome to observe two different notification and reporting periods—
collective quarterly notices under section 1.4.3 for patents and trademarks and specific prior notice for
each copyright under this section 1.4.4—and may propose that all new intellectual property be reported
on a quarterly, or even semiannual, basis. The secured party may reasonably insist on the different notice
procedure for copyrights, however, because Copyright Office filing is necessary for perfection of a security interest. See Report § 4.1.2.
23. This covenant requires the debtor to take the appropriate action to extend the security interest to
cover particular claims the debtor may have against other parties with respect to the IP collateral. The
collateral description in section 1.1 (Grant and Collateral Description) includes commercial tort claims
related to intellectual property (as part of “Associated Property”) as well as tort causes of action and
claims for damages related to IP collateral (as part of “IP-Related Rights”). U.C.C. section 9-102(a)(13)
defines “commercial tort claim” to include two kinds of tort claims—(1) where the claimant is an organization and (2) where the claimant is an individual, but the claim arose in the course of the individual’s
business or profession and does not include damages for personal injury or death. In either case, while
identifying collateral by Article 9 type is adequate for most personal property under Article 9, such identification is not sufficient for commercial tort claims. U.C.C. § 9-108(e)(1). The description can be general, not specific, and does not need to identify the amounts or types of damages claimed, name the defendants, or outline legal theories. See id. § 9-108 cmt. 5.
24. To the extent that this covenant covers IP licenses that purport to prohibit assignment, the
debtor may be reluctant to take on a blanket obligation to seek the other parties’ consents to assignment of or grants of a security interest in the debtor’s rights under such licenses, even if qualified by
“reasonable efforts.”
The debtor may derive some comfort from section 1.2.3 (Excluded Property—Restricted IP Licenses), which excludes from the collateral IP licenses that are truly “non-assignable”—meaning
that the debtor cannot grant a security interest in its rights under the license without causing a default
Model Intellectual Property Security Agreement
895
• filing or cooperating with Secured Party in filing forms or other documents
in connection with the perfection, protection, priority, or enforcement of
the Security Interest, the termination or release of ineffective filings, and
the recording of documents to cover missing steps in the chain of title.
2 REPRESENTATIONS
AND
WARRANTIES
Except to the extent otherwise set forth on the relevant Schedule, Debtor represents and warrants to Secured Party that on the Effective Date, on the date each
Loan is made to Debtor, and, for any Collateral added by an Addendum, the date
the Addendum becomes part of the relevant Schedule25:
2.1 THE COLLATERAL26
2.1.1 Copyrights
(i) Schedule B lists all of Debtor’s subsisting27
or termination event. See Report § 4.5. Rather than engage in a language harmonization exercise or
attempt to resolve federal law preemption issues, if a particular “non-assignable” license is material to
the debtor’s business, the secured party should consider making the licensor’s consent a condition to
closing. See Report §§ 4.5, 4.7.
25. The debtor (or secured party) will prepare addenda to the schedules identifying items of collateral acquired after the effective date, and the representations and warranties are repeated as to those
items when the relevant addendum becomes effective. See supra section 1.4 (After-acquired Collateral).
26. The model agreement allows specific copyrights, trademarks, patents, and IP licenses to be
listed on schedules attached to the agreement. Schedules B through G can list IP collateral by general
categories (e.g., “all trademarks registered after 1990”) or by specific items. The schedules serve several purposes, and the purpose may dictate the nature of the description. See Report § 4.4. Some of
the representations, warranties, and covenants in the model agreement only apply to the collateral
listed on the schedules. For example, the debtor only represents and warrants as to the validity of
the scheduled copyrights, patents, and trademarks. See infra sections 2.1.1(ii), 2.1.2(ii) & 2.1.3(ii).
Depending on how the schedules are to be used, the secured party may agree to permit the debtor
to schedule only the most valuable or most strategically important collateral.
27. The term “subsisting” is generally understood to mean that the IP rights or registrations have
not lapsed or expired and have not been abandoned. The secured party may request that the schedules also include expired and abandoned IP registrations and applications, since even an expired or
abandoned item may have some residual value. For example, an expired registration might support a
claim for an infringement that occurred while the registration was still in effect. Owners of some
kinds of intellectual property may have a right, for a limited time and subject to various conditions,
to revive certain lapsed or abandoned items.
In response to such a request, a debtor may argue that including defunct items will increase its
administrative burden without providing any material benefit to the secured party, where the debtor
has already determined, as a business matter, that the items were not worth maintaining or are expired at full term (most relevant for patents). The debtor might also argue that its lien recording (and
releasing) costs would be increased unnecessarily if the secured party includes the expired or abandoned items in a notice of security interest recorded in the Copyright Office or PTO. Finally, if expired and abandoned items are included, then some of the representations and warranties (such as
the validity representations in infra section 2.1.1(ii)) will need to be modified to apply only to subsisting items, thereby complicating the drafting process. For these reasons, it is not unusual for a secured party to allow the debtor to leave abandoned and expired intellectual property off the schedules. If the debtor does have a pending or threatened claim for the infringement of an expired or
lapsed item while it was in force, the item and claim should be included on the applicable IP schedule, so that the secured party may (if required or advisable) record its security interest.
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• Copyrights that are registered, or are the subject of pending applications, in any IP Filing Office,28 and
• Copyright Licenses-In.29
(ii) Each Copyright listed on Schedule B is valid and enforceable.30
2.1.2 Patents
(i) Schedule C lists all of Debtor’s subsisting
• issued Patents, and Patent applications31 pending, in any IP Filing
Office, and
• Patent Licenses-In.
(ii) Each issued Patent listed on Schedule C is
28. This representation will require the debtor to identify and schedule all copyrights that are registered. This information may be necessary for the secured party to perfect or enforce its security interest in the copyrights. The representation covers filing or registration in any IP filing office, including foreign IP offices, although the model agreement does not address foreign intellectual property or
foreign IP filing systems. The parties may agree to limit the actions to be taken to perfect the secured
party’s lien in foreign intellectual property because of the cost, time involved, or lesser materiality of
the foreign intellectual property. See Report §§ 1.2.6, 2.1.2.
29. This representation identifies the debtor’s “licenses-in” (i.e., where a third party grants rights in
its intellectual property to the debtor), in part to permit the secured party to file a required or optional
notice of security interest in the debtor’s rights as licensee in an IP filing office. See Report § 4.6. Because
these notice filings are publicly available, the secured party should consider possible confidentiality restrictions before identifying particular IP licenses or other confidential information in a schedule attached to a lien filing. See Report § 2.3.3 (patents kept secret for a limited time). The debtor’s “licenses
out,” where the debtor grants rights in its intellectual property to third parties, are listed on schedule F.
See infra section 2.1.4(ii). Except for exclusive copyright licenses under some circumstances, licensesout would not normally be included in any filing in an IP filing office. See Report § 4.6.2.
The debtor may argue that listing all its IP licenses would be an unreasonable burden. Depending
on the secured party’s policies, the nature of the debtor’s business, and the debtor’s credit standing,
the secured party may agree to limit the scheduling requirement for licenses to material or exclusive
licenses and/or to exclude licenses of commercial off-the-shelf software.
30. A debtor may ask the secured party to delete unqualified representations and warranties that
intellectual property is valid, or to limit them to the debtor’s knowledge or to add a materiality qualifier. For example, the debtor may argue that it cannot know whether a copyright is not fairly claimed
due to unconscious copying of another author’s work, whether there is prior art existing that would
invalidate a patent, or whether anyone else has previously used the same or a similar trademark. A
knowledge-based representation will at least give the secured party some comfort that the debtor did
not commit an intentional fraud on an IP filing office. On the other hand, the secured party may
argue that the risk of invalidity should be allocated to the debtor completely, as the debtor is in
the better position to investigate problems that might affect validity.
A common additional representation in IP security agreements is that the debtor’s intellectual
property “has not been adjudged invalid, in whole or in part.” This language does not appear to
add anything to the basic representations that the debtor’s copyrights, patents, and trademarks are
subsisting, valid, and enforceable. Moreover, this additional statement is confusing, because intellectual property often is judged invalid “in part” during the application process.
31. If a patent application has not yet been published, the debtor may be concerned about the possible disclosure of information, such as the patent title, that would otherwise be kept confidential by the
PTO until publication of the patent. A common suggestion is to identify only the application numbers
of unpublished patents in schedules, or to delay filing the lien until the patent has been published.
Model Intellectual Property Security Agreement
897
• valid and enforceable, and
• not subject to any overdue IP Filing Office fees.
(iii) Each Patent application listed on Schedule C is subsisting, and Debtor
has no knowledge of any circumstances that might prevent the issuance
of a valid Patent in due course.
2.1.3 Trademarks
(i) Schedule D lists all of Debtor’s subsisting
• registered Trademarks, and Trademark applications pending, in any
IP Filing Office,
• material unregistered Trademarks, and
• Trademark Licenses-In.
(ii) Each Trademark registration and material unregistered Trademark
listed on Schedule D
• is valid and enforceable,32 and does not relate to a mark that has
been abandoned, and
• is not subject to any overdue IP Filing Office fees.
(iii) Debtor has no knowledge of any circumstances that might prevent the
valid registration of any Trademark for which a Trademark application
is listed on Schedule D.
(iv) Debtor has notified Secured Party of all circumstances known to Debtor
that could reasonably be expected to lead to the invalidity or unenforceability of a Trademark listed on Schedule D, including Debtor’s
failure to use the mark or to enforce it against material unauthorized
uses by third parties.
2.1.4 Domain Names and IP Licenses
(i) Schedule E lists each of Debtor’s subsisting Domain Names, its registrant, and its next renewal date.33
32. Some debtors are concerned about the implications of making a validity representation (even
one limited by “knowledge”) as to trademarks that are no longer in use, and will note exceptions to
this representation and warranty or seek to exclude such marks from the collateral. See Report
§ 2.4.5.
33. If a domain name is vital to the debtor’s business, the secured party may want to be in a position to take control of the domain name immediately following the debtor’s default. In that case, the
secured party will want the security agreement to contain information to assist in taking control. This
information might include the identity and locations of the servers used in connection with the domain name, the persons having control over the servers, the debtor’s administrative contact with the
registrar, and, most important, the user names and passwords necessary to access the debtor’s ac-
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(ii) Schedule F lists Debtor’s subsisting Licenses-Out of Intellectual Property Collateral.34
(iii) Each IP License and Domain Name Contract listed on any Schedule to
this Agreement is in full force and effect and constitutes a valid and enforceable obligation of Debtor and, to Debtor’s knowledge, each other
party thereto, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditor’s rights generally, and by general equitable
principles (whether enforcement is sought by proceedings in equity
or at law).
(iv) No further consent of any party to any such IP License or Domain
Name Contract is required in connection with the execution, delivery,
and performance of this Agreement.
(v) No further consent or authorization of, filing with, or other act by or in
respect of any Governmental Authority is required in connection with
the execution, delivery, performance, validity, or enforceability of any
such IP License or Domain Name Contract by or against any party
thereto.
(vi) Neither Debtor nor, to Debtor’s knowledge, any other party to any such
IP License or Domain Name Contract is in default in the performance or
observance of any of its terms.
(vii) Debtor’s rights under each such IP License or Domain Name Contract
are not subject to any defense, offset, counterclaim, or other claim [that
could reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect on the value of the Collateral taken as a
whole].35
count at the registrar. A debtor may refuse to disclose passwords or may insist upon an escrow arrangement for such information. In addition, passwords, server locations, and contact individuals can
change over time, so a secured party seeking this information should have a mechanism for obtaining
updates. Further, because the domain name may contain a trademark owned by the debtor (for example, “Amazon” in “Amazon.com”), the secured party should ensure that it also has a perfected security interest in that trademark, or it may be prevented from using the domain name.
34. The debtor’s scheduling obligations may justifiably be stricter for licenses-out. Licenses-out are
analogous to encumbrances on the licensed intellectual property, at least if the licenses are granted
before the effective date of the security agreement. See Report §§ 4.6.2 (exclusive copyright licenses),
4.6.3 (nonexclusive copyright licenses) & 4.6.4 (patent and trademark licenses).
35. A debtor with a large IP portfolio will be reluctant to make this kind of broad representation,
and will want a materiality provision or other limitation. The specific wording and scope of such a
materiality exception would generally be established in the loan agreement. “Material Adverse Effect”
is defined in section 7.1(a) to have the same meaning as in the loan agreement, and the related language should be adjusted accordingly.
Model Intellectual Property Security Agreement
899
2.1.5 Other Intellectual Property
Schedule G lists all of Debtor’s material Other Intellectual Property that is not
listed on any of Schedules B through F and is not confidential.
2.1.6 Ownership
(i) Debtor is the sole legal and equitable owner of, and has good title to,
the Collateral, free and clear of any Lien, other than
• Liens permitted under the Loan Agreement,
• Liens permitted by Secured Party’s express prior written consent, or
• Permitted Licenses
(each a Permitted Lien).36
(ii) Debtor is the record owner of all Collateral that is registered, or for
which an application is pending, in any IP Filing Office, and there
are no gaps in the chain of title to such Collateral.37
(iii) No IP License materially adversely affects Debtor’s rights to conduct its
business as currently conducted.
(iv) No third party has a contractual right to require Debtor to Transfer38
any Collateral, except to renew Permitted Licenses.
36. In virtually all secured loans, the secured party prohibits additional liens on the collateral, but
agrees that the existence of certain claims, encumbrances, and liens on the collateral will not constitute a default. The exceptions are generally defined collectively and narrowly as “permitted liens” or
“permitted encumbrances” while the term “lien” is generally defined broadly. Under the standard definitions, some IP licenses would arguably be treated as liens but not necessarily permitted liens. The
model agreement incorporates the standard kinds of permitted liens but also adds certain kinds of IP
licenses. See section 7.1 (defining “Permitted License”). The separate definition of “Permitted Lien” is
included in the model agreement for instructive purposes; ordinarily this definition would be in the
loan agreement, to cover all liens that are allowed.
37. Like real estate, registered intellectual property has a “chain of title” created by recording. See
Report § 4.1.1. Gaps in the chain of title to registered intellectual property are more common than
gaps in the chain of title to real property. For instance, a debtor may acquire a portfolio of intellectual
property with existing gaps or unreleased liens. In such cases, the acquisition agreement may include
a post-closing covenant to record documents needed to complete the chain of title, although it may be
impracticable to obtain or locate assignments for gaps that were created by prior owners. In such
cases, a qualification of the “reasonable efforts” is common. Also, if the debtor has recently changed
its name or acquired intellectual property, the title records in the IP filing offices may not yet have
been updated. In such cases, specific exceptions to the record ownership representation may be
appropriate.
38. The term “Transfer” is defined to cover voluntary assignments and transfers of collateral other
than transfers for collateral purposes (which are treated as “Liens”). See infra section 7.1 (Defined
Terms) & note 50. The definition is not the same as the definition of a “transfer of copyright ownership” in the Copyright Act, but does include an exclusive license that is equivalent to an absolute
assignment. See 17 U.S.C. § 101 (2012) (including exclusive copyright license in the definition of
“transfer of copyright ownership interest”).
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(v) Debtor has not Transferred or agreed to Transfer any Collateral listed
on Schedules B–G except in a Transfer that is
• expressly permitted by the Loan Documents,
• permitted by Secured Party’s express prior written consent, or
• a Permitted License39
(each a Permitted Transfer).
2.1.7 Restrictive Provisions
Schedule H lists all of Debtor’s Intellectual Property and IP Licenses (including
Excluded Property) that are both
• listed on any of Schedules A through G, and
• subject to or contain a Restrictive Provision.40
2.1.8 Existing or Threatened Claims; Infringement
Except as described on Schedule K,41
(i) No claim is pending or has been made or, to Debtor’s knowledge, threatened, including via an invitation to license, by any Person (other than by
39. An outright prohibition on the future licensing of intellectual property may impede the debtor’s business. In some businesses, the debtor grants IP licenses to its customers in the same way that a
merchant sells inventory to its customers. U.C.C. Article 9 recognizes this concept, and protects a
“nonexclusive licensee in the ordinary course of business” from a security interest created by its licensor, U.C.C. § 9-321(b), in the same way that it protects a “buyer in ordinary course of business
from a security interest created by its seller.” Id. § 9-320(a). Depending on the circumstances, including the secured party’s view of the importance and value of the debtor’s IP rights, the parties may
agree to permit additional license transactions. These might include IP licenses that the debtor issues
in the ordinary course of business, nonexclusive licenses, and/or licenses that do not adversely affect
the debtor’s use of the licensed intellectual property in its business. The model agreement uses the
defined term “Permitted Licenses” to cover some of these possibilities. See infra section 7.1 (Defined
Terms) & note 50. Even if the security agreement allows the debtor to issue new IP licenses, however,
such licenses will still be subject to the security interest unless the license fits within the scope of U.C.C.
section 9-321. To avoid argument over the statutory definition of “licensee in ordinary course” and the
interaction between that definition and the debtor’s ability to issue “Permitted Licenses,” the debtor may
ask the secured party to include a “non-disturbance” clause or expressly subordinate its lien to “Permitted Licenses.” See infra section 5.4 (Non-Disturbance of Permitted Licenses).
40. This representation requires the debtor to identify its licenses that contain language purporting
to keep the debtor from assigning its rights under the license or that may be subject to provisions of
law prohibiting or restricting such assignment. The debtor is not required to make a determination as
to the legal effectiveness of such anti-assignment provisions, since section 1.2.3 above excludes a license from the collateral if the restrictive provisions are effective to prohibit a security interest. The
schedule called for in this section will be purely informative, allowing the secured party to make its
own determination as to the effectiveness of anti-assignment provisions affecting particular licenses.
Note that, because IP licenses generally do prohibit assignment, the representation might require the
debtor to schedule virtually all its licenses-in, unless a materiality qualifier is added. See Report § 4.5
(discussing non-assignable licenses); see supra note 30 (regarding materiality qualifiers).
41. Claims are generally listed on a separate schedule for all kinds of intellectual property, but
alternatively could be listed on the applicable schedule for a particular type of intellectual property.
Model Intellectual Property Security Agreement
901
an IP Filing Office examiner in the ordinary course of prosecution of applications) asserting that any Intellectual Property Collateral is wholly or
partly invalid or unenforceable, or that any such Collateral or the conduct of Debtor’s business infringes, dilutes, misappropriates, or otherwise violates the rights of any Person.42
(ii) To Debtor’s knowledge, neither the use of the Collateral by Debtor or its
licensees, nor the conduct of Debtor’s business, infringes, dilutes, misappropriates, or otherwise violates any Intellectual Property owned or
controlled by any Person.
(iii) To Debtor’s knowledge, no Person is infringing, diluting, misappropriating, or otherwise violating any of Debtor’s rights in the Collateral, and
Debtor has not made any such claim that has not been resolved.43
2.1.9 IP Notices
Debtor uses proper notices of Copyright proprietorship in connection with
publication of its Copyrighted works and proper statutory notices in connection
with its use of its issued Patents and registered Trademarks.44
2.1.10 Standards of Quality
(i) Debtor uses consistent standards of quality in all products manufactured, distributed, and sold, and in the performance of services provided, in connection with the Trademark Collateral, and
(ii) Debtor has taken all action necessary to ensure that all licensees of
Debtor’s Trademarks adhere to Debtor’s established standards of quality
42. The debtor may seek to limit the “no claims made” representation to a certain number of years
prior to the effective date or to claims made or threatened in writing. This representation is also often
limited to claims that are reasonably likely to have a material adverse effect on the debtor.
43. A representation as to non-infringement of the debtor’s intellectual property by others is often
limited to the debtor’s knowledge because there is no way a debtor can know what every third party
is doing. In addition, popular marks, domain names, logos, characters, or technology are often subject to many small infringements of limited duration or scope. This representation is therefore typically limited to material infringements or infringements that are reasonably likely to have a material
adverse effect on the debtor. Note that limiting the representation to cover the debtor’s material intellectual property, rather than material infringements, is somewhat illusory and unlikely to be useful
for the debtor or the secured party; the debtor’s material intellectual property is generally the most
attractive to unauthorized users and, thus, more likely to be subject to infringement.
44. This representation can be surprisingly controversial. Although good IP marking practices
would work to the debtor’s benefit, many debtors do not use them consistently. As a general matter,
marking is not required to preserve IP rights but is desirable to counter the defense of “innocent infringement.” The parallel covenant—that the debtor will employ good IP marking practices in the
future (section 3.6.3 below)—can be controversial for the same reason.
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for the goods and services provided by the licensee using the licensed
Trademark.45
2.1.11 Proprietary Software
For each of Debtor’s proprietary software programs included in the Collateral:
(i) Each of Debtor’s current and former employees, officers, contractors,
and consultants who has developed, contributed to, modified, or improved such program either performed such work as a “work for
hire” or has assigned to Debtor all of such Person’s interest in such
programs.
(ii) There are no material defects or malfunctions in the program that have
not been corrected, and the program operates in accordance with its
specifications in all material respects.
(iii) The program does not contain any device or feature designed to disrupt, disable, or otherwise impair the functioning of any software
program.
(iv) To Debtor’s knowledge, there has been no unauthorized access to the
program or to any of Debtor’s proprietary databases.
(v) Except as otherwise provided in this Agreement, Debtor has not delivered, licensed, or made available, and has no obligation (present, contingent, or otherwise) to deliver, license, or make available the program’s source code to any escrow agent or other Person other than
Debtor’s current employees for the performance of their duties to
Debtor.46
(vi) The program is not subject to any open source, free software, or other
license terms and conditions that would require Debtor to disclose any
source code or license the program, the code, or any modifications to a
third party.47
45. Trademark owners protect their trademarks in part by maintaining consistent quality standards
for themselves and their licensees. Marks that are the subject of “naked licensing” devoid of quality
control by the owner may be considered compromised and less attractive to a purchaser on foreclosure. Registered marks that are subject to naked licensing may be deemed to have been abandoned. See
Report § 2.4.5.
46. Some software is released in source code form, in which case this representation would not be
appropriate. This representation is intended to apply only where proprietary software is released to
the public in compiled object code form, or where a release of the software in source code form might
adversely affect the debtor’s proprietary rights in the code by disclosing a trade secret.
47. Examples of open source programs that require such disclosure and licensing are the GNU
General Public License (any version), GNU Lesser General Public License, Mozilla Public License,
and BSD License. Notwithstanding the possible negative consequences of incorporating open source
code into a software program, it may be impracticable for a debtor to represent that it has not used
any open source software in its proprietary programs. Its personnel who would have the relevant
knowledge may no longer be with the company and documentation of the software development pro-
Model Intellectual Property Security Agreement
903
2.1.12 No Government Funding
Debtor has not received funding from any governmental entity or any academic funding that was used in the development of the Collateral.48
2.2 DEBTOR
2.2.1 Existence; Power; Authority
Debtor is validly existing and has the corporate (or other organizational)
power and capacity to enter into, and perform all of its obligations under, this
Agreement. Debtor’s execution and delivery of, and performance of its obligations under, this Agreement have been duly authorized by all necessary action
by or on behalf of Debtor.
2.2.2 Debtor Information49
Schedule J sets forth
• if Debtor is a corporation, limited liability company, limited partnership,
corporate trust, or other registered organization, (i) the Jurisdiction
under whose law Debtor is organized, and (ii) Debtor’s name as shown
in its public organic record in that Jurisdiction.
• if Debtor is an individual, (i) the State and address of Debtor’s primary
residence and (ii) Debtor’s name as shown on an unexpired driver’s license issued by that State.
• the address of Debtor’s chief executive office and, if different, its principal
place of business,
• the addresses where Debtor’s records concerning the Collateral are maintained, and
• Debtor’s taxpayer identification number, if any.
cess may not exist or provide these details. This representation is more important where the debtor’s
most valuable collateral is proprietary software.
48. For example, patent rights in inventions made with federal assistance may be subject to limitations and government claims. See 35 U.S.C. §§ 200–212 (2012).
49. These representations cover the information necessary to complete U.C.C. financing statements and file them in the correct offices. They are not IP-specific and need not be included here
if covered in the loan agreement or elsewhere.
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3 COVENANTS
3.1 NO TRANSFERS
OF
Debtor will not Transfer
3.2 NO LIENS
ON
COLLATERAL
50
any Collateral except in a Permitted Transfer.51
COLLATERAL
Debtor will not create and will take any action necessary to remove any Lien
on the Collateral other than a Permitted Lien.52
3.3 NO RESTRICTIVE PROVISIONS
Debtor will not enter into any IP License-In after the Effective Date that contains a Restrictive Provision.53
50. Note that this covenant prohibits the “Transfer” of collateral, while section 3.2 prohibits
“Liens.” Both terms are defined in section 7.1. Most standard loan agreement definitions of liens
and transfers are broad enough to cover licenses in both definitions, although IP licenses may be affected differently. In this agreement, “Lien” is defined to include security interests, collateral assignments, and involuntary liens, as well as IP licenses that create encumbrances. “Transfer” is defined to
include only voluntary transactions that transfer title, including some exclusive IP licenses. The definition of “Transfer” includes the “disposition” or “disposal” of collateral, but excludes the debtor’s
actual or deemed abandonment of IP collateral. A common variant of this covenant prohibits the “disposition” or “disposal” of collateral, arguably preventing the debtor from abandoning or allowing any
IP registrations to lapse. Accordingly, a covenant worded in terms of “disposition” without such an
exception would need to be harmonized with the covenant in section 3.6.2 below, which requires the
debtor to maintain the collateral. Conversely, the secured party may consider extending this negative
covenant to cover “Excluded Property,” which otherwise would not be covered.
51. An unqualified prohibition on the transfer or license of IP collateral could be impractical for
debtors in the IP licensing business. The exception for “Permitted Transfers” allows licenses and other
transfers permitted under the loan agreement and nonexclusive licenses granted in the ordinary
course of business. (The separate definition of “Permitted Transfer” is included in the model agreement mostly for instructive purposes. Although this definition ordinarily would be in the loan agreement, to cover all “transfers” that are allowed, the definitions in the model agreement differentiate
between “transfers” for security and “transfers” of title, so that licenses are permitted regardless of
the nomenclature.) Another common approach is to limit the restriction to material collateral or to
provide specific exceptions. Yet another approach is to require the secured party’s prior consent
(not to be unreasonably withheld) for transfers or licenses. However, this can be intrusive if the
debtor has a licensing-oriented business or a large IP portfolio. In any event, many secured parties
would not want to be burdened with requests for such approvals on a regular basis. On the other
hand, the secured party may consider extending this negative covenant to cover Excluded Property,
which otherwise would not be covered.
52. Note that this covenant prohibits “Liens” on the collateral, while section 3.1 prohibits “Transfers.” Both terms are defined in section 7.1. See supra note 50.
53. Depending on the nature of the debtor’s business, the parties may want to limit this covenant.
One common exception carves out “customary non-assignment clauses in intellectual property licenses,” on the grounds that IP licenses customarily prohibit assignment by the licensee and the debtor
may be unable to convince the licensor to change its typical practices. The effectiveness of such provisions is a separate question. See supra note 11; Report § 4.5 (discussing “non-assignable” licenses).
Model Intellectual Property Security Agreement
3.4 REGISTRATION OF COPYRIGHTS
PURSUIT OF PATENTS
AND
905
TRADEMARKS;
To the extent not already registered or the subject of a pending application,
Debtor will promptly register all material Copyright and Trademark Collateral
with the applicable IP Filing Office, and will pursue Patents on all material patentable inventions, in each case except to the extent that Debtor reasonably determines that the costs or risks of such action would materially outweigh the
probable benefits.54
3.5 RECORDING
OF
ASSIGNMENTS
AND
IP LICENSES
Within 30 days after obtaining a written assignment of a registered or appliedfor Copyright, Patent, or Trademark from any Person, Debtor will record the assignment in the applicable IP Filing Office. Within 30 days after obtaining an IP
License for which recordation will give third parties constructive notice of Debtor’s interest, Debtor will record the IP License in the applicable IP Filing
Office.55
3.6 PROTECTION
OF
COLLATERAL
3.6.1 Compliance with Law
Debtor will comply in all material respects with all United States laws and regulations applicable to any Collateral.
54. Secured parties sometimes request that the debtor agree to register all its intellectual property—
especially its material copyrights—so that the secured party can take the steps that are necessary or advisable to perfect and protect its security interest. If an unregistered copyright is later registered, the
perfection method changes from U.C.C. filing to recordation in the Copyright Office, and the secured
party may become unperfected. See Report § 4.2.1. To limit this risk, the secured party may propose
that material or certain copyrights be registered and liens be filed upon application and registration. The
risk of becoming unperfected is lower for patent and trademark collateral, since all courts addressing
the federal preemption issue have held that federal filings are not necessary or effective to perfect a security interest in these types of intellectual property. Report § 4.2.2. Although secured parties often
make protective federal lien filings in addition to U.C.C. filings for patent and trademark collateral,
a secured party will not typically require patents or trademarks to be registered as a preliminary step
to federal lien filings. In the debtor’s view, however, an unlimited covenant to register intellectual property will undoubtedly be objectionable because registration can be burdensome and costly, especially
for patents. Pursuing IP registrations generally entails a business decision as to how material the intellectual property is, the value that registration will add, whether the intellectual property will be used
long-term, and how easily registration can be obtained. A covenant to register intellectual property
might be appropriate for specific and/or material items of intellectual property, such as a key software
product, a motion picture, a critical invention, or the trademark for a primary consumer product name.
55. This covenant requires the prompt recordation of any assignments of intellectual property to
the debtor. Such recording generally protects the debtor’s ownership interest in the intellectual property against third parties that purchase the intellectual property from the prior owner without notice
of the assignment. See Report §§ 2.2.4 (copyrights), 2.3.4 (patents) & 2.4.4 (trademarks).
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3.6.2 General
With respect to Collateral that is necessary to the conduct of Debtor’s business
as currently conducted, Debtor will take all reasonable steps to
• maintain the registrations of all such registered Collateral in full force and
effect,
• prosecute any pending applications for registration of such Collateral,
and
• prevent any such Collateral from being abandoned, forfeited, or dedicated to the public.56
Such steps may include:
• taking actions in, or filing responses to office actions issued by, an IP Filing Office, court, or Governmental Authority,
• paying when due all maintenance and other required fees,
• filing timely applications for renewal or extension,
• filing affidavits or declarations of use under sections 8 and 15 of the Lanham Act, and
• filing divisional, continuation, continuation-in-part, or reissue applications for Patents.
3.6.3 IP Notices
Debtor will use proper notices of copyright proprietorship in connection with
publication of its Copyrighted works, and proper statutory notices in connection
with its use of its registered Trademarks and issued Patents.57
56. A debtor may object to undertaking an unqualified obligation to maintain all its intellectual
property in effect. The introductory language in section 3.6.2 limits this obligation to only the intellectual property that is “necessary” for the debtor’s business. The determination of whether particular
IP items are “necessary” will depend on the facts and circumstances in each case. If practicable, the
parties may agree to designate particular items or types of collateral as “necessary.” Alternatively, the
parties may agree to more generic exceptions on a qualitative or quantitative basis, and exclude (for
instance) collateral with minimal commercial value or usefulness or collateral for which the cost of
maintaining the registration would materially outweigh the probable economic benefits to be gained.
The parties may agree to a procedure for the debtor to notify the secured party and obtain consent if
the debtor wants to abandon particular intellectual property. Note that a debtor may have legitimate
business reasons for deciding to make some of its own copyrights or patents available to others for
free, for product marketing or as “open licensing,” or otherwise. But any such “dedication to the public” should be purposeful, not accidental, so specific exceptions could be added to this section.
57. See supra note 44 regarding good IP marking practices and the debtor’s possible reluctance to
make this commitment.
Model Intellectual Property Security Agreement
907
3.6.4 Trademark Quality Control
(i) Debtor will maintain the standards of quality of all products manufactured, distributed, and sold, and in the performance of services provided, in connection with Trademark Collateral at a level at least as
high as on the Effective Date.58
(ii) Debtor will take all action necessary to ensure that all licensees of its
Trademarks adhere to Debtor’s then-established standards of quality
for the goods and services provided by the licensee using the licensed
Trademark.59
3.6.5 Performance of IP Licenses
Debtor will perform all its material obligations under each IP License to which
it is a party.
3.6.6 Protection of Trade Secrets
Debtor will take reasonable measures to protect its material trade secrets, including entering into confidentiality agreements with employees and labeling
and restricting access to secret information and documents.60
3.6.7 Infringements by Others
Debtor will
• promptly notify Secured Party, providing reasonable details, of any Person’s infringement, dilution, misappropriation, or other violation of any
Collateral,61 and
58. To protect the enforceability and value of a trademark, the owner must maintain a consistent
and uniform level of quality. If the quality of goods or services sold under the mark is changed without notice, the mark may mislead customers and lose its meaning as a mark. The purpose of this
covenant is to set a fairly objective test, so that the secured party has some comfort that the debtor
will continue to monitor the use of its trademarks. Although this approach is common, the debtor
may object that the requirement interferes with its business strategy and is technically not required
by law to maintain the trademark rights. A debtor-friendly modification may permit changes in quality that are uniformly maintained, part of the debtor’s business strategy, and not misleading to
customers.
59. See Report § 2.4.5 (debtor’s monitoring of licensee’s products and services for compliance with
debtor’s quality standards).
60. Taking reasonable measures to protect the confidentiality of trade secrets is required for trade
secret protection. See Report § 2.5.4. The measures listed in this covenant are commonly recognized
as reasonable, but may need to be tailored to reflect the debtor’s actual practices.
61. If infringements are common in the debtor’s business—for example, software, fashion, entertainment, or publishing—but tend to be transitory, then neither the debtor nor the secured party will
want this covenant to apply to all infringements. In such a case, the notice obligation may be limited
to material infringements of material intellectual property. Note that, if the debtor is a party to a
government-funded research contract, use of the debtor’s intellectual property by the U.S. government
that would otherwise constitute infringement will be legally permitted. See 35 U.S.C. §§ 200–212
(2012).
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• take all reasonable actions to stop such infringement, dilution, misappropriation, or other violation, including seeking damages for or enjoining
such conduct.
3.6.8 Challenges and Suits by Others
Debtor will
• promptly notify Secured Party, providing reasonable details, of the institution of any proceeding before a Governmental Authority regarding the
validity or enforceability of, or Debtor’s right to register, own, or use, any
Intellectual Property Collateral, and of any adverse determination on the
merits in any such proceeding (in each case other than non-final “office
actions” by IP Filing Office examiners in the ordinary course of prosecution of applications),62 and
• take all reasonable steps to defend its rights in the Intellectual Property
Collateral in such proceedings and other interference, reexamination, opposition, cancellation, infringement, dilution, misappropriation, and other
proceedings.
3.7 ESCROW AGREEMENT
Debtor will enter into a source code escrow agreement with Secured Party by
the Effective Date.63 Debtor will deposit with the escrow agent under the escrow
agreement all materials required under the escrow agreement, including the
source code for
• current versions of Debtor’s proprietary computer software, by the 10th
Business Day following the Effective Date, and
• each update to such software by the 10th Business Day following public
release of the update.64
62. A materiality or material adverse effect limitation may be appropriate here if the debtor has a
large IP portfolio and many proceedings in progress. See supra note 30 (regarding materiality qualifiers).
63. Escrows to hold pledged source code for a secured party are infrequently used in financings,
although such arrangements are commonplace in software licensing programs. Source code escrows
may be too burdensome for most transactions but may be appropriate where the debtor is a software
developer with a single product that provides much of its revenue. An escrow enables the secured
party to easily access the source code upon foreclosure when the debtor may be uncooperative
and its employees scattered. The escrow arrangement should be put in place on the effective date;
the parties will be less motivated to do so later. Setting up an escrow arrangement after the debtor
becomes insolvent may compromise the enforceability of the arrangement. Most commercial vendors
providing escrow services have their own form agreements, which are often not subject to significant
negotiation. However, such forms tend to be fairly balanced as to the parties’ rights and obligations
and can be implemented quickly. Escrow arrangements can theoretically be used to maintain and ensure access to other confidential IP-related information, although this approach is rare in practice.
64. Many commercial software programs are continuously updated to fix bugs and include minor
enhancements. The frequency of escrow deposits and the materiality of an update that triggers an
Model Intellectual Property Security Agreement
909
Debtor will not establish source code escrow arrangements with any third party
without Secured Party’s prior written consent.
3.8 CHANGE
OF
DEBTOR INFORMATION65
Debtor will notify Secured Party 15 days before taking any action that will
cause, and will promptly notify Secured Party of any other event that may
cause or has caused, any information in Schedule J, “Debtor Information,” to become inaccurate.
3.9 MAINTENANCE
OF
RECORDS; AUDIT
AND INSPECTION
Debtor will maintain appropriate and customary books and records with respect
to the Collateral and will permit Secured Party to visit Debtor’s premises to inspect
such books and records and any tangible items embodying the Collateral. Such visits and inspections will be made during regular business hours with reasonable advance notice, except that notice will not be required while an Event of Default exists. Debtor will deliver copies of reports and information as to Collateral in
Debtor’s possession or under its control as Secured Party reasonably requests.
4 EVENTS OF DEFAULT; REMEDIES
4.1 EVENTS OF DEFAULT
Each of the following events or conditions is an Event of Default:
(i) There is an “Event of Default” as defined in the Loan Agreement.
(ii) A representation or warranty made by Debtor in this Agreement is incorrect in any material respect when made or deemed made.
(iii) The Security Interest in
• any [material] item of Collateral that is described on any of Schedules B through G[, or
• any other material [item of] [part of the] Collateral,]
is not a perfected first-priority security interest.66
escrow deposit obligation need to be negotiated based on the facts. One test might be that the update
has resulted in a new release number. See supra note 30 (regarding materiality qualifiers).
65. Like the representations in section 2.2.2, this covenant is not IP-specific and may be covered
in the loan agreement or elsewhere. See supra note 49.
66. Without the second bulleted clause, this event of default only concerns those items of collateral
described on the schedules; these would presumably encompass all the collateral on which the secured
party based its credit decision. If some of the scheduled collateral is not material, to the point that the
secured party may decide not to take the steps necessary to perfect its security interest or protect its
priority, then the parties may wish to limit the first bulleted clause to material items of collateral.
The parties may also agree to include the second bulleted clause to bring in material collateral not
listed on a schedule. But whether this second clause should be used, and whether it should apply
item-by-item, will depend on the characteristics of the collateral, including the extent to which per-
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(iv) Debtor or a third party challenges the attachment, perfection, or priority
of the Security Interest in any Collateral as to which Debtor has represented that the Security Interest is perfected and will have priority over
competing security interests, and Secured Party believes that the challenge has a material probability of success and, if successful, will have
a Material Adverse Effect on the value of the Collateral taken as a whole.
(v) Debtor Transfers any Collateral, except in a Permitted Transfer.
(vi) Any Collateral is subject to a Lien other than a Permitted Lien.67
(vii) Debtor fails to observe or perform any of its other obligations under this
Agreement and does not correct the failure within 10 days after notice
from Secured Party.
4.2 ENFORCEMENT, COLLECTION
AND
DISPOSITION
OF
COLLATERAL
While an Event of Default exists, Secured Party may take any appropriate actions to enforce, collect, protect the value of, or dispose of Collateral to the extent
permitted by applicable law.68 Such actions may include
(i) taking possession of any tangible Collateral, and entering premises
where such Collateral is located to effect such possession,
(ii) taking physical or electronic action to render any tangible Collateral unusable by Debtor, and entering premises where such Collateral is located to effect such action,
(iii) preparing and advertising Collateral for sale, lease, license, or other
disposition,
(iv) disposing of any Collateral by public or private sale, lease, license, or
other disposition, at Secured Party’s offices or elsewhere, at such prices
as Secured Party deems acceptable, for cash or on credit, without assumption of any credit risk,
(v) to the extent possible without violating any then-existing Permitted Licenses, granting licenses and sublicenses in any Collateral to third parties, on an exclusive or nonexclusive basis, on such terms and conditions
and in such manner as Secured Party may determine, with such licenses
fection and priority are governed by non-U.S. law. If the second bulleted clause is not used, then
paragraph (iii) would read (without bullets): “The Security Interest in any [material] item of Collateral
that is described on any of Schedules B through G is not a perfected first-priority security interest.”
67. The parties may wish to provide a cure period for the debtor to have the lien released.
68. Some IP security agreements purport to automatically assign IP collateral to the secured party
upon default. Other agreements (e.g., loan agreements, partnership agreements, investment agreements) may not be called security agreements, but may similarly provide that the intellectual property
is deemed to be assigned to the non-owner if the owner fails to make a payment or otherwise
breaches the agreement. The model agreement does not contain this language because it is inconsistent with U.C.C. Article 9, and it could encourage a secured party to take actions that would violate
Article 9. See Report §§ 3.8, 4.7.
Model Intellectual Property Security Agreement
911
or sublicenses as are lawfully granted by Secured Party (or by Debtor by
means of Secured Party’s power of attorney) surviving as direct licenses
or sublicenses of Debtor when the Event of Default no longer exists,
(vi) notifying any account debtor or other Person liable for payment to
Debtor with respect to any Collateral of Secured Party’s interest in
such Collateral, instructing the account debtor or other Person to
make the payment directly to Secured Party or as Secured Party directs,
and receiving and collecting such payments,
(vii) notifying parties to any IP License or Domain Name Contract included
in the Collateral that Debtor’s rights and interest in the IP License or
Domain Name Contract have been assigned to Secured Party, and communicating with such parties to verify the existence, amount, terms,
and status of the IP License or Domain Name Contract,
(viii) instituting, defending, or settling legal proceedings to collect on or enforce Debtor’s rights and remedies against third parties, including account debtors, licensors, licensees, and other parties to IP Licenses or
Domain Name Contracts, under or on account of any Collateral, without becoming a party to or incurring any liability under any IP License
or Domain Name Contract,
(ix) paying, discharging, purchasing, contracting for, or compromising any
actual or threatened Lien on Collateral that in Secured Party’s opinion
may be prior or superior to the Security Interest or may adversely affect
Secured Party’s rights, [and]
(x) taking any actions that Secured Party deems reasonably appropriate to
maintain Debtor’s standards of quality, as referenced in section 3.6.4
(“Trademark Quality Control”), for products manufactured, distributed, or sold, or services performed, in connection with Trademark Collateral [, and]
[(xi) exercising any of Debtor’s rights in Collateral as fully and completely as
though Secured Party were the absolute owner of such rights for all
purposes69].
4.3 LICENSE
TO
SECURED PARTY
TO
USE INTELLECTUAL PROPERTY
Solely to enable Secured Party to exercise its rights and remedies under this
section 4 during and after an Event of Default, Debtor grants Secured Party a
nonexclusive, irrevocable, worldwide license (or sublicense) to use and exercise
Debtor’s rights in or to any of Debtor’s Intellectual Property (whether or not in-
69. A secured party concerned about inadvertently acquiring control of the debtor’s business may
want to omit clause (xi).
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cluded in the Collateral70), without payment of royalty or other compensation to
Debtor. This license is in addition to Secured Party’s other rights with respect to
the Collateral, and is subject to the following:
• To the extent that this license is a sublicense of Debtor’s rights as a licensee under any IP License (the primary license), this license is subject
to any limitations in the primary license.
• Without limiting the foregoing, this license does not include Intellectual
Property if the primary license for such Intellectual Property by its terms
or as a matter of law prohibits sublicenses, requires the licensor’s consent, or entails additional consideration.
• The term of this license is the same as the term of this Agreement.71
• For licensed Trademarks, this license is subject to Debtor’s standards of
quality control and inspection as provided in section 4.2(x), as necessary
to avoid the risk of invalidation of the Trademarks.72
4.4 ACCESS
TO
DEBTOR’S SYSTEMS
AND
EXPERTISE
In connection with Secured Party’s exercise of its rights and remedies under
this section 4, Debtor will, at Secured Party’s request and to the extent within
Debtor’s power and authority, give Secured Party access to
• all software used for the management of data as to the Collateral or any
Intellectual Property licensed to Secured Party under section 4.3, and access to all media in which any of such Collateral or Intellectual Property
may be recorded or stored,
70. The point of this license is to allow the secured party to use the debtor’s intellectual property
as necessary to sell collateral without risking liability for infringement of the intellectual property, for
example, through marketing efforts or by use of store signage. Under section 4.2, the secured party
already has this right as to the collateral, and this license is not intended to limit the secured party’s
rights to use the collateral. In many cases, this license covers only the IP collateral itself, to allow for
its use under license during the foreclosure process.
71. Section 6.1 addresses the term of the security agreement, meaning the time period during
which the security agreement—and this license—remain effective. The introductory language limits
the scope of the license to actions to enable the secured party to exercise post-default remedies; because the scope of the license is limited, it is not necessary to create a “springing” license by deferring
grant of the license.
72. Some debtors and secured parties feel more comfortable with an objective quality standard. An
alternative formulation requires that the quality of the debtor’s goods and services sold under the licensed trademarks be maintained at substantially the level that existed immediately before the event of
default. Some debtors may request that the secured party’s license be subject to exclusive licenses
granted by the debtor prior to the effective date or permitted under the security agreement. Otherwise,
the grant of a license to the secured party might cause the debtor to violate such licenses or inhibit the
debtor’s ability to grant exclusive licenses permitted under the loan documents. In response, the secured party may argue that (1) it will only exercise its rights under the license during an event of default, so its license will have no commercial impact until then, and (2) the non-disturbance clause in
section 5.4 below will protect a licensee from losing its rights. This may not be satisfactory to the
debtor as a business matter. If so, additional language can be added to carve out any use by the secured party that would violate a permitted exclusive license.
Model Intellectual Property Security Agreement
913
• Debtor’s know-how, expertise, and relevant data (such as customer lists)
regarding the Collateral or the manufacture, sale, distribution, or provision of any goods or services in connection with Intellectual Property
Collateral, and
• Debtor’s personnel responsible for such matters.73
4.5 GENERAL REMEDY PROVISIONS
4.5.1 U.C.C. Remedies
While an Event of Default exists, Secured Party may exercise all rights and remedies available under the U.C.C. to a secured party following a debtor’s default.
4.5.2 Remedies Cumulative
The remedies provided to Secured Party in this Agreement are cumulative and
in addition to the other rights and remedies available under applicable law. Remedies may be exercised separately or concurrently, without demand on or notice
to Debtor, except as required (A) expressly by this Agreement or (B) by applicable law, and the exercise or partial exercise of any such right or remedy will not
preclude the exercise of any other right or remedy.
4.5.3 Reasonable Notice
To the extent that Secured Party is required by the U.C.C. or other applicable
law to give Debtor prior notice of the disposition of any Collateral, 10-days’ notice of the time and place of any public disposition or of the time after which a
private disposition may take place is reasonable notice of such matters.
4.5.4 Application of Proceeds74
Secured Party will apply any proceeds of collection or sale, license, or other
disposition of Collateral, to the extent received in cash, to the payment of the
Secured Obligations in such order of preference as Secured Party may determine,
with proper allowance and provision being made for any Secured Obligations
not then due. Upon the final payment and satisfaction in full of all of the Secured
Obligations and after making any payments on subordinated security interests
required by U.C.C. §§ 9-608(a)(1)(C) or 9-615(a)(3), Secured Party will return
any remaining proceeds to Debtor. Only after so paying over such net proceeds
and after the payment by Secured Party of any other amount required by any
provision of law will Secured Party need to account to Debtor for any surplus
73. As a practical matter, the debtor’s ability to comply with this provision will be limited. The
debtor will not have the power to compel its employees to remain employed, change their duties,
or work for the secured party.
74. As with other provisions of this agreement, counsel should be careful that this section not contradict any provisions of the loan agreement, which may also cover these matters.
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proceeds. Debtor will remain liable for any deficiency if the proceeds of disposition of the Collateral are insufficient to fully pay the Secured Obligations.
4.5.5 No Marshaling
Secured Party need not marshal the Collateral or any other present or future security for, or other assurances of payment of, the Secured Obligations or resort to
such security or assurances in any particular order. To the extent permitted by applicable law, Debtor will not invoke, and irrevocably waives the benefits of, any
law relating to the marshaling of collateral that might delay or impede the enforcement of Secured Party’s rights and remedies under this Agreement or otherwise.
5 SECURED PARTY’S OTHER RIGHTS
5.1 POWER OF ATTORNEY
Debtor appoints Secured Party as its attorney-in-fact, with full power of substitution, without notice to or assent by Debtor, in its own name or in Debtor’s
name, in Debtor’s place and stead,
(i) to file any documents with an IP Filing Office that Secured Party reasonably deems appropriate in connection with the perfection, protection, priority, or enforcement of the Security Interest, or the removal
of ineffective filings,
(ii) to take any actions required of Debtor under this Agreement that
Debtor fails or is unable to take in a timely manner, and
(iii) while an Event of Default exists, to take any actions that Secured Party
deems appropriate
• to protect, preserve, or realize upon the Collateral and the Security
Interest or to accomplish the purposes of this Agreement, including
any actions described in section 4, and
• in connection with a disposition of any Collateral, (A) to assign or
transfer title to such Collateral to itself or to any third-party purchaser, and (B) to file with any IP Filing Office or Governmental Authority any documents necessary or advisable to implement, effectuate, or reflect the disposition, including any transfer statement
permitted under section 9-619 of the U.C.C.
This power of attorney is a power coupled with an interest and will be irrevocable as long as this Agreement is in effect or is reinstated.
5.2 INDEMNITY
Debtor will defend and indemnify Secured Party and its officers, employees,
and agents against
Model Intellectual Property Security Agreement
915
• all losses, obligations, demands, claims, and liabilities (collectively, Claims)
asserted by a third party in connection with the transactions contemplated
by this Agreement, including acts or failures to act of Secured Party under
section 4 (“Events of Default; Remedies”), and
• all costs and expenses (including reasonable attorney’s fees and fees of professionals) paid or incurred by Secured Party in connection with a Claim,
except to the extent the Claim is caused by the gross negligence or willful misconduct of Secured Party (or any of its officers, employees, or agents).
5.3 COSTS
AND
EXPENSES
Debtor will pay
• all fees, costs, and expenses incurred by Debtor, Secured Party, or a third
party in connection with actions required of Debtor under this Agreement,
• all out-of-pocket fees, costs, and expenses (including reasonable attorney’s
fees and fees of advisors, experts, agents, and professionals) reasonably incurred in connection with Secured Party’s exercise, enforcement, or protection of its rights and remedies under this Agreement or in respect of the
Collateral, including claims against Debtor for breach of this Agreement
and actions under sections 1.3 (“Perfection and Priority”), 1.4 (“Afteracquired Collateral”), 1.5 (“Further Assurances”), 3.9 (“Maintenance of Records; Audit and Inspection”), 4 (“Events of Default; Remedies”), 5.1
(“Power of Attorney”), 5.2 (“Indemnity”), or 6.2 (“Reinstatement”), and
• any claims and charges that in Secured Party’s reasonable opinion might,
if not paid, prejudice, imperil, or otherwise adversely affect the Security
Interest or its priority.
Debtor’s obligations to Secured Party under this section 5.3 will be payable on
demand. Until paid, such obligations will bear interest at the “Default Rate” defined in the Loan Agreement and (with such interest) will be part of the Secured
Obligations.
5.4 NON-DISTURBANCE
OF
PERMITTED LICENSES
Secured Party will not disturb the rights of any third-party licensee of Collateral under a Permitted License, so long as the licensee is not in breach of its obligations to Debtor under the Permitted License. Upon Debtor’s request with respect to a particular licensee, Secured Party will use reasonable efforts to
negotiate, execute, and deliver a non-disturbance agreement with the licensee,
in form reasonably acceptable to Secured Party, Debtor, and the licensee.75
75. This provision might seem unnecessary in light of U.C.C. § 9-321, which provides that a “licensee in ordinary course of business” takes a nonexclusive license free of any security interest created by its licensor. Nonetheless, this kind of non-disturbance provision is becoming more common,
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5.5 LIMITED OBLIGATIONS
OF
SECURED PARTY
Secured Party will not be liable for any failure to exercise, or delay in exercising, any of its rights or remedies under this Agreement, or for any diminution in
the value of the Collateral, and will not be obligated to
• collect any amounts due, redeem or realize on, or make any presentments, demands, or notices of protest in connection with, any Collateral,
• take any steps necessary to preserve rights in any instrument, contract,
license, or lease against third parties or to preserve rights against prior
parties,
• take any actions referenced in section 3.6 (“Protection of Collateral”) or
any other action to maintain, preserve, protect, or enforce any rights in
the Collateral, or
• remove any Liens or take any actions for the perfection, enforcement, collection, or protection of Collateral,
except to the extent that such obligations may not be waived or varied under
U.C.C. section 9-602.
6 GENERAL PROVISIONS76
6.1 TERM OF AGREEMENT
This Agreement will remain in effect, and Secured Party will have no obligation to release any Collateral, until all the Secured Obligations are completely
and indefeasibly paid and performed in full and Secured Party no longer has
a commitment to make any Loan to Debtor.
6.2 REINSTATEMENT
This Agreement will continue to be effective or be automatically reinstated, as
the case may be, if at any time payment, in whole or in part, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by Secured Party or any holder of the Secured Obligations as a preference, fraudulent
conveyance, or otherwise under any Bankruptcy Law, all as though such payment had not been made.
especially where a significant portion of the debtor’s business involves licensing intellectual property,
because it (1) can cover exclusive licenses and (2) may reduce disputes about the scope and applicability of the U.C.C. provision.
76. Except for section 6.6 (Amendments and Waivers), which addresses the secured party’s right
to make unilateral amendments by addenda under section 1.4, the boilerplate provisions in section 6
are not specific to IP collateral. They are included in the model agreement for completeness only, and
the particular language is not intended to act as a model for any provision. Many of these matters may
be addressed in the loan agreement and need not be repeated here. Moreover, applicable state law
may limit the enforceability of these provisions, determine whether they should be included at all,
or dictate the appropriate language.
Model Intellectual Property Security Agreement
917
6.3 ENTIRE AGREEMENT
This Agreement and the other Loan Documents constitute the entire agreement between the Parties and supersede all prior agreements, oral or written, relating to their subject matter.
6.4 NOTICES
AND
COMMUNICATIONS
6.4.1 General Notices
All notices and other communications required or permitted under this Agreement will be in writing or other record form, and will be sent by hand, by registered or certified mail return receipt requested, by overnight courier service maintaining records of receipt, or electronically as specified in section 6.4.2 below, in
all cases with charges prepaid, and will be effective on the earlier of receipt or
• if mailed, the third Business Day after being mailed,
• if sent by overnight courier service, the following Business Day, or
• if sent by facsimile, upon sender’s receipt of transmission confirmation.
All notices will be addressed to the parties at the following addresses until changed
by notice pursuant to this section:
• To Debtor: _______________________
• To Secured Party: _________________
6.4.2 Electronic Communications
Notices and other communications may be delivered electronically (including
by e-mail) and will be effective upon receipt, except that any record required to
be signed, executed, or authenticated will only be effective when authenticated
and delivered by electronic imaging means (e.g., .pdf or .tif ).
6.5 SUCCESSORS
AND
ASSIGNS
Debtor will not assign its rights or delegate its duties under this Agreement.
Secured Party may assign the Secured Obligations to one or more assignees on
such terms and conditions as Secured Party deems advisable. Debtor waives
and will not assert against such an assignee any claims, setoffs, recoupments,
or defenses that Debtor may have against Secured Party.
6.6 AMENDMENTS
AND
WAIVERS
Except as provided in section 1.4 with respect to describing Collateral in an
appropriate Addendum,77 this Agreement may not be modified or amended ex77. This initial clause addresses the secured party’s right to make unilateral amendments by addenda under section 1.4. This right is an IP-specific exception to standard language prohibiting
amendment by one party without the other party’s consent.
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cept in a record authenticated by Debtor and Secured Party, and none of its provisions may be waived except in a record authenticated by Secured Party. No
waivers will be implied, whether from any custom or course of dealing, any
delay or failure in Secured Party’s exercise of its rights and remedies under
this Agreement, or otherwise. Any waiver granted by Secured Party will not obligate Secured Party to grant any further, similar, or other waivers.
6.7 GOVERNING LAW
This Agreement will be construed in accordance with and governed by the
laws of [STATE].
6.8 SEVERABILITY
If any provision of this Agreement or its application to any Person or circumstance is invalid or unenforceable to any extent, the remainder of this Agreement
or the application of the provision to other Persons or circumstances will not be
affected thereby and will be enforceable to the greatest extent permitted by law.
6.9 JURISDICTION; VENUE
Debtor irrevocably consents to personal jurisdiction in the courts located in
[STATE] for any action in connection with this Agreement, any Secured Obligations, or any Collateral, and will not contest or challenge venue in any such
court.
6.10 JURY WAIVER
Debtor and Secured Party each knowingly, willingly, and irrevocably waives
its rights to demand a jury trial in any action or proceeding involving this Agreement, the Secured Obligations, or the Collateral. A copy of this section may be
filed as a written consent to a trial by the court.
7 DEFINITIONS AND USAGES
7.1 DEFINED TERMS
In this Agreement, the following terms have the following meanings:
Bankruptcy Code means Title 11 of the United States Code, titled “Bankruptcy.”78
Bankruptcy Law means the Bankruptcy Code and any similar United States federal, State, or foreign bankruptcy, insolvency, receivership, or similar law affecting creditors’ rights generally.
78. Section 7.2 sets forth usage rules that make it unnecessary to include amendments and successor statutes.
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919
Business Day means a day other than a Saturday, Sunday, or other day on which
commercial banks in [CITY] are authorized or required by law to close.
Copyright Office means the United States Copyright Office.
Domain Name Contract means an agreement that permits a Person to use a Domain Name.
Governmental Authority means any United States federal, State, municipal, or
other government, governmental department, commission, board, bureau,
court, agency, or instrumentality (including an IP Filing Office), or political subdivision thereof, or any entity or officer exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to any government or any
court of the United States or any State.
Insolvency Proceedings means any United States federal, State, or foreign bankruptcy, reorganization, liquidation, assignment for the benefit of creditors, receivership, or other insolvency proceedings commenced at any time by or against
a Person or its property, pursuant to Bankruptcy Law or otherwise.
IP Security Document79 means any one or more of the following documents, as
applicable, in proper form for recordation or registration in the applicable IP Filing Office:
(i) for Copyrights, a notice or agreement substantially in the form of Exhibit 1,
(ii) for Patents, a notice or agreement substantially in the form of Exhibit 2,
or
(iii) for Trademarks, a notice or agreement substantially in the form of Exhibit 3, or
(iv) any other assignment, mortgage, confirmation, notice, agreement, instrument, or other document that Secured Party reasonably considers
necessary or advisable to record in any IP Filing Office in order to create, evidence, perfect, protect, or enforce the Security Interest in any
Collateral.
IP Filing Office means, as applicable, the Copyright Office (for Copyrights), the
PTO (for Patents and Trademarks), any similar office or agency in any Jurisdiction, or any Internet domain name registry (for Domain Names). A State U.C.C.
filing office is not an IP Filing Office.
79. The form and content of a document to be filed or recorded with the federal filing office will
depend in part on the type of IP collateral and the administrative rules of the filing office. See supra
note 12.
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Jurisdiction means any jurisdiction creating or recognizing rights in Intellectual
Property, including the United States, any State, any foreign country, or any subdivision thereof.
License-In means an IP License where Debtor is the licensee and a third party
(which may be an affiliate of Debtor) is the licensor.
License-Out means an IP License where Debtor is the licensor and a third party
(which may be an affiliate of Debtor) is the licensee.
Lien means, with respect to Debtor’s rights or interest in any item of Collateral,
(i) any “Lien” as defined in the Loan Agreement,
(ii) any voluntary collateral assignment, conditional assignment, license
equivalent to an encumbrance, mortgage, charge, hypothecation,
pledge, security interest, or lien on, in, or to those rights or that interest,
or
(iii) any involuntary lien, claim, or other encumbrance on, in, or to those
rights or that interest, including a tax, judgment, statutory, common
law, or equitable lien, or other attachment, levy, execution, or judicial
action with respect to those rights or that interest.80
Loan Documents means the Loan Agreement, the promissory note dated the Effective Date issued by Debtor to Secured Party, this Agreement, and any other
agreement executed on or after the Effective Date in connection with any of
them.
Material Adverse Effect has the same meaning as in the Loan Agreement.
Permitted License means a License-Out that
(i) was listed on Schedule F as of the Effective Date, or
(ii) is granted by Debtor in the ordinary course of business and that, when
granted, did not have a Materially Adverse Effect on Debtor’s business
or the value of the Collateral taken as a whole.81
Person means a natural person, corporation, limited liability company, trust,
business trust, joint venture, association, company, partnership, Governmental
Authority, or other entity.
PTO means the United States Patent and Trademark Office.
Restrictive Provision means a provision of an agreement or of applicable law that
purports to
80. See supra note 50 (comparing the defined terms “Lien” and “Transfer”).
81. See supra note 30 regarding materiality limitations.
Model Intellectual Property Security Agreement
921
• prohibit Debtor’s assignment of, grant of a security interest in, or license
of its rights under, an IP License or Domain Name Contract,
• require any other Person’s consent to such assignment, grant, or license,
or
• make such assignment, grant, or license constitute or result in a violation
of law or a breach, default, or termination of an IP License or Domain
Name Contract.
State means a state or territory of the United States, or the District of Columbia.
A Transfer of Collateral is Debtor’s voluntary disposition (or agreement to dispose) of its rights therein, in whole or in part, by sale, lease, license, assignment,
operation of law, or other method, other than the creation or enforcement of a
Lien on, or any actual or deemed abandonment of, Debtor’s rights in any Collateral. To Transfer any Collateral means to effect or implement a Transfer.82
U.C.C. means the [STATE] Uniform Commercial Code or, for any particular
matter, the Uniform Commercial Code of the State that governs such matter.
United States includes all the States (as defined above) and the Commonwealth
of Puerto Rico.
7.2 USAGES
Unless otherwise stated or the context clearly requires otherwise:
U.C.C. terms. Terms defined in the U.C.C. have the same meanings in this Agreement. If a term is defined in Article 9 of the U.C.C. and in another article of the
U.C.C., the term has the meaning specified in Article 9.
United States law. References to the laws or regulations of the United States include all United States federal, State, and local laws or regulations.
Debtor. If Debtor is a partnership or an unincorporated association of more than
one person, the term “Debtor” refers to the entity and to each partner and/or
each such person, jointly, severally, and individually
Singular and plural. Definitions of terms apply equally to the singular and plural
forms.
82. See supra note 50 (comparing the defined terms “Lien” and “Transfer”). Not all IP licenses constitute encumbrances. See, e.g., In re Provider Meds LP, No. 13-30678-BJH, 2014 WL 4162870
(Bankr. D. Tex. Aug. 20, 2014) (debtor’s grant of perpetual, royalty-free software licenses to third
parties did not breach debtor’s obligation to provide lender with first-priority security interest in
the software, and licensees’ failure to obtain secured party’s required consent to “encumbrances”
of the collateral was not tortious interference with loan contract because licenses were not
“encumbrances”).
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The Business Lawyer; Vol. 71, Summer 2016
Masculine and feminine. Pronouns include the corresponding masculine, feminine, and neuter forms.
Time of day. All indications of time of day mean [CITY] time.
When action may be taken. Any action permitted under this Agreement may be
taken at any time and from time to time.
May. Any action that a Person “may” take it may take in its discretion but is not
obligated to take.
Inclusive Terms. “Including” (or “include(s)”) means “including (or include(s)),
but not limited to.”
“Reasonable” means the same as “commercially reasonable.”
Or. “A or B” means “A or B or both.”
Successors and assigns. References to a Person include the Person’s permitted successors and assigns.
Statutes and regulations. References to a statute refer to the statute and all regulations promulgated under or implementing the statute as in effect at the relevant
time. References to a specific provision of a statute or regulation include successor provisions. References to a section of the Bankruptcy Code also refer to any
similar provision of Bankruptcy Law.
Governmental agencies and self-regulatory organizations. References to a governmental or quasi-governmental agency or authority or a self-regulatory organization include any successor agency, authority, or self-regulatory organization.
Agreements. References to an agreement (including this Agreement) refer to the
agreement as amended at the relevant time.
Schedules and Exhibits. References to a Schedule or Exhibit refer to Schedules or
Exhibits to this Agreement.
Section references. Section references refer to sections of this Agreement. References to numbered sections refer to all included sections. For example, a reference to section 2 also refers to sections 2.1, 2.1.2, 2.1.2(ii), etc. References to a
section or article in an agreement, statute, or regulation include successor and
renumbered sections and articles of that or any successor agreement, statute,
or regulation.
Nouns and adjectives. Defined terms that are nouns may be used as adjectives; for
example, “Copyright Collateral” to refer to Copyrights included in the Collateral.
Model Intellectual Property Security Agreement
SIGNATURES
[DEBTOR]
By: _________________
[NAME]
[TITLE]
[SECURED PARTY]
By: _________________
[NAME]
[TITLE]
SCHEDULES
A Scheduled Excluded Property
B Copyrights, Copyright Applications, and Copyright Licenses-In
C Patents, Patent Applications, and Patent Licenses-In
D Registered Trademarks, Trademark Applications, and Trademark
Licenses-In
E Domain Names
F Licenses-Out
G Other Intellectual Property
H Restrictive Provisions
I
U.C.C. Filing Offices
J
Debtor Information
K Claims and infringements
EXHIBITS
1. IP Security Document for Copyrights
2. IP Security Document for Patents
3. IP Security Document for Trademarks
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EXHIBIT 1
FORM
OF
IP SECURITY DOCUMENT—COPYRIGHTS
COPYRIGHT SECURITY AGREEMENT
[DATE]
PARTIES
[DEBTOR NAME], a [JURISDICTION] [ENTITY] [ADDRESS] (Debtor)
[SECURED PARTY NAME], a [JURISDICTION] [ENTITY] [ADDRESS] (Secured
Party)
BACKGROUND
This Copyright Security Agreement is executed pursuant to the Loan Agreement
and the Security Agreement, both dated [the Effective Date], between Debtor and
Secured Party. Secured Party has agreed to make certain Loans to Debtor, and
Debtor has agreed to provide certain Collateral to secure the Loans, all on the
terms and conditions set forth in the Loan Agreement and the Security Agreement. Those conditions include the execution, delivery and recordation of this
Copyright Security Agreement (this Agreement).
AGREEMENT
The parties agree as follows:
1. Supplement to Security Agreement
This Agreement has been entered into in conjunction with the Security Interest
granted to Secured Party under the Security Agreement. The terms of this Agreement are supplemental to and not in replacement of the terms of the Security
Agreement, and the rights and remedies of Secured Party with respect to the security interests granted herein are without prejudice to, but in addition to, those
set forth in the Security Agreement. If there is any conflict between this Agreement and the Security Agreement, the Security Agreement will govern.
2. Security Interest and Collateral
To secure Debtor’s performance of its present and future obligations under the
Loan Agreement, Debtor grants Secured Party a security interest in all Debtor’s
present and future rights and interest in the registered copyrights and copyright
applications identified on Schedule 1 to this Agreement.
3. General Provisions
The provisions of section 6 (“General Provisions”) of the Security Agreement are
incorporated herein by reference, except that the term “Agreement” will mean
this Agreement.
Model Intellectual Property Security Agreement
925
4. Terms and Usages in Security Agreement
All capitalized terms used in this Agreement and not otherwise defined herein
will have the meanings assigned to them in the Security Agreement, except
that the term “Agreement” will mean this Agreement. Unless otherwise stated
or the context clearly requires otherwise, the usage rules set forth in Section 7.2
of the Security Agreement will apply to this Agreement.
5. Recording
Debtor authorizes and requests the United States Copyright Office to record this
Copyright Security Agreement.
6. Termination
When all the Secured Obligations have been completely and indefeasibly paid
and performed in full and Secured Party no longer has a commitment to
make any Loan to Debtor, this Agreement will terminate.
SIGNATURES83
[DEBTOR]
By: _________________
[NAME]
[TITLE]
[SECURED PARTY]
By: _________________
[NAME]
[TITLE]
83. It is good practice to have both parties sign, even though only the debtor’s signature is legally
required. See 17 U.S.C. § 204 (2012) (copyrights); 35 U.S.C. § 261 (2012) (patents); 15 U.S.C.
§ 1060(3) (2012) (trademarks).
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SCHEDULE 1
TO
COPYRIGHT SECURITY AGREEMENT
REGISTERED COPYRIGHTS
TITLE
OF
WORK
REGISTRATION NUMBER
REGISTRATION DATE
COPYRIGHT APPLICATIONS
TITLE
OF
WORK
APPLICATION DATE
Model Intellectual Property Security Agreement
927
EXHIBIT 2
FORM
OF
IP SECURITY DOCUMENT—PATENTS
PATENT SECURITY AGREEMENT
[DATE]
PARTIES
[DEBTOR NAME], a [JURISDICTION] [ENTITY] [ADDRESS] (Debtor)
[SECURED PARTY NAME], a [JURISDICTION] [ENTITY] [ADDRESS] (Secured
Party)
BACKGROUND
This Patent Security Agreement is executed pursuant to the Loan Agreement and
the Security Agreement, both dated [the Effective Date], between Debtor and Secured Party. Secured Party has agreed to make certain Loans to Debtor, and
Debtor has agreed to provide certain Collateral to secure the Loans, all on the
terms and conditions set forth in the Loan Agreement and the Security Agreement. Those conditions include the execution, delivery and recordation of this
Patent Security Agreement (this Agreement).
AGREEMENT
The parties agree as follows:
1. Supplement to Security Agreement
This Agreement has been entered into in conjunction with the Security Interest
granted to Secured Party under the Security Agreement. The terms of this Agreement are supplemental to and not in replacement of the terms of the Security
Agreement, and the rights and remedies of Secured Party with respect to the security interests granted herein are without prejudice to, but in addition to, those
set forth in the Security Agreement. If there is any conflict between this Agreement and the Security Agreement, the Security Agreement will govern.
2. Security Interest and Collateral
To secure Debtor’s performance of its present and future obligations under the
Loan Agreement, Debtor grants Secured Party a security interest in all Debtor’s
present and future rights and interest in the issued patents and patent applications identified on Schedule 1 to this Agreement.
3. General Provisions
The provisions of section 6 (“General Provisions”) of the Security Agreement are
incorporated herein by reference, except that the term “Agreement” will mean
this Agreement.
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4. Terms and Usages in Security Agreement
All capitalized terms used in this Agreement and not otherwise defined herein will
have the meanings assigned to them in the Security Agreement, except that the
term “Agreement” will mean this Agreement. Unless otherwise stated or the context clearly requires otherwise, the usage rules set forth in Section 7.2 of the Security Agreement will apply to this Agreement.
5. Recording
Debtor authorizes and requests the United States Patent and Trademark Office to
record this Patent Security Agreement.
6. Termination
When all the Secured Obligations have been completely and indefeasibly paid
and performed in full and Secured Party no longer has a commitment to
make any Loan to Debtor, this Agreement will terminate.
SIGNATURES84
[DEBTOR]
By: _________________
[NAME]
[TITLE]
[SECURED PARTY]
By: _________________
[NAME]
[TITLE]
84. It is good practice to have both parties sign, even though only the debtor’s signature is legally
required. See 17 U.S.C. § 204 (copyrights); 35 U.S.C. § 261 (patents); 15 U.S.C. § 1060(3)
(trademarks).
Model Intellectual Property Security Agreement
SCHEDULE 1
TO
PATENT SECURITY AGREEMENT
ISSUED PATENTS
PATENT NUMBER
DATE ISSUED
TITLE
FILING DATE
TITLE
PATENT APPLICATIONS
APPLICATION NUMBER
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EXHIBIT 3
FORM
OF
IP SECURITY DOCUMENT—TRADEMARKS
TRADEMARK SECURITY AGREEMENT
[DATE]
PARTIES
[DEBTOR NAME], a [JURISDICTION] [ENTITY] [ADDRESS] (Debtor)
[SECURED PARTY NAME], a [JURISDICTION] [ENTITY] [ADDRESS] (Secured
Party)
BACKGROUND
This Trademark Security Agreement is executed pursuant to the Loan Agreement and the Security Agreement, both dated [the Effective Date], between
Debtor and Secured Party. Secured Party has agreed to make certain Loans to
Debtor, and Debtor has agreed to provide certain Collateral to secure the
Loans, all on the terms and conditions set forth in the Loan Agreement and
the Security Agreement. Those conditions include the execution, delivery and recordation of this Trademark Security Agreement (this Agreement).
AGREEMENT
The parties agree as follows:
1. Supplement to Security Agreement
This Agreement has been entered into in conjunction with the Security Interest
granted to Secured Party under the Security Agreement. The terms of this Agreement are supplemental to and not in replacement of the terms of the Security
Agreement, and the rights and remedies of Secured Party with respect to the security interests granted herein are without prejudice to, but in addition to, those
set forth in the Security Agreement. If there is any conflict between this Agreement and the Security Agreement, the Security Agreement will govern.
2. Security Interest and Collateral
To secure Debtor’s performance of its present and future obligations under the
Loan Agreement, Debtor grants Secured Party a security interest in all Debtor’s
present and future rights and interest in the registered trademarks and trademark
applications identified on Schedule 1 to this Agreement, together with the goodwill of the business connected with the use of or symbolized by such registered
or applied-for trademarks.
Model Intellectual Property Security Agreement
931
3. General Provisions
The provisions of section 6 (“General Provisions”) of the Security Agreement are
incorporated herein by reference, except that the term “Agreement” will mean
this Agreement.
4. Terms and Usages in Security Agreement
All capitalized terms used in this Agreement and not otherwise defined herein
will have the meanings assigned to them in the Security Agreement, except
that the term “Agreement” will mean this Agreement. Unless otherwise stated
or the context clearly requires otherwise, the usage rules set forth in Section
7.2 of the Security Agreement will apply to this Agreement.
5. Recording
Debtor authorizes and requests the United States Patent and Trademark Office to
record this Trademark Security Agreement.
6. Termination
When all the Secured Obligations have been completely and indefeasibly paid
and performed in full and Secured Party no longer has a commitment to
make any Loan to Debtor, this Agreement will terminate.
SIGNATURES85
[DEBTOR]
By: _________________
[NAME]
[TITLE]
[SECURED PARTY]
By: _________________
[NAME]
[TITLE]
85. It is good practice to have both parties sign, even though only the debtor’s signature is legally
required. See 17 U.S.C. § 204 (copyrights); 35 U.S.C. § 261 (patents); 15 U.S.C. § 1060(3)
(trademarks).
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SCHEDULE 1
TO
TRADEMARK SECURITY AGREEMENT
REGISTERED TRADEMARKS
MARK
REGISTRATION NUMBER
REGISTRATION DATE
APPLICATION NUMBER
FILING DATE
TRADEMARK APPLICATIONS
MARK