Pub. 7 2012-2013 Issue 2

www.nebankers.org 20 Extraordinary Service for Extraordinary Members. As discussed in previous installments of this series, businesses and lenders have tapped into nontraditional, yet valuable, intangible assets such as intellectual property (IP)—trademarks, patents, and copyrights—as a means of securing debt. This article concludes our three-part series on the use of IP as collateral for a loan. E ARLIER IN OUR SERIES, YOU WERE introduced to the concepts of priority and perfection (Part I, March/April 2012) and suggested ways to properly create, document, and structure the security interest in IP collateral (Part II, May/ June 2012). We now consider the final part: enforcing security interests in IP collateral. As with any intangible as- set, enforcing security interests in any IP right presents practical difficulties. This final segment provides a practical overview for lenders seeking to enforce their security interests in IP collateral when things go wrong. Secured lenders generally have cer- tain preferential rights in the disposi- tion of their secured assets. A lender’s rights vary depending on the kind of security interest and the details of the security agreement. If the borrower fails in his obligations, the secured Security Interests in IP – Part III Realizing on IP Collateral Jeff Makovicka and Chris Bikus, Husch Blackwell LLP COUNSELOR’S CORNER lender typicallymay foreclose on, seize, and normally sell the IP collateral to discharge the borrower’s debt. Because federal law is silent on enforcement of security interests in intellectual property, foreclosure on all types of IP collateral is handled under state law. Article 9 of the Uniform Commercial Code (UCC) allows the se- cured party the non-exclusive choice of any available judicial procedure inside or outside the structure of the statute. See , e.g., Johnson v. Creager , 76 P.3d 799, 804–05 (Wyo. 2003) (An action in replevin to recover tangible collateral survives the UCC and is available to a secured party as an alternative to self- help repossession). Upon default, a secured lender has a variety of Article 9 mechanisms to recover the value of the debt owed. The secured lender may reduce a claim to judgment, foreclose, or otherwise en- force the claim or security interest by any available judicial procedure. After taking possession, the secured lender may sell the collateral in a public or private disposition and apply the pro- ceeds to the satisfaction of the debt as long as the disposition is commercially reasonable. Alternatively, the secured lender may exercise the right to “strict foreclosure” and keep the IP collateral in full or partial satisfaction of the debt. Security Agreement & Transfer Documents Subject to the rules in Article 9 on variance of the borrower’s core rights, the secured lender enjoys any rights on default that are provided for in the security agreement. These enumerated rights can be very important when the collateral is intangible property such as IP, which is normally transferred by means of a recordable document. The Federal Circuit’s 2009 opinion in Sky Technologies LLC v. SAP AG cleared the way for foreclosure sale transfers of IP following state law protocols in Article 9, without the need for a trans- fer document from the borrower. 576 F.3d 1374 (Fed. Cir. 2009) (Transfer by