Pub. 7 2012-2013 Issue 1

May/June 2012 21 Extraordinary Service for Extraordinary Members. an assignment of IP is an absolute transfer of all right, title, and interest to the IP. The manner in which a lender structures a security inter- est in IP may impact the effectiveness and enforceability of the security interest and the viability of the IP collateral. Modern security interests are intended to be enforceable even if the lender fails to obtain title, and need not be struc- tured as an absolute assignment. Lenders have good reasons to avoid becoming “absolute” assignees, including avoiding liability for IP infringement. Structuring the security instru- ment as an outright assignment or conditional assignment presents risks to lenders. If the collateral assignment is interpreted as a current assignment, the lender has owner- ship of the IP and has the associated duties of an owner. a. Specific Structuring Issues for Patents A security interest is not an assignment, grant, or con- veyance of a patent. Patent law adheres to strict concepts of title, in order to protect the ownership of new inven- tions. See Waterman v. Mackenzie , 138 U.S. 252 (1891). Therefore, the law distinguishes “assignments” of patents from all other transfers. Id . at 260. An assignment is the outright transfer of all (or of an undivided portion) of the patentee’s exclusive rights to make, use, and sell an inven- tion. Any lesser transfer includes the grant of a security interest. In re Transp. Design & Tech., Inc., 48 B.R. 635 (S.D. Cal. 1985). In the past, many lenders required borrowers to ex- ecute separate collateral assignments of patents for re- cordation in the U.S. Patent and Trademark Office (PTO), which were typically “absolute” in form with a license back to the borrower. This structure represented an attempt to fit within the language of section 261 of the Patent Act (35 U.S.C. § 261) but, in recent years, this structure is less common. An absolute assignment transfers record title to the patent and could subject the lender to liability for patent infringement. For example, a borrower that has transferred title may have difficulty in showing owner- ship for bringing infringement actions and a lender that is a patent assignee may be an indispensable party in any patent infringement action. An additional risk is that a lender/assignee could become liable for maintenance, prosecution, and exploitation expenses relating to the pat- ent. To mitigate this risk, the current customary practice is to record a counterpart of the security agreement with the PTO or, alternatively, an abbreviated agreement that restates the grant of the security interests, identifies the patent in compliance with PTO recording requirements, and cross-references the security agreement. If a lender takes a security interest under the UCC, the security agreement should include an irrevocable power of attorney allowing the lender to execute and deliver an assign- ment of the patent on the borrower’s behalf upon default. The collateral description can be “all general intangibles,” or it can identify the patent specifically (and must, if the se- cured party is not otherwise claiming all general intangibles or all patents). 2 As discussed above, the lender should file with the PTO a short form document that restates the grant of the security interest, identifies the patent, and references the security agreement. With this filing, bona fide purchas- ers of patents are likely to acquire actual notice of the short form patent security agreement through a PTO search even if the filing does not constitute constructive notice. Moldo v. Matsco (In re Cybernetic Servs., Inc.), 252 F. 3d 1039 (9th Cir. 2001). b. Specific Structuring Issues for Trademarks Trademark law parallels patent law in distinguishing “assignments” from all other types of transfer. SMI Indus. Can. Ltd. v. Caelter Indus. , 586 F. Supp. 808, 822 (N.D.N.Y. 1984). An “assignment” is the transfer of all right, title, and interest to the trademark. Li’l Red Barn, Inc. v. Red Barn Sys., Inc. , 322 F. Supp. 98 (N.D. Ind. 1970). The grant of a security interest, however, is not an assignment as the borrower retains rights in the collateral. Li’l Red Barn , 322 F. Supp. at 107. For trademarks, ownership duties are typically more onerous than for patents. As such, lenders are advised not to take an outright assignment of trademarks, as opposed to a security interest, as this may put ownership duties on the lender and may destroy the trademark. As with patents, a lender is faced with problems associated with a collateral   Security Interests — continued on page 22 For trademarks, ownership duties are typically more onerous than for patents. As such, lenders are advised not to take an outright assignment of trademarks, as opposed to a security interest, as this may put ownership duties on the lender and may destroy the trademark.