Pub. 7 2012-2013 Issue 1

May/June 2012 23 Extraordinary Service for Extraordinary Members. For more information, contact Jeff Makovicka at Husch Blackwell LLP at (402) 964-5000 or jeff.makovicka@ huschblackwell.com. Makovicka is a member of Husch Blackwell LLP’s Banking & Finance practice where he concentrates on banking matters. determine what should be disclosed on the schedules. Lend- ers may want to limit the list to registered IP or material IP and should reconcile schedules with search results. c. Timing Issues Due to the grace periods for delayed filing provided in the various federal statutes and federal filing systems, it is pos- sible that even a completely accurate search will fail to turn up documents that affect a lender’s security interest and title as they have not yet been recorded and when subsequently recorded, may relate back to an earlier date for priority. To mitigate this risk, the lender should require representations from the borrower that no competing assignments have been granted. Searches post-closing should disclose the existence of any of these filings. d. After-Acquired IP An entire additional set of issues arises when a borrower creates new or derivative works, or upgrades existing IP, after the original grant of a security interest. To safeguard that its se- curity interest continues to be perfected in such after-acquired IP, the lendermust monitor the borrower’s activity closely and make separate new federal recordings for new items of IP. 8 Lenders may find some protection by requiring in the secu- rity agreement periodic (for example, monthly or quarterly) reporting and registration/recordation of after-acquired IP interests (including a requirement to informthe lender as soon as an unregistered copyright becomes registered). IV. Structuring Tips IP presents different challenges to lenders than other collateral. To reduce the risks associated with utilizing IP as collateral, a lender is advised to, without limitation: • Review the records of the PTO and Copyright Office to de- termine whether the borrower has actual ownership of the IP collateral and the scope of the collateral. • Structure the security instrument as a UCC security inter- est. Avoid use of “assignment” language which could affect the validity of the IP collateral and cause potential lender liability. • Make sure the collateral includes all “now existing and hereafter acquired or created” IP, as well as everything as- sociated with the IP. • Borrower should have an affirmative duty and obligation to promptly register any newly acquired or created IP, and borrower should be obligated to notify the secured lender of any such newly acquired or created IP, to permit the secured lender to properly perfect the security interest in the collateral. • The security agreement should allow the lender to exercise its remedies upon default, i.e., the borrower’s agreement to cooperate, and a power of attorney to permit the secured lender to assign and register the rights upon foreclosure. • Borrower should agree to properlymaintain the IP collateral and timely file and pay all maintenance fees for patents and renewal fees for trademarks, and should also agree that it will notify the secured creditor of any infringement litigation. • Security agreement should include warranties as to the bor- rower having good and marketable title, no prior security interests, no previous assignments, and the validity and enforceability of the IP. • Employ the “belt and suspenders” approach and file security interest both at the state UCC level and/or the PTO and Copyright Office (see Part I to this series). • Monitor the borrower’s IP portfolio or require the borrower to provide reasonable notice of newly acquired IP, so that additional security interest notice filings may be made at the PTO or Copyright Office for after-acquired property. • Secure the rights to any necessary tangible business assets and any licenses which may be required for use of the IP collateral. • Restrict the borrower’s ability to transfer, abandon, or license the IP collateral. Any restrictions or requirements should be reasonably based to avoid impairing the bor- rower’s ability to run its business. • Require borrower to provide updates to the lender with respect to IP.  1 The Lantham Act (15 U.S.C. §1060), the Patent Act (35 U.S.C. §261), and the Copyright Act (17 U.S.C. §205). 2 In the case of patents, lenders could also obtain a grant of a security interest in all inventions, issued patents, and patent applications which the borrower owns, in whatever rights the borrower may have had or may in the future have against third persons that use or infringe the rights it owns, and in whatever transferable rights the borrower may have to use corresponding rights owned by others. 3 Any assignment of a trademark without its accompanying goodwill is an “assignment in gross” and destroys the trademark as a symbol of any value. See Roman Cleanser Co. v. Nat’l Acceptance Co ., 43 B.R. 940, 947 (E.D. Mich. 1984). 4 The grant of a security interest in trademarks could also cover all trademarks, service marks, designs, logos, indicia, trade names, trade dress, trade styles, and/or other source, and/or business identifiers and applications pertaining thereto, along with all registrations pertaining to the foregoing list. 5 An assignment of an intent to use trademark can lead to invalidation of the trademark. See Clorox , 40 U.S.P.Q2d 1098. 6 In the case of copyrights, lenders could obtain a grant of a security interest in all rights under copyrights in various published and unpublished works of authorship including computer programs, computer databases, other computer software, layouts, trade dress, drawings, designs, writings, and formulas owned by borrower along with all copyright registrations issued to borrower and applications for copyright registration. 7 Lenders could require that, in taking a copyright as security, the borrower be obligated to register all copyrighted material with the Copyright Office. 8 By contrast, under the UCC, after-acquired property can be made subject to the lender’s perfected security interest in advance by a simple reference to after-acquired property, without the need for subsequent UCC filings or further monitoring by the lender of the borrower’s future acquisitions of property.