To “Pre” or not to “Pre”: “Pre”- Emption, Article 9 and Other Speed Bumps on the Road to Continued Economic Prosperity



by Andrew R. Spriegel


Patent Attorney – Moxon & Spriegel, LLC


 


Table of Contents


I. Introduction [2]


II. General Intangibles Defined [5]


III. The Increasing Significance of Intangible Assets in the U.S. and Worldwide [5]



  1. Patents [7]

  2. Trademarks [10]

  3. Copyrights [12]

IV. U.C.C. Revised Article 9 – Creating an Enforceable Secured Interest in a Debtor’s Assets – The Security Agreement [15]


V. U.C.C. Revised Article 9 – Perfection of the Security Interest – Filing a Financing Statement [17]


VI. Perfection of Patents [18]



  1. The First Speed Bump: Confusion about Secured Interests in Patents [18]

VII. Trademarks [21]



  1. The Second Speed Bump: Confusion about Secured Interests in Trademarks [21]

VIII. Copyrights (Registered and Unregistered): The Third Speed Bump: Confusion About Secured Interests in Copyrights [25]



  1. Perfection of Copyright Subject to Federal Statute, Regulation or Treaty [25]

IX. ABA Approach to Creating Secured Transactions in General Intangibles [28]


X. Summary [28]


I. INTRODUCTION 


An ongoing tension exists between U.C.C. revised Article 9 and Federal Intellectual Property statutes.[i]  In order to avoid any conflicts with Federal law, the U.C.C. has promulgated two ““step-back provisions,” by which state law steps back and out of the way of conflicting Federal law.”[ii]  The first step back provision per U.C.C. § 9-109 states that Article 9 does not apply to “a security interest subject to any statute of the United States, to the extent that such statute governs the rights of parties to and third parties affected by transactions in particular types of property.”[iii] 


This paper concludes that the U.S. Copyright Act is governed by Federal statutes that supersede U.C.C. revised Article 9, with respect to secured interests in registered copyrights.[iv]  The Patent Act and the Lanham Act (i.e., the Trademark Act) do not comprehensively provide for the filing of security interests, and therefore do not require comparable U.C.C. “stepback.”[v]  


This paper addresses several topics: (1) Intellectual property assets (e.g., patents, trademarks and copyrights) are growing at a rapid rate in the U.S.[vi]  (2) Intellectual property assets, i.e., general intangible assets, have replaced tangible assets as the largest percentage of company assets overall in the U.S.[vii]  (3) At a time when intellectual property assets are continuing to grow in importance, it is more difficult to obtain a secured interest in intangible assets than it is to obtain a secured interest in tangible assets.[viii]  (4) The ongoing tension between the U.C.C Revised Article 9 and Federal Intellectual property laws and why that causes difficulty in creating secured transactions.[ix]  (5) If the inequity between secured interests in intangible vs. tangible assets is not corrected the U.S. economy and therefore economic prosperity in the United States will be negatively impacted (i.e., “speed bumps on the road to economic or continued economic prosperity”).[x]  (6) There are proposed systems (e.g., ABA proposal) for creating greater confidence in secured transactions supported by intangible assets (i.e., specifically copyrights, patents and trademarks).[xi]


This paper will only address intellectual property involving patents, trademarks and copyrights.[xii]  However, there are many other categories of intellectual property, such as trade secrets, for example, that can be used in secured transactions.[xiii] 


Many businesses today deal almost exclusively with intellectual property, e.g., Ocean Tomo, LLC[xiv], ANOVA INNOVATIONS, LLC[xv], and the like.  Imagine a business that engages exclusively in developing, licensing, acquiring, selling, and reselling of intellectual property or general intangible assets.[xvi]  Suppose that the business seeks a loan in order to expand its office, hire additional employees, buy equipment, software and computers, for example, with a loan based solely upon the businesses’ intellectual property.[xvii]  Unfortunately, if the business attempts to secure the loan based upon general intangibles the loan process is less likely to be successful than a loan based upon tangible assets or collateral.[xviii]   Banks, lenders and accountants, for example, have a difficult time evaluating the “monetary value” of intangible assets because they have much less experience in doing so than they do in valuing hard assets.[xix]  Financial institutions often lend money to a borrower if the borrower has sufficient collateral[xx] or hard assets.[xxi]  This type of asset based lending is common when backed by tangible assets, such as property, consumer goods, inventory, farm products, equipment, etc., knowing that the loan will either be paid off or covered by liquidating the tangible assets.[xxii]  A loan based upon a secured transaction in intangible assets is far less likely to receive approval.[xxiii]


II. GENERAL INTANGIBLES DEFINED


The U.C.C. Article 9 defines general intangibles in the negative, as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment properties, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction.”[i]  Intangible assets are non-physical and are more difficult to value than tangible assets.  They include patents,[ii] patent licensing,[iii] copyrights,[iv] trademarks,[v]  trade secrets,[vi] software,[vii] right of publicity,[viii] goodwill,[ix] and customer lists,[x] as well as others.  As mentioned supra, this paper will address only patents, copyrights and trademarks.[i]


III. THE INCREASING SIGNIFICANCE OF INTANGIBLE ASSETS IN THE U.S. AND WORLDWIDE




Compounding the problem of obtaining a business loan based upon general intangibles is that intangibles are growing in importance in the U.S. economy and outpacing tangible assets at a rapid rate.[i]  Intellectual property has become the most valuable asset in business today, for example from 1978 to 1992 the market value of manufacturing and mining companies has been transformed from 62 percent ownership in physical assets and 38 percent in intangible assets to 38 percent ownership in physical assets and 62 percent in intangible assets (e.g., refer to FIG. 1 below).[ii]  However, companies still need to borrow money, even if the value of the company is based upon intangible assets.[iii]  Therefore, as intangibles continue to grow in importance in the U.S. economy, the creation of a system is needed that will allow consistent, enforceable and easily created secured transactions in general intangibles and more specifically intellectual property.[iv]




FIG. 1. United States Companies’ Assets



  1. PATENTS

A U.S. patent grants an exclusive set of rights to the patent holder.  The patent can be a utility patent (e.g., a machine, an article of manufacture, a new and useful process, or a composition of matter)[i], a design patent[ii] (i.e., based on an ornamental design) or a plant patent (i.e., an asexually reproduced plant).[iii]  Based upon USPTO data, growth in the number of U.S. utility patent applications is growing rapidly, as can be seen below.[iv]  Referring to the following chart, the number of applications remained relatively constant from 1963 until 1984, when the number of utility applications rose dramatically.[v] 




FIG. 2. Number of Utility Patent Applications Filed per Year at USPTO[i]


Source: U.S. Patent and Trademark Office


One of the main reasons for the growth in patents is the outcome of various infringement lawsuits in the millions, hundreds of millions and in some cases billions of dollars.[ii]  The definition of “patent infringement” is found in 35 U.S.C. § 271(a) which defines direct patent infringement as the making, using or selling of a patented invention in the U.S. without authority from the patent owner.[iii]  In Polaroid v. Eastman Kodak, 867 F.2d 1415, the case involved the instamatic camera.[iv]  The court had to determine whether the claims in ten patents were valid and if so whether Kodak infringed those claims.[v]  It was held that Kodak infringed several of Polaroid’s patent claims and a final damage award to Polaroid was approximately $873,000,000. Large infringement awards, patent licensing fees, patent commercialization, and the like, continue to drive patent filings in the U.S and throughout the world.[vi]  For example, IBM has exploited intellectual property licensing generating over $10 billion in revenue in a single decade[vii]  IBM’s very profitable and efficient licensing division consults with other businesses on how to make best use of their own patent portfolios.[viii]


One has to think only for a moment to come up with revolutionary patented products that have led to continued economic prosperity in this country.  Some of most recognized patented products include mobile cell phones[ix], computers[x], hybrid cars[xi], genetic sequencing[xii], DVD players[xiii], iPods[xiv], digital cameras[xv], pharmaceuticals[xvi], navigation systems[xvii], polymerase chain reactions[xviii] and heart pace makers[xix].  Worldwide sales of mobile phones are forecast to grow to a billion phones in 2008.[xx] Computer hardware sales made up 17 percent of all e-commerce sales, the highest among merchandise lines in 2003, with total sales of $6.7 billion.[xxi], and hybrid car sales in 2006 were 254,545 hybrids sold, up from 199,148 in 2005, according to nationwide auto registration data compiled by R.L. Polk & Co.[xxii]  The sale of Prozac,®  since its inception by Elli Lilly, has resulted in $21 billion in sales[xxiii], and the U.S. pharmaceutical market in 2005 grew by 7 percent  to $252 billion.[xxiv]


The sale of DVD players increased from 15 million total units sold in 1997-2000 to 12 million units sold in 2001, and a total in 2002 of over 30 million DVD players in U.S. households.[xxv]  Apple announced in April 2007, that over 100 million iPods were sold since being introduced in November of 2001.[xxvi]  Each of these products has had numerous patents filed to protect a segment of the product design and spin off products.[xxvii]  For example, thousands of patents were filed with respect to cell phones.[xxviii]  A partial list of patents that involve cell phones at the USPTO website, as of July 22, 2007 is included in the Appendix II.[xxix]


Many of the products mentioned supra have resulted in multiple secondary businesses that support them, for example, consider the cardiac pacemaker.[xxx]  It has resulted in smaller and smaller devices, improvements in batteries[xxxi], software[xxxii], pacemakers for animals[xxxiii], sensors, actuators, and the like.  All of these business offshoots have led to increased economic prosperity in the U.S.[xxxiv]


According to the Organization for Economic Co-Operation and Development (OECD), today’s economy is becoming increasingly knowledge-based with new technology based companies playing an important role.[xxxv]  In the United States during the 1990’s, research and development in small and medium-sized enterprises increased at approximately twice the pace of research and development in large firms with the smallest companies increasing at the fastest rate.[xxxvi]  A trend driving this growth in part was venture capital funding which provided an advantage for new technology-based firms.[xxxvii]  As the OECD stated “patents are especially important to new technology-based firms because such firms often have few assets other than their intellectual property, and need patent protection to attract venture capital.”[xxxviii]  


B. TRADEMARKS


A trademark is a word, phrase, symbol or logo, used in identifying and distinguishing the source of goods or services of one company or person from another.[xxxix]  Trademarks are created through common law, state law and Federal law.[xl]  A Federally registered trademark with the USPTO grants the owner certain exclusive property rights, including the right to exclusive use of the mark in relation to the class of products or services for which it is registered.[xli]  For example, the trademark owner can prevent unauthorized use of the mark in relation to products or services which are similar to the owners registered products or services.[xlii]  The chart below shows the number of trademark applications filed each year with the USPTO from 1991 to 2006.[xliii]




FIG. 3.  Number of Trademark Applications Filed per Year at USPTO


Source: U.S. Patent and Trademark Office


 The value to the consumer of a trademark is that they can better rely on the origin or quality of a product or service.[i]  The use of a trademark in identifying the commercial source of products and services can facilitate identification of products and services with the quality and other characteristics consumers would expect.[ii]  In recent months, “made in China”, although not an actual registered trademark is likened to one and has taken on a negative connotation in many locations in the world.[iii]  Consumers have grown weary of products made in China based upon animal deaths attributed to tainted pet food[iv], toxins found in toothpaste[v], toy recalls based upon lead paint[vi], toxic fish[vii], faulty electronics[viii], and the like.


Trademarks also function as an incentive for manufacturers, providers and suppliers, to provide consistency in quality of their products or services.[ix]  Franchising is a business model that is heavily based on promoting a trademark, such as, McDonalds, Subway, Pepsi, Dunkin Donuts, etc.[x]  In addition, a trademark can be seriously damaged by an adverse event, take for example, Chi-Chi’s a popular Mexican chain of restaurants.[xi]  In 2004 the chain went out of business, losing 65 restaurants, after a hepatitis A outbreak at a single restaurant.[xii]  Trademarks are a valuable resource as illustrated by the trademark valuations shown below:


C. COPYRIGHTS


Another valuable form of intellectual property in the U.S. is copyrights, which protect original works of authorship including literary works, dramatic works, musical works, and artistic works.  The artistic works include poetry, novels, movies, songs, computer software, architectural drawings, and the like.[xiii]  Between 1990 and 2005 approximately 600,000 copyrights were claimed with the U.S. Copyright Office each year, as can be seen below. [xiv]  The estimated value of all copyright industries in 2005 grew to $1,388 billion ($1.39 trillion) or 11% of U.S. gross domestic product (GDP) or the market value of all final goods and services produced within the U.S. in 2005.[xv] 


The table shown below illustrates the number of copyrights that were filed each year between 1995 and 2005, over 600,000 per year for 13 of the 16 years shown.[xvi]




FIG. 4.  Number of Copyrights Claimed per Year at U.S. Copyright Office


Source: U.S. Patent and Trademark Office


A copyright is created automatically when a new work is created and fixed in a tangible medium of expression.[i]  There is no requirement to follow formal procedures to obtain a copyright such as filing a copyright notice, registration of the work, or any other like procedure.  A painting, a letter, a photograph, a software program, an article, a book and this paper are all copyrighted when they are fixed in a tangible medium of expression.[ii]  The creator of a work is typically the copyright holder/owner and if two or more individuals jointly create a work, then they are joint holders/owners of the copyright, with equal rights in the work.[iii]  A work created as a part of an individual’s employment, is classified as a “work for hire” and the copyright usually belongs to the employer, unless the employer had explicitly waived his rights to the copyrighted work.[iv]  If the work was created by a contract programmer, an entrepreneur, an independent contractor, a freelance photographer, a self-employed author, and the like, then the ownership of the copyright depends on the nature of the work and the prior understanding of the parties.[v]  Frequently in publishing agreements, software development, music contracts, film rights, the copyright is transferred or assigned to another person or entity.[vi]  It is common for a copyright holder to be an individual or organization other than the individual or organization that created the copyrighted work.[vii] 


Even though copyrights attach to any work that is fixed in a tangible medium, a party needs to register the copyright with the U.S. Copyright Office to enjoin an infringer and/or to recover actual damages.[viii]  Statutory damages, as well as attorney fees, are available if works are promptly registered with the Copyright office.[ix]  The table in Appendix III illustrates how important and critical copyrights are to the U.S. economy.[x]


 IV. U.C.C. REVISED ARTICLE 9 – CREATING AN ENFORCEABLE SECURED INTEREST IN A DEBTOR’S ASSETS – THE SECURITY AGREEMENT


Revised Article 9 U.C.C., §9-203 affords a creditor an enforceable security interest in a debtor’s personal property that the debtor has rights in or that the debtor has the power to transfer to the creditor (i.e., a third party).[xi]   The debtor as the collateral owner is estopped (i.e., doctrine of estoppel) from avowing ownership against a secured party whom the debtor granted a security interest if the owner (i.e., debtor) granted the creditor apparent power over the property.[xii]  An authenticated security agreement is a way in which the debtor can verify his intent to participate in a security agreement, wherein the agreement describes the collateral (per §9-203(b)(3)(A)).[xiii]


V. U.C.C. REVISED ARTICLE 9 – PERFECTION OF THE SECURITY INTEREST – FILING A FINANCING STATEMENT


Filing a financing statement is generally the most common method of perfection of a security interest in a debtor’s goods (See e.g., §9-310).[xiv]  Revised Article 9 provides that a filed financing statement is adequate if it identifies the debtor’s name, the secured creditor’s name and the financing statement describes the collateral, as required by revised Article 9 (See e.g., §9-502).[xv]  The debtor can authorize the filing without signature, for example, by providing that the debtor has authenticated the security agreement by appropriately listing the collateral on the financing statement, according to §9-509 (b).[xvi]  The filing of the financing statement according to Revised Article 9 is also simplified by requiring the filing be done in a centralizing location, per §9-501.[xvii]


The U.C.C. revised Article 9 affords rules that lay out the responsibilities of the filing officers and it outlines the filing office where the financing statement must be filed, along with the payment filing fee requirements (See e.g., §9-516 (a)).[xviii]


VI. PERFECTION OF PATENTS


Article 1, Section 8, Clause 8 of the U.S. Constitution gives Congress the power “to promote the progress of science and useful arts by securing for limited times to … inventors the exclusive right to their respective writings and discoveries”[xix]  Through the Section 8 constitutional clause patent owners have a limited period during which they can exclude other parties from exploiting the patent without the consent of the patent owner.[xx]


Congress enacted the U.S. Patent Act under the constitutional mandate.[xxi]   Federal patent law, codified as Title 35 of the U.S. Code, and known as The U.S. Patent Act, contains the Federal statutes governing patent law in the United States.[xxii] 


According to the Uniform Commercial Code, a lender must perfect its secured interest in an intangible asset by filing a financial statement with the Secretary of State, in the jurisdiction where the debtor resides.[xxiii]  As established by the Supremacy Clause of the U.S. Constitution, Federal law preempts state law.[xxiv]  The Supremacy Clause of the U.S. Constitution establishes that the Constitution, Federal Statutes, and U.S. treaties are “the supreme law of the land.”[xxv]  The Supremacy Clause of the U.S. Constitution establishes that when a Federal statute expresses a filing requirement, the statute preempts state-law provisions for perfecting security interests.[xxvi]  In addition, Article 9 subordinates itself if a statute, regulation, or treaty of the United States preempts the Article.”[xxvii]


The question in each of the following cases is whether and to what degree Federal law preempts state law under the Supremacy Clause.[xxviii]  Section 9-109 in tandem with 9-311, provide that Article 9 “steps back’ when a federal law preempts it.  Revised Article 9 states in such cases that a financial statement is neither necessary nor sufficient to perfect a secured interest.[xxix]  Patent law is silent with respect to perfecting a secured interest in patents (e.g., utility, plant and design patents, the three statutory patent types).[xxx]  According to 35 U.S.C. § 261 of the Patent Act, applications for patents, patents, and interests therein “shall be assignable in law by an instrument in writing.”[xxxi]  However, “the assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the United States Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.”[xxxii]  In other words, if the lender properly perfects under U.C.C. article 9 but fails to file an assignment of the patent with the U.S. Patent and Trademark Office (USPTO), the lender runs the risk of preemption by Federal patent law.[xxxiii]



  1. THE FIRST SPEED BUMP:

CONFUSION ABOUT SECURED INTERESTS IN PATENTS


The first speed bump on the road to greater economic prosperity or to continued prosperity is the confusion surrounding secured interests in patents.[xxxiv]  A lender cannot be certain if a valid secured interest is obtained in a patent, because it is not clear if the Federal patent law or U.C.C. Article 9 state law applies.[xxxv]  One has only to look to various cases to see the confusion that persists regarding secured transactions in patent law.[xxxvi]


The Bankruptcy Appellate Panel of In re Cybernetic Services, Inc. v. Matsco, Inc., 239 B.R. 917 (9th Cir. BAP 1999) held that (1): the Patent Act, did not preempt state law governing the perfection of security interests, seeing that the state U.C.C. law was applied to perfection of security interests in patents, and that (2): a creditor properly perfected its security interest in a patent by recording its interest in accordance with the requirements of Article 9 of the California Commercial Code.[xxxvii]   In the case In re Cybernetic Services, the U.S. Court of Appeals for the Ninth Circuit determined that the Patent Act did not explicitly require the filing of a security interest in a patent with the U.S. Patent and Trademark Office; thus, the court determined that a filing per Article 9 of the U.C.C. was proper to perfect a security interest in a patent.[xxxviii] 


In Cybernetic Services, Matsco was given a security interest in all Cybernetic’s assets, including one of Cybernetic’s intangible assets, a patent in a data recorder.[xxxix]  Matsco perfected its security interest by filing a financing statement with the California Secretary of State, the location of the debtor, as required by Article 9 of the U.C.C.[xl]  Subsequently, Cybernetic Services filed for Chapter 7 bankruptcy, and Matsco sought to foreclose on their secured interest in the patent pursuant to the Article 9 filing.[xli]   The Ninth Circuit concluded that the Patent Act preempted state filing only with respect to ownership interests in patents, but not with respect to secured interests in patents.[xlii]   The Ninth Circuit further determined that Article 9 required Federal filing only when the Federal statute in question provided for national filing of security interests and concluded that the Patent Act did not preempt Article 9 because the Patent Act involved only ownership interest transfers.[xliii]


A similar result was decided in the court case, Holt v. United States, 73-2 USTC P 9680, (1973) the creditor/plaintiff was granted a security interest in the debtor’s/defendant’s collateral including patent applications and had perfected the security interest under Article 9 of the Uniform Commercial Code.[xliv]  Subsequently, a tax lien was issued and the debtor’s tangible assets and its intangible patent applications were sold at a tax sale.[xlv]  The creditor asserted that his interest in the intangible patent application was perfected through a U.C.C. filing, and not subject to the tax lien.[xlvi]  The D.C. District Court held that Article 9 was not preempted by the USPTO Patent Act’s written assignment provision, because Article 9 dealt with security interests rather than assignments.[xlvii]  The court concluded that a security interest could in fact be granted in a patent application because the debtor did not pass title in the patent, and therefore the Federal assignment statute did not apply.[xlviii]


In contrast, in the Supreme Court case Bonito Boat v. Thunder Craft Boats, 489 U.S. 141 (1989), the Supreme Court held that Federal patent law preempted state law[xlix].  In that case, the petitioner, Bonito Boat, designed and developed a hull design for a fiberglass boat.[l]  However, the petitioners did not file an application for a utility or design patent to protect the functional or design features of the hull or the manufacturing process of the boats.[li]   Six years after Bonito Boat had marketed and sold the boat; the Florida Legislature enacted a statute prohibiting others from utilizing a direct molding process to duplicate unpatented boat hulls, and forbid the deliberate sale of such hulls.[lii]  


The petitioner filed an action in a Florida Circuit Court, alleging that respondent had violated the statute by using a direct molding process to duplicate the hull and by knowingly selling a boat with a duplicate hull.[liii]  Under Florida law the Petitioner sought damages, injunctive relief, and an award of attorney’s fees.[liv]  The trial court and the Florida Court of Appeals held and the Florida Supreme Court affirmed respondent’s motion to dismiss the complaint on the grounds that the Florida state statute conflicted with Federal patent law and therefore was invalidated under the Supremacy Clause.[lv]  The Supreme Court held that the Supremacy Clause preempted the Florida statute.[lvi] The Court held that the Florida statute was preempted by federal patent law, stating that, “States may not offer patent-like protection to intellectual creations which would otherwise remain unprotected as a matter of federal law.”[lvii]


As an interesting aside to the Bonito case, on October 28, 1998, the Vessel Hull Design Protection Act (VHDPA) was signed into law, under the Digital Millennium Copyright Act (DMCA).[lviii]  The VHDPA affords the original vessel hull design owner a number of exclusive rights, provided that the owner files a application for registration for the hull design within two years of the design being made public.[lix]


VII. TRADEMARKS


 Trademark protection in the United States is based upon Federal, state and common law.[lx]  A trademark is a phrase, a logo, a distinctive name, a figure, a color, a symbol, a sound, etc., that serves as a source identifier for goods, products or services creating certain common law rights that do not require mark registration.[lxi]  A trademark may also be registered under applicable state law trademark statutes.[lxii]  Federal registration of a trademark under the Lanham Act (i.e., USC title 15, chapter 22) establishes the presumption of ownership and the exclusive right to use the mark throughout the United States.[lxiii]   All of the categories mentioned supra, give a party a right to prevent a third party from making use of the mark that would create a “likelihood of confusion.”[lxiv]



  1. THE SECOND SPEED BUMP

CONFUSION ABOUT SECURED INTERESTS IN TRADEMARKS


Comparing patents, trademarks and copyrights in terms of guaranteeing a secured transaction, trademarks are the “least impacting speed bump on the road to continued economic prosperity”, with regard to the case law.[lxv]  The consensus among various court findings is that trademark secured transactions are controlled by the U.C.C. Revised Article 9.[lxvi]


As mentioned supra, the Lanham Act (i.e., the Trademark Act) governs trademarks and provides little clarity concerning the necessary recording requirements for secured transactions.[lxvii]  The Lanham Act does not provide any comprehensive language involving creating security interests in trademarks.[lxviii]  (See e.g., 15 U.S.C. §1060).[lxix]  The Lanham Act does nevertheless address competing interests between lenders involving assignments of trademarks by stating that an assignee has priority over a competing purchaser if it records its assignment “within three months after the date of a subsequent purchase or prior to the assignment.”[lxx]  The Lanham Act does not define “an assignment”, but the understanding of the term is as an absolute sale of the rights in a trademark.[lxxi] 


The definition suggests that the secured transaction priority provisions contained with the Lanham Act do not apply to security interests in trademarks.[lxxii]  Accordingly, courts have not found that the Lanham Act preempts U.C.C. Article 9 filing requirements.[lxxiii]  See e.g., In re Together Development Corporation, 227 B.R. 439 (United States Bankruptcy Court, D. Massachusetts 1998).[lxxiv]  Thus, a secured party must file a financing statement with the Secretary of the State where the debtor resides, in order to perfect a security interest in a trademark.[lxxv]  In the case, In re TR-3 Industries, 41 B.R. 128, 131 (Bankr.C.D.Cal.1984) the bankruptcy court put forth the conclusion of law that “It was not the purpose or intent of Congress in enacting the Lanham Act to provide a method for the perfection of security interests in trademarks, trade names or applications for the registration of the same.”[lxxvi]


The legislative history of the Lanham Act and its predecessors failed to address[lxxvii] whether a security interest in a trademark needs to be filed under Federal law.[lxxviii]  The silence regarding trademarks most likely indicates that Congress failed to consider the issue.[lxxix]  To date, there has been little dissent among the courts regarding security interests in trademarks; the consensus is that the state U.C.C. law controls them.[lxxx]  However, pronouncements by various courts have commonly incorporated dicta regarding potential difficulties with perfecting the secured transaction in the trademark.[lxxxi]  


In the case of In Matter of Roman Cleanser Co., 43 B.R. 940, (1984), Justice George Brody held: (1) a secured interest in a Federal trademark is not an assignment subject to the filing requirements of the Lanham Act; (2) therefore, the creditor’s perfection of its secured interest under the Uniform Commercial Code in the debtor’s Federal trademark was valid; and (3) the fact that the creditor did not have a corresponding security interest in machines and equipment, necessary to produce products to which the trademarks had attached, did not render a security interest in the trademarks themselves unenforceable.[lxxxii]  In the bankruptcy case, Trimarchi v. Together Development Corp., 255 B.R. 606, (2000), the creditor objected to the sale of Chapter 11 debtor’s trademark in which creditor claimed a security interest.[lxxxiii]  The Court ruled that the creditor’s security interest in the trademark was unperfected, because although the creditor had filed the U.C.C. financing statement with the United States Patent and Trademark Office, he did not file the financing statement with the requisite Secretary of State.[lxxxiv]  Upon appeal, the District Court held that: (1) the Lanham Act’s registration provision does not preempt U.C.C. filing requirements for the perfection of a security interest in a trademark, and (2) creditor failed to file in accordance with New York’s U.C.C. and, thus, did not perfect his security interest in debtor’s trademark.[lxxxv]  In the bankruptcy case, In re Topsy’s Shoppes, Inc. of Kansas, 118 B.R. 797 (1990) the court held that the security agreement and the financing statement, which described another creditor’s security interest including general intangibles, adequately defined security interest in debtor’s franchise rights, trademarks and trade names.[lxxxvi]


Even though the courts have favored secured interests in trademarks, the Federal statutory provision controlling trademark assignment is very similar in its wording to the corollary prerequisite in the Patent Act.[lxxxvii]   This could potentially lead to the anomaly that exists for patents between Article 9 of the U.C.C. and Federal patent law.[lxxxviii] 



  1. COPYRIGHTS (REGISTERED AND UNREGISTERED):

THE THIRD SPEED BUMP CONFUSION ABOUT SECURED INTERESTS IN COPYRIGHTS


Federal and state law copyright issues concerning secured transactions are addressed in a number of bankruptcy cases with divergent outcomes.[lxxxix]  Copyrights are classified as general intangibles under § 9-102(42) of the Uniform Commercial Code.[xc]  Article 9 provides that the proper place to file a financing statement in order to perfect a security interest in general intangibles be with the applicable office of the Secretary of State (i.e., debtor’s state of residence).[xci]  The related official U.C.C. comment with respect to copyrights affirms that this first step-back clause does not prohibit all security interests in copyrights created under U.C.C. Article 9 coverage, just those security interests for which the Federal Copyright Act “governs the rights” of relevant parties.[xcii]  The second step-back provision, per U.C.C. § 9-311, states that the filing of a financing statement per Article 9 is not necessary or effective to perfect a security interest in property.[xciii]  Subject to a U.S. statute or treaty that provides for national or international registration or national or international certificate of title or which specifies a place of filing different from that specified in Article 9 for filing of the security interest.[xciv]


A. PERFECTION OF COPYRIGHT SUBJECT TO FEDERAL STATUTE,


REGULATION OR TREATY


Section §9-109 (c) (1) indicates Article 9 does not apply to the extent it is preempted by statute, regulation or treaty of the United States.[xcv]  Section 9-311 (a)(1) of Article 9 of the U.C.C. states that 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” preempts the Article 9 filing requirements of Section §9-311 (a).[xcvi]  These provisions mentioned supra are referred to as “step back” provisions signifying that Article 9 of the U.C.C. perfection provisions “step back” when they are preempted by Federal law.[xcvii]  Copyrights are intellectual property and as such are subject to Federal statute, wherein “The Copyright Act” specifically addresses priority [See e.g., 17 U.S.C §205 (c)] with regard to transfer of copyright interests.[xcviii]  The act provides that a copyright must be registered with the U.S. Copyright Office before a security interest can attach.[xcix]  It indicates that the transfer first recorded has priority if it is recorded [See e.g., 17 U.S.C §205 (d)] “within one month of its execution within the United States or within two months of its execution outside the United States.”[c]  Based upon the priority and recordation language discussed supra, courts have found that the Copyright Act preempts U.C.C. Article 9 perfection requirements when dealing with registered copyrights.[ci]  


In the landmark case, In re Peregrine Entertainment, Ltd., 116 B.R. 194, (United States District Court, C.D. Cal., 1990),[cii]  the District Court held that: (1) any state recordation system involving interests in copyrights was preempted by the U.S. Copyright Act, so that a security interest in copyright could be perfected only by a suitable filing with the Copyright Office as opposed to filing a U.C.C.-1 financing statement with the debtors Secretary of State (therefore creditor’s security interest in copyrights was unperfected);[ciii] (2) the Federal Copyright Act priority system preempts state priority system with respect to security interests between inconsistent transfers of copyright interests;[civ] and (3) the creditor’s security interest in debtor’s copyrights was not perfected through filing with U.S. Copyright Office was of lesser priority than debtor-in-possession’s hypothetical judicial lien on such interests.[cv]  Hence, a secured party must record its security interest in the Copyright Office to perfect its interest.[cvi]  A work has copyright protection at its various stages of production, but the copyright is not registered until the work is completed.[cvii] Courts have found that the Copyright Act does not preempt Article 9 with respect to unregistered copyrights, since the Copyright Act does not address unrecorded copyrights.[cviii]  


In the 2002 case, In re World Auxiliary Power Co., the California bankruptcy court held that in order to perfect a security interest in a copyright the creditor either had to register the copyright by filing a notice with the U.S. Copyright Office or if the copyright was unregistered, the creditor was required to file a financing statement with the Secretary of State where the debtor resided, as required under the state’s Uniform Commercial Code. [cix]  The court further held that recording a security interest in an unregistered copyright with the U.S. Copyright Office was not sufficient to preserve the creditor’s priority interest in the unregistered work because it did not provide “constructive notice” as required by the Copyright Act.[cx]  Both the In re World Aux. Power Co. and the In re Peregrine courts confirm that the proper method of securing interests in registered copyrights is by recordation with the Copyright Office, and not a U.C.C. filing.[cxi]


IX. ABA APPROACH TO CREATING SECURED TRANSACTIONS


IN GENERAL INTANGILES


The ABA has proposed a draft bill referred to as the Federal Intellectual Property Security Act (“FIPSA”), which is posted on the ABA website at the following address: http://www.abanet.org/intelprop/106legis/fipsa.html and was presented by Michael K. Kirkland to the U.S. House of Representatives on June 24, 1999.[cxii]   The ABA approach, over a decade in the making, recommends bringing increased confidence into recording of secured interests in general intangibles, specifically intellectual property.[cxiii] 


In addition to the ABA approach, there are various other proposals that have been put forth to address secured interests in intellectual property.  The ABA approach and the other proposals are beyond the scope of this paper.[cxiv]


X. SUMMARY


Intellectual property, specifically patents, copyrights and trademarks are a driving force in the U.S. economy and will continue to grow in importance in the future.  Secured interests in intangible assets have to be clearly established, easily searchable and uncomplicated to create.  By doing so, their value will be recognized by financial markets in support of a company’s overall asset wealth.  Increased clarity with respect secured transactions in intangible assets will lead to continued economic prosperity in the United States and its ability to compete in a competitive world marketplace. 



APPENDIX I



[i] 17 U.S.C. § 102 which states “Copyright protection subsists, in accordance with this title, in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”


[ii] Id. 


[iii] The Copyright Law in 17 U.S.C. §101 defines a “joint work” as “a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.”


[iv] 17 U.S.C. 201 (b) “Works Made for Hire.— In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.”


[v] 17 U.S.C. 201.


[vi] Id.


[vii] Id.


[viii] 17 U.S.C. § 501.


[ix] 17 U.S.C. § 504(a) (2004) defines remedies for infringement: damages and profits.


[x] See Stephen Siwek, Copyright Industries in the U.S. Economy, Economists Incorporated, (2006).


[xi] See Willa E. Gibson, A Comprehensive Review of Revised Article 9, page 33, Carolina Academic Press (2006).


[xii] Id at page 34.


[xiii] Id at page 34.


[xiv] Id at page 50.


[xv] Id at page 50.


[xvi] Id at page 50.


[xvii] Id at page 50.


[xviii] Id at page 50.


[xix] See U.S. Constitution, Article I, Section 8.


[xx] Id.


[xxi] See U.S. Constitution, Article I, Section 8.


[xxii] See 35 U.S.C.A. § 261 relates to ownership and assignment.


[xxiii] See U.C.C. § 9-401 relates to the proper place to file in order to perfect a security interest.


[xxiv] See U.S. Const. art. VI, sec. 1, cl. 2.  This clause relates to the preemption doctrine, which arises from the supremacy clause of the United States Constitution.


[xxv] Id.


[xxvi] Id.


[xxvii] See U.C.C. § 9-109(c)(1) (2006).


[xxviii] See Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 CLMLR 1645, 1656 (1996).


[xxix] Id.


[xxx] See 35 U.S.C.A. § 261 relates to ownership and assignment.


[xxxi] 35 U.S.C. § 261.


[xxxii] Id.


[xxxiii] See U.S. Const. art. VI, sec. 1, cl. 2.  This clause relates to the preemption doctrine, which arises from the supremacy clause of the United States Constitution.


[xxxiv] See Pauline Stevens, Security Interests in Patents and Patent Applications?, 9 UPTJTLP 2, 2, (2005).


[xxxv] Id.


[xxxvi] See e.g., the holding in Moldo v. Matsco, Inc., 252 F.3d 1039 (9th Cir. 2001) that a creditor who filed a U.C.C.-1 financing statement properly perfected a security interest in a patent even if it did not also make a filing with the USPTO versus the holding in Holt v. United States


[xxxvii] See In re Cybernetic Services, Inc. v. Matsco, Inc., 239 B.R. 917, (9th Cir. BAP 1999).


[xxxviii] See Jason A. Kidd, The Ninth Circuit Falls Short While Establishing the Proper Perfection Method for Security Interests in Patents in In Re Cybernetic Services, 36 CRLR 669, 669 (2003).


[xxxix] Id at 670.


[xl] Id.


[xli] Id at 669.


[xlii] Id.


[xliii] Id at 673.


[xliv] See Van Mahamedi, Recording Security Interests in Patents: Accepting a Traditional Federal System to Preserve the Policies of Patent Law, 2 BUJSTL 15, 11 (1973).


[xlv] Id.


[xlvi] Id.


[xlvii] Id.


[xlviii] Id.


[xlix] See Bonito Boat Bonito Boats v. Thunder Craft Boats, 489 U.S. 141, 168 (1989).


[l] Id at 164.


[li] Id at 144.


[lii] Id.


[liii] Id.


[liv] Id at 145.


[lv] Id at 144.


[lvi] Id at 168.


[lvii] See New Evidence on the Presumption Against Preemption: An Empirical Study of Congressional Responses to Supreme Court Preemption Decisions, 120 HVLR 1604, 1626 (2007).


[lviii] The Vessel Hull Design Protection Act was signed into law on October 28, 1998. It provides the design owner protection against copying the shape of boat hulls and decks at market introduction, before any registration application is filed.


[lix] Id.


[lx] Id.


[lxi] See Federal Trademark Act of 1946 (Known as Lanham Act).


[lxii] Id.


[lxiii] Id.


[lxv] See Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 CLMLR 1645, 1656 (1996).


[lxvi] Id.


[lxvii] See Willa E. Gibson, A Comprehensive Review of Revised Article 9, Carolina Academic Press (2006) at page 59.


[lxviii] Id.


[lxix] See 15 U.S.C. §1060 relates to trademark assignment.


[lxx] Id.


[lxxi] Id.


[lxxii] See Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 CLMLR 1645, 1656 (1996).


[lxxiii] Id at 1668.


[lxxiv] See e.g., In re Together Development Corporation, 227 B.R. 439 (United States Bankruptcy Court, D. Massachusetts 1998).


[lxxv] Id at [FN59].


[lxxvi] See In re TR-3 Industries, 41 B.R. 128, (Bkrtcy.Cal.,1984).


[lxxvii] See Marci Levine Klumb, Perfection of Security Interests in Intellectual Property: Federal Statutes Preempt Article 9, 57 GWLR 135, [FN358] (1988).


[lxxviii] Id.


[lxxix] Id at 1719.


[lxxx] Id at 1717.


[lxxxi] Id at 1656.


[lxxxii] Id.


[lxxxiii] Id.


[lxxxiv] Id.


[lxxxv] Id.


[lxxxvi] Id.


[lxxxvii] Id at 1656.


[lxxxviii] Id.


[lxxxix] Id.


[xc] See U.C.C. § 9-102(42) (2001).


[xci] See U.C.C. § 9-401 (2001) refers to the place for filing a financial statement.


[xcii] See In re World Auxiliary Power Co., 303 F.3d 1120, 1127 (C.A.9 (Cal.), 2002).


[xciii] Id.


[xciv] Id.


[xcv] Id at page 58.


[xcvi] See Willa E. Gibson, A Comprehensive Review of Revised Article 9, page 58, paragraph 3, Carolina Academic Press (2006).


[xcvii] Id.


[xcviii] Id.


[xcix] Id.


[c] Id.


[ci] Id.


[cii] See In re Peregrine Entertainment, Ltd., 116 B.R. 194, United States District Court, C.D. Cal., (1990).


[ciii] Id.


[civ] Id.


[cv] Id.


[cvi] Id at 198.


[cvii] Id at 200.


[cviii] See e.g., In re World Auxiliary Power Company, 303 F.3d 1120 (9th Cir. 2002).


[cix] Id.


[cx] Id at 1128.


[cxi] See In re Peregrine Entertainment, Ltd., 116 B.R. 194, United States District Court, C.D. Cal., (1990).


[cxii] See statement of Michael K. Kirk, Executive Director of the American Intellectual Property Law Association before the Subcommittee on Courts and Intellectual Property Committee on the Judiciary United States House of Representatives at the Oversight Hearing on the Report of the U.S. Copyright Office on Copyright and Digital Distance Education and Intellectual Property Security Registration, June 24, 1999.


[cxiii] Id.


[cxiv] For an excellent discussions of the various proposals that have been put forth to address secured interests in intellectual property, see e.g., Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 CLMLR 1645, 1656 (1996).   In addition, see William J. Murphy, Proposal for Centralized and Integrated Registry for security Interests in Intellectual Property, 41 IDEA 279, 351-356 (2002). 


Appendix II




Table 1: Partial list of U.S. Patents Involving Cell Phone Technology


Appendix III




FIG. 6.  Copyright Information



[i] Id. 



[ii] See Xuan-Thao N. Nguyen, Shifting the Paradigm in E-Commerce: Move Over Inherently Distinctive Trademarks –The E-Brand, I-Brand and Generic Domain Names Ascending to Power?, 50 AMULR 937, 941, 942, (2001).


[iii] See e.g., Katie Connolly, Made In China, In recent months, Chinese manufacturing has turned everything from stationery sets to hammocks into household hazards, Newsweek International Addition (July 8, 2007).  See article at http://www.msnbc.msn.com/id/19638526/site/newsweek (last visited August 19, 2007). 


[iv] See e.g., Calum MacLeod, China admits tainted food link, USA Today (April 26, 2007).  See article at http://www.usatoday.com/money/industries/2007-04-26-pet-food-china_N.htm (last visited September 2, 2007).  Chinese officials for the first time admitted that ingredients exported from China to formulate pet food contained a banned chemical, investigating two companies’ roles in one of the USA’s largest animal-food recalls.


[v] See e.g., Katie Connolly, Made In China, In recent months, Chinese manufacturing has turned everything from stationery sets to hammocks into household hazards, Newsweek International Addition (July 8, 2007).  See article at http://www.msnbc.msn.com/id/19638526/site/newsweek (last visited August 19, 2007). 


[vi] See More toys recalled for lead paint hazards, CNN Money (August 22, 2007).  See article at http://money.cnn.com/2007/08/22/news/toy_recalls/index.htm?eref=rss_topstories (last visited September 2, 2007).  Following the recent recalls for toys made in China the U.S. Consumer Product Safety Commission issued more warnings regarding lead paint in toys.


[vii] See Possibly Tainted Fish From China Detained by FDA for Inspection, Fox News (June 28, 2007).  See article at http://www.foxnews.com/story/0,2933,287210,00.html (last visited September 2, 2007).  “The Food and Drug Administration announcement was the latest in an expanding series of problems with imported Chinese products that seemingly permeate U.S. society.”


[viii] See Daniel Lyons, Lessons From The Trenches China Syndrome (September 5, 2005).  See article http://www.forbes.com/home/free_forbes/2005/0905/088.html (last visited September 2, 2007). 


[ix] See Noah D. Genel, Keep It Real: A Call for a Broader Quality Control Requirement in Trademark Law, 8 FDMIPMELJ 269 (1997)


[x] See Marc S. Mayerson, Insurance Recovery for Losses from Contaminated or Genetically Modified Foods, 39 TTIPLJ 837, 868, (2004).


[xi] See Marc S. Mayerson, Insurance Recovery for Losses from Contaminated or Genetically Modified Foods, 39 TTIPLJ 837, 868, (2004).


[xii] See Marc S. Mayerson, Insurance Recovery for Losses from Contaminated or Genetically Modified Foods, 39 TTIPLJ 837, 868, (2004).


[xiii] See Lance C. McCardle, Despite Congress’s Good Intentions, The DMCA’s Anti-Circumvention Provisions Produce a Bad Result — A Means to Create Monopolies, 50 LYLR 997, 1000, (2004).


[xiv] See U.S. Copyright Office statistics.  Refer to the following website for annual reports of copyright registrations: http://www.copyright.gov/reports/, (last viewed August 19, 2007).


[xv] See Stephen E. Siwek, Copyright Industries in the U.S. Economy, The 2006 Report, (2006).


[xvi] See Stephen E. Siwek, Copyright Industries in the U.S. Economy, The 2006 Report, (2006).



[i] See http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.pdf for patent statistics since 1963 (last viewed September 2, 2007).



[ii] See David O. Taylor, Wasting Resources: Reinventing the Scope of Waiver Resulting from the Advice-of-Counsel Defense to a Charge of Willful Patent Infringement, 12 TXIPLJ 319, 320-321, (2004). 


[iii] See 35 U.S.C. § 271(a) which defines infringement of a patent at http://www.uspto.gov/web/offices/pac/mpep/documents/appxl_35_U_S_C_271.htm (last visited August 19, 2007).


[iv] See Polaroid Corp. v. Eastman Kodak Co., 641 F. Supp. 828, 829, 228 U.S.P.Q. (BNA) 305, 305-06 (D. Mass. 1985).


[v] Id.


[vi] See Roger D. Blair, An Economic Analysis of Damages Rules in Intellectual Property Law, 39 WMMLR 1585, 1236-1237, (1999).


[vii] See Gideon Parchomovsky; R. Polk Wagner, Patent Portfolios, 154 UPALR 1, 49-50 (2005).


[viii] See Id.  In addition, there are numerous books that have been written on patent licensing, for example, See e.g., Rivette et al., “Rembrandts in the Attic: Unlocking the Hidden Value of Patents,” Harvard Business School Press (1999); or See Paul S. Hoff, “Inventions in the Marketplace: Patent Licensing and the U.S. Antitrust Laws,” Aei Pr (1986); or See Harold Einhorn, “Patent Licensing Transactions,” Lexis (2007).


[ix] See Nicholas P. Sullivan, “You Can Hear Me Now: How Microloans and Cell Phones are Connecting the World’s Poor to the Global Economy,” Wiley (2007).


[x] See James W. Cortada, “The Digital Hand: Volume II: How Computers Changed the Work of American Financial, Telecommunications, Media, and Entertainment Industries,” Oxford University Press (2006); See Lawrence D. Graham, “Legal Battles that Shaped the Computer Industry,” Lawrence D. Graham (1999).


[xi] See Sherry Boschert, “Plug-in Hybrids: The Cars That Will Recharge America,” New Society Publishers (2006).  See Curtis D. Anderson, “Electric and Hybrid Cars: A History,” McFarland & Company (2005).  According to a January 2, 2006 article in “Hybrid Car Review” the number of hybrid vehicles sold in the United States increased from 83,924 units in 2004 to 205,748 units in 2005, an increase of 245%.


[xii] The following comments involving genetic sequencing by Dr. Nathan Slotnick, was based on a CNN interview that took place December 19, 1999.  Humans through our own unique DNA genetic makeup are predisposed to certain conditions and diseases.  Determining the DNA sequence through the human genome project, will allow researchers, health care professionals, etc., to better define diseases and identify those individuals for cure and/or true preventative medicine.  If someone knows years in advance of an increased risk in developing atherosclerosis, that individual may choose diets and activities, and his/her doctor could choose medications that could lead to a healthier life. In the near future, we will be able to design medications specifically based on an individual’s own genetic makeup. Ultimately we could correct the DNA sequence itself to “cure” a genetic disease in an individual.


[xiii] See Aaron Barlow, “The DVD Revolution: Movies, Culture, and Technology,” Praeger Publishers (2004). 


[xiv] See Peter Tschmuck, “Creativity and Innovation in the Music Industry,”  Springer (2006). 


[xv] See e.g., Robert E. Krebs, “Groundbreaking Scientific Experiments, Inventions, and Discoveries of the Middle Ages and the Renaissance (Groundbreaking Scientific Experiments, Inventions and Discoveries through the Ages),” Greenwood Press (2004).


[xvi] See e.g., Jie Jack Li, “Laughing Gas, Viagra, and Lipitor: The Human Stories behind the Drugs We Use,” Oxford University Press (2006); Meika Loe, “The Rise of Viagra: How the Little Blue Pill Changed Sex in America (Sociology)” New York University Press (2006)


[xvii] See Virginia A. Baldwin, “Patent and Trademark Information: Uses and Perspectives,” Haworth Information Press (2004).


[xviii] See Jonathan P. Clewley, “The Polymerase Chain Reaction (PCR) for Human Viral Diagnosis (Pcr for Human Viral Diagnosis)” CRC Press, Inc. (1994).  Polymerase Chain Reaction (PCR) is a technique that provides a very sensitive method of amplifying small quantities of DNA.


[xix] See The National Society of Professional Engineers (NSPE) recognized the work of electrical engineer Greatbach in developing the implantable pacemaker (U.S. Patent 3,057,356), in 1983 as “one of two major engineering contributions to society during the past 50 years.” Greatbatch licensed his patent to Medtronic in 1961.  (See e.g., Electronic Design article dated October 27, 2003 by Roger Allan, “A Short History Of The Pacemaker”.)


[xx] See e.g., BBC News article dated October 4, 2006 at http://news.bbc.co.uk/go/pr/fr/-/2/hi/technology/5403588.stm (last visited August 19, 2007).


[xxi] See e.g., U.S. Census Bureau data at http://www.census.gov/mp/www/cpu/fact_of_the_day/005705.html (last visited August 19, 2007).


[xxii] See e.g., MSNBC article dated February 26, 2007, Hybrid Sales Growth Slowed in 2006 at http://www.census.gov/mp/www/cpu/fact_of_the_day/005705.html (last visited August 19, 2007).


[xxiii] See e.g., CNNMoney.com article by Bethany McLean, A Bitter Pill Prozac made Eli Lilly. Then along came a feisty generic maker called Barr Labs. Their battle gives new meaning to the term ‘drug war.’,dated August 13, 2001.  The article is available at http://money.cnn.com/magazines/fortune/fortune_archive/2001/08/13/308077/index.htm, (last visited August 19, 2007).


[xxiv] See Edwin Bailey, Genetic Engineering and Biotechnology News article dated August 1, 2006, BioMarket Trends (Overview of the Global Pharmaceutical Market).  See Madhu Agrawal, Global Competitiveness in the Pharmaceutical Industry: The Effect of National Regulatory, Economic, and Market Factors, Pharmaceutical Products Press (1999).


[xxv] See Library of Congress Copyright Office Notice of Inquiry In re Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, (2002).


[xxvi] On April 9, 2007 Steve Jobs, Apple’s CEO announced that the 100 millionth iPod® had been sold as well as 2.5 billion songs, 50 million TV shows and over 1.3 million movies. 


[xxvii] See USPTO various class (e.g., 455) and subclass (e.g., 551 and 555) searches.


[xxviii] See http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&p=1&u=%2Fnetahtml%2FPTO%2Fsearch-bool.html&r=0&f=S&l=50&TERM1=455%2F550.1&FIELD1=ORCL&co1=AND&TERM2=&FIELD2=&d=PTXT for a search of class 455 and subclass 550.1 on the USPTO website (last visited September 2, 2007). 


[xxix] Partial list of “spin off” patents from the UPSTO website in Appendix II.


[xxx] See The National Society of Professional Engineers (NSPE) recognized the work of electrical engineer Greatbach in developing the implantable pacemaker (U.S. Patent 3,057,356), in 1983 as “one of two major engineering contributions to society during the past 50 years.” Greatbatch licensed his patent to Medtronic in 1961.  (See e.g., Electronic Design article dated October 27, 2003 by Roger Allan, “A Short History Of The Pacemaker”.)


[xxxi] See Victor Parsonnet, M.D., Power Sources for Implantable Cardiac Pacemakers, American College of Chest Physicians (1972)


[xxxii] See Dolores R. Wallace, Failure Modes in Medical Device Software: An Analysis of 15 Years of Recall Data, Information Technology Laboratory National Institute of Standards and Technology (1995).


[xxxiii] See H. Edward Durham Jr., CVT, LATG, Cardiac Pacemakers in Small Animals – What Technicians Need to Know, Veterinary Technician (2000).


[xxxiv] See Olufunmilayo B. Arewa, Measuring and Representing the Knowledge Economy: Accounting for Economic Reality Under the Intangibles Paradigm, 54 BFLR 1 (2006).


[xxxv] See Patents and Innovation: Trends and Policy Challenges, Organisation for Economic Co-Operation and Development, (2004).  The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently in the years indicated: Japan (1964), Finland (1969), Australia (1971), New Zealand (1973), Mexico (1994), the Czech Republic (1995), Hungary (1996), Poland (1996), Korea (1996) and the Slovak Republic (2000).


[xxxvi] Id at page 16.  The trend in increased R&D in small firms is supported by increased venture capital funding in the activities for new technology-based firms to their advantage.  Patents are critical to new technology-based companies because they often have few tangible assets other than IP, and need patent rights to attract venture capital.


[xxxvii] Id.


[xxxviii] Id.


[xxxix] 15 U.S.C. § 1127 (2006) states in part that “the term “trademark” includes any word, name, symbol, or device, or any combination thereof (1) used by a person, or (2) which a person has a bona fide intention to use in commerce and applies to register on the principal register established by this chapter, to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.”


[xl] See Jamie K. Neal, Federal Trademark Protection: Rebutting the Myth that a Trademark must Stem from a Pre-Existing State Common-Law Right, 38 BRANDLJ 597, 599 (2000).


[xli] See Keith Aoki, Authors, Inventors and Trademark Owners: Private Intellectual Property And The Public Domain, 18 CLMVJLA 191, 234, 235, (1994).


[xlii] See U.S. Code, Title 15,  Chapter 22, Subchapter III, § 1114, refers to remedies for infringement and innocent infringement by printers and publishers.


[xliii] See e.g., USPTO Statistics at http://www.uspto.gov/web/offices/com/annual/2005/060415_table15.html, (last viewed August 19, 2007).



[i] 35 U.S.C. § 101 (2007) refers to Inventions patentable.  The section states “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”



[ii] 35 U.S.C. § 171 (2006) refers to patents for designs.  The section states “Whoever invents any new, original, and ornamental design for an article of manufacture may obtain a patent therefor, subject to the conditions and requirements of this title. 


The provisions of this title relating to patents for inventions shall apply to patents for designs, except as otherwise provided.”


[iii] 35 U.S.C. 161 (2007) refers to plant patents.  The section states that “Whoever invents or discovers and asexually reproduces any distinct and new variety of plant, including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state, may obtain a patent therefor, subject to the conditions and requirements of this title.  The provisions of this title relating to patents for inventions shall apply to patents for plants, except as otherwise provided.”


[iv] See various USPTO documents at http://www.uspto.gov/web/offices/ac/ido/oeip/taf/reports.htm#by_type  (last visited August 19, 2007). 


[v] See various USPTO documents at http://www.uspto.gov/web/offices/com/annual/index.html (last viewed September 2, 2007).


 

 











[i] See Michael P. Avramovich, The Protection of International Investment at the Start of the Twenty-First Century: Will Anachronistic Notions of Business Render Irrelevant the


 

OECD’s Multilateral Agreement on Investment?, 31 JMARLR 1201, 1209-1210, (1998).


[ii] Id at 1211.  Mr. Avramovich illustrates the disparity between fixed assets and the market value of the 500 companies that compose the Standard and Poor’s Stock Price Index.  The fixed assets of those 500 companies ending in December of 1995, were estimated at $1.2 trillion, according to Standard and Poor’s, however those companies had a combined stock market valuation of $4.6 trillion.  The difference of $3.4 trillion (almost 4 to 1) attributed to intangible assets and “networks of intellectual capital” in those firms.


[iii] See Olufunmilayo B. Arewa, Measuring and Representing the Knowledge Economy: Accounting for Economic Reality Under the Intangibles Paradigm, 54 BFLR 1 (2006).


[iv] Id at 6.  Mr. Arewa states “Intangibles now also constitute on average sixty to seventy-five percent of corporate market value.”


 

 











[i] There are three types of patents in the United States, Utility, Plant and Design patents.  Patents are governed by Title 35 of the United States Code.  As quoted by the U.S. Copyright Office a “Copyright is a form of protection provided by the laws of the United States (title 17, U. S. Code) to the authors of ‘original works of authorship,’ including literary, dramatic, musical, artistic, and certain other intellectual works.”  A trademark as quotes by the USPTO, “protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods. Trademarks, unlike patents, can be renewed forever as long as they are being used in commerce.”


 

[i] See U.C.C. § 9-102(a)(42)(2006) that defines General Intangibles.  U.C.C. Article 9 defines general intangibles in the negative, as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment properties, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction.”


[ii] 20 CFR § 435.36 (b)  that states that “Recipients are subject to applicable regulations governing patents and inventions, including government-wide regulations issued by the Department of Commerce at 37 CFR part 401.”


[iii] See U.C.C. § 9-102(a)(42)(2006) that defines General Intangibles.  U.C.C. Article 9 defines general intangibles in the negative, as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment properties, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction.”


[iv] 20 CFR § 435.36 (a) refers to Copyright. The section states that “the recipient may copyright any work that is subject to copyright and was developed, or for which ownership was purchased, under an award. SSA reserves a royalty-free, nonexclusive and irrevocable right to reproduce, publish, or otherwise use the work for Federal purposes, and to authorize others to do so.”


[v] See U.C.C. § 9-102(a)(42)(2006) that defines General Intangibles.  U.C.C. Article 9 defines general intangibles in the negative, as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment properties, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction.”


[vi] 20 CFR § 435.36 (d)(2)(i)(A) refers to trade secrets.


[vii] See U.C.C. § 9-102(a)(42)(2006) that defines General Intangibles.  U.C.C. Article 9 defines general intangibles in the negative, as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment properties, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction.”


[viii] See Pamela Lynn Kunath, Lights, Camera, Animate! The Right of Publicity’s Effect on Computer- Animated Celebrities, 29 Loy. L.A. L. Rev. 863, 876-877, (1996).


[ix] 26 U.S.C. § 197 (2004) involves amortization of goodwill and certain other intangibles.


[x] See Allen Walburn, Depreciation Of Intangibles: An Area of the Tax Law in Need of Change, 30 SANDLR 453, 460, (1993).


[xi] There are three types of patents in the United States, Utility, Plant and Design patents.  Patents are governed by Title 35 of the United States Code.  As quoted by the U.S. Copyright Office a “Copyright is a form of protection provided by the laws of the United States (title 17, U. S. Code) to the authors of ‘original works of authorship,’ including literary, dramatic, musical, artistic, and certain other intellectual works.”  A trademark as quotes by the USPTO, “protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods. Trademarks, unlike patents, can be renewed forever as long as they are being used in commerce.”


[i] See Alice Haemmerli, Insecurity Interests: Where Intellectual Property and Commercial Law Collide, 96 CLMLR 1645, 1656 (1996). 


[ii] See In re World Auxiliary Power Co., 303 F.3d 1120, 1127 (C.A.9 (Cal.), 2002).


[iii] See U.C.C. § 9-104(a) (2001).


[iv] Id at 1653.  Ms. Haemmerli observes that the 1976 Copyright Act was enacted in part to establish that the dominance of federal law in terms of copyright, and as a replacement for the preceding dual state/federal system.


[v] Id at 1655, 1657.  Ms. Haemmerli  points out that the U.C.C., including its comments, provides little guidance regarding secured interests patents and trademarks. Nevertheless, security interests in patents and trademarks are not security interests subject to the statutes of the United States according to statutory analysis.


[vi] See Deborah E. Bouchoux, Protecting Your Company’s Intellectual Property: A Practical Guide to Trademarks, Copyrights, Patents & Trade Secrets, AMACON, April 15, 2001, at viii. 


[vii] Id.


[viii] See Ted Hagelin,  A New Method to Value Intellectual Property, 30 AIPLA Q.J. 353, 356, 357 (2002).


[ix] Id at 356, 357.  Mr. Hagelin identifies four reasons why the valuation of intellectual property assets is more difficult than valuation of tangible assets.  (1) the markets that exist for tangible assets do not exist for intangible intellectual property assets. (2) the deals involving intellectual property transfers are not uniform. (3) the dissimilarity in intellectual property assets, sometimes required by law. (4) lastly and most importantly,  transfers of intellectual property are frequently kept confidential because of their very nature.


[x] The Brookings Institution, 1775 Massachusetts Ave NW, Washington DC 20036 reported that in 1982 tangible assets accounted for 62% of company assets and intangible assets accounted for 38% of company assets.  In 1992, the numbers reversed where intangible assets now accounted for 62% of company assets and tangible assets accounted for only 38% of company assets. 


[xi] See William J. Murphy, Proposal for Centralized and Integrated Registry for security Interests in Intellectual Property, 41 IDEA 279, 351-356 (2002).  In addition, see the American Bar Association’s proposed “Federal Intellectual Property Security Act” at http://www.abanet.org/intelprop/106legis/fipsa.html (last viewed on September 1, 2007).  The American Bar Association’s proposal would create a dual approach permitting the perfection of security interests in federal intellectual property through a traditional state U.C.C. filing or a new type of “Federal financing statement” filed at the Federal level. The proposed system would differ significantly from the current system.  


[xii] There are three types of patents in the United States, (1) Utility, (2) Plant and (3) Design patents.  Patents are governed by Title 35 of the United States Code.  As quoted by the U.S. Copyright Office a “Copyright is a form of protection provided by the laws of the United States (title 17, U.S. Code) to the authors of ‘original works of authorship,’ including literary, dramatic, musical, artistic, and certain other intellectual works.”  A trademark as stated by the USPTO, “protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods.” Trademarks, unlike patents, can be renewed forever as long as they are being used in commerce and the required trademark fees are paid.


[xiii] See William A. Dornbos, Structuring, Financing, and Preserving Security Interests in Intellectual Property, 113 BLJ 656, 656 (1996).


[xiv] Ocean Tomo, LLC was established in 2003 and specializes in understanding, selling and leveraging Intellectual Property assets.  Ocean Tomo, LLC, held an Intellectual Property Auction on June 1, 2007.  Cumulative sales of intellectual property on the auction floor totaled $8,100,503 and the average sale price per lot was $578,607.


[xv] ANOVA INNOVATIONS, LLC is an Ohio based business started in 2007 that specializes in Intellectual property services related to licensing, acquiring, selling, and reselling of intellectual property assets, all using a multitude of media and distribution channels. 


[xvi] See U.C.C. § 9-102(a)(42)(2006) that defines “general intangibles”.  U.C.C. Article 9 defines general intangibles in the negative, as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment properties, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction.”


[xvii] See William A. Dornbos, Structuring, Financing, and Preserving Security Interests in Intellectual Property, 113 BLJ 656, 657 (1996).


[xviii] See William J. Murphy, Proposal for a Centralized and Integrated Registry for Security Interests in Intellectual Property, 41 IDEA 445, 455 (2002).


[xix] Id at 454.  Mr. Murphy found that accountants prefer an objective “hard” number, historical costs that can be obtained through documents supporting a given transaction. Accountants looking at and evaluating the same documents with respect to hard assets tend to come up with the same cost number working independently of each other.


[xx] Id at 454.


[xxi] Id at 454. 


[xxii] See U.C.C. § 9-102(a)(44)(2006).


[xxiii] See William J. Murphy, Proposal for a Centralized and Integrated Registry for Security Interests in Intellectual Property, 41 IDEA 445, 455 (2002).


 

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19 Comments

Filed under Andrew R. Spriegel, Andrew Spriegel, Copyright, Intellectual Property, intellectual property rights, Invention, Inventions, LLC, Patent, Patent Attorney, Patent Law, Patents, Secured Transactions, Trademark, USPTO

19 responses to “To “Pre” or not to “Pre”: “Pre”- Emption, Article 9 and Other Speed Bumps on the Road to Continued Economic Prosperity

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