Security Interests in IP and Key to Reclamation
This week we shared two articles of interest regarding UCC filings, from secrets of security interests in IP to PMSIs and reclamation. Check out why these articles caught our attention!
Up First: The Seven Secrets of Security Interests by Jennifer Criss
We often discuss UCCs and security interests in tangible goods, like the food service, medical industry, and equipment leasing industries, but what about security in intangibles? Did you know you can use Intellectual Property (IP) as collateral? Examples of IP include trademarks, logos and patents.
Jennifer Criss, author of “The Seven Secrets of Security Interests,” reviews critical components for UCCs in IP. Many points in her article are the same for vendors across all businesses: correctly identify the debtor (include dbas), include the debtor’s address, ensure documents are properly dated and executed, and include a granting clause. However, here are a few points specific to IP.
- If your security interest is a reaffirmation or supplemental filing, mention any documents previously recorded with the USPTO [United States Patent and Trademark Office]. Lay out all the details so the reader can get up to speed quickly.
- Make sure dates, corporate names, addresses, entity types, recordation information, and other specifics about agreements and parties referenced in the security interest are all correct. This also goes for your schedules of IP against which the security interest is granted –names and application and registration numbers and dates should all be correct.
- If there is IP outside of the United States, and the security interest is granted in U.S. and non-U.S. IP, consider preparing separate security interest agreements for recording in different jurisdictions.
- You might discover ownership inaccuracies relating to the IP against which a security interest is to be granted or released. For example, the “Inc.” that is part of the corporate name might not be listed in the ownership information on the USPTO website. Similarly, the corporate name might contain periods or spaces that are not reflected in the owner of record for the trademarks on the schedule. In some instances, the parties might file corrective documents with the USPTO in order to correct those errors.
- If you need to record a release of one security interest before recording a new security interest, and those documents have the same effective date, you can do that!
- When drafting releases of security interests, the scope of the original grant should match the scope of the security interest that is being released. Copy the language from the original security interest into the release document to ensure that the release exactly matches the interest that was originally granted.
- Between the time a security interest is granted and a security interest is released, some registrations may have expired and some applications may have been abandoned, and new applications may have been filed. Should the dead IP and the new IP be included in the release? When it comes to the new IP, the answer is a more straightforward “no;” there’s no need to confuse chain of title by releasing a security interest that was never recorded to begin with. But dead IP is a trickier issue. If there isn’t a lot of dead IP, you might decide to include it in the schedule to a release – especially for any registrations that remain in the grace period or that remain listed as “active” in USPTO records even though the grace periods are long expired.
And Next: Uniform Commercial Code Protections Affecting Vendor Claims: Purchase Money Security Interest and Reclamation by Jason B. Binford
Reclamation Claim Period is the timeframe in which the creditor is permitted to take back certain goods sold to their insolvent customer. The reclamation notice needs to be sent within 20 days from the petition date and covers materials or services provided to the debtor within 45 days preceding the petition date.
In “Uniform Commercial Code Protections Affecting Vendor Claims: Purchase Money Security Interest and Reclamation,” Jason B. Binford says:
“UCC section 2-702 allows a vendor, under certain circumstances, to “reclaim” goods previously shipped to a debtor. Where the goods are purchased on credit by an insolvent debtor, the vendor may reclaim the goods upon demand made by the vendor within ten days after the debtor’s receipt of such goods. Notably, if the debtor misrepresented to the vendor that it was solvent within three months prior to the delivery of the goods, the ten-day demand limitation does not apply. Reclamation rights are a powerful tool to allow a vendor to “snatch back” valuable goods and thus limit the vendor’s exposure. Such rights, however, are subject to a number of limitations. First, the UCC provides that reclamation rights are subject to the rights of ordinary course or good faith purchasers of the goods. Second, in the event the debtor files bankruptcy, the Bankruptcy Code makes clear that reclamation rights are subject to the rights of lienholders in the goods. In other words, reclamation rights are only valuable in bankruptcy to the extent there is not a properly perfected lien in the goods.“
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