Pub. 7 2012-2013 Issue 1

www.nebankers.org 22 Extraordinary Service for Extraordinary Members. assignment, namely, the lender must use the trademark in order to maintain the rights in the trademark; if the lender licenses the trademark back to the borrower, the lender must actively monitor and control the borrower’s use of the trademark, and the lender must receive the goodwill associ- ated with the trademark or the assignment will be void as an assignment in gross. Most lenders do not want to nor are they in a position to be the owner of the mark during the life of the loan. This requires exercising quality control over its borrower/licensee and filing necessary documents. If a trademark is valuable, in addition to a state-level fil- ing of a financing statement, lenders are advised to record a trademark security agreement with the PTO notwithstanding that the Lanham Act does not preempt the UCC (see Part I of this series). As in the case of patents, if a PTO recording is not made, a purchaser for value of the trademark who does not otherwise have notice of the security interest may cut off the lender’s rights. Further, Clorox Co. v. Chem. Bank provides that an absolute collateral assignment instead of a security agreement may risk invalidating the trademark. 40U.S.P.Q2d 1098 (1996) (an absolute assignment of a trademark applica- tion given to a lender as security was invalidated because the assignment was not accompanied by a transfer of the rated goodwill of the assignor’s business). If structured as an as- signment, care must be taken to comply with the technical provisions regarding assignments, especially when the mark is in the “intent to use” stage. See Clorox , 40U.S.P.Q2d 1098. Upon default, the secured lender may sell the collateral only if it (a) owns the trademark, and (b) transfers the good- will associated with the trademark along with the trademark itself. See N.C.P. Mktg. Grp., Inc. v. Blanks , 337 B.R. 230 (D. Nev. 2005) (trademark could not be assumed and as- signed by borrower in possession without consent of licen- sor). Because of this, there are two important provisions in any security agreement covering a trademark. First, the agreement should include an irrevocable power of attorney allowing the lender to execute an assignment on behalf of the borrower upon default. Second, if the collateral description mentions trademarks in general or a specific trademark, the description should include “all goodwill associated therewith” or words to that effect. 3 Goodwill is a “general intangible.” Bank of Wash. v. Burgraff , 687 P.2d 236 (Wash. App. 1984). If the collateral description includes “all general intangibles,” a specific reference to the goodwill associated with the trademark(s) is not necessary. 4 The best course to avert the voiding of a lender’s security interest and to maintain the integrity of the borrower’s trademark collateral is to limit or avoid the use of assignment language in the security agreement and to structure the agreement as a UCC security inter- est. Further, since a UCC security interest would not be considered an assignment, including “intent to use” trademark applications as part of the trademark collat- eral should not cause validity problems. 5 c. Specific Structuring Issues for Copyrights Copyright security interests present many of the same practical problems that exist with respect to patent and trademark security interests discussed above. As in the case of patents and trademarks, in the security agreement, lend- ers should list “general intangibles” and set out the known copyrights and registrations on schedules to the agreement. 6 Lenders should include appropriate covenants and warranties in their copyright security agreement, such as requiring the borrower to promptly notify the lender when the borrower registers previously unregistered copyrights and be vigilant in enforcing such provisions. In addition, lenders should create internal programs and protocols, so that the lien is immediately recorded in the U.S. Copyright Office against each copyright that is registered. 7 Because copyright laws are somewhat unique in permitting a nonexclusive license of a copyright, whether recorded or not, to be valid against a subsequent transferee under certain circumstances, a lender should require from the borrower a warranty in the security agreement regarding the existence (hopefully nonexistence) of nonexclusive licenses. Moreover, the security agreement should also (a) specifically identify the work to which it pertains so that any recording in the Copy- right Office provides notice and (b) include an irrevocable power of attorney allowing the secured lender to execute a true assignment on behalf of the borrower upon default. III. Other Collateralization Issues a. Searches In addition to regular lien searches, lenders are advised to run specific IP searches on the borrower, especially if valuable IP is part of the lender’s collateral. A search will confirm the owner of the IP and show existing liens. Bor- rowers must have rights in the collateral in order to grant an enforceable security interest. Where the borrower is a corporation a lender must exercise caution. Only natural persons can be “inventors.” See 35 U.S.C. §§ 115-118. An assignment document is required to be filed transferring ownership from the inventor to a corporation. Because of this, a check of the PTO assignment records is recommended to confirm the borrower has title to the patent collateral. If IP is important to the transaction, lenders should be aware of the timing gap issues discussed below and consider per- forming additional post-filing searches. b. Disclosure Schedules Accurate schedules listing the IP are important but often difficult to obtain. Provisions in the security agreement will   Security Interests — continued