Pub. 7 2012-2013 Issue 2

July/August 2012 21 Extraordinary Service for Extraordinary Members. operation of law is not an “assignment” for purposes of the written instrument requirement in § 261 of the Patent Act.); see Akazawa v. Link NewTechnology Intern., Inc. , 520 F.3d 1354 (Fed. Cir. 2008) (This case held that passage of patent title through intestacy is not an “assignment” and does not require a § 261 writing.) Accordingly, recording the transfer of ownership occurring upon the event of a foreclosure is not required, since the transfer occurs as an operation of law. Nevertheless, the careful secured lender should require the security agreement to provide a grant by the borrower of a power of attorney to a nominee of the secured lender enabling the nominee, after default and a commercially rea- sonable arrangement for disposition, to execute any necessary transfer documents (whether or not needed for recording) on the borrower’s behalf. Foreclosure & Disposition of IP Collateral A problem area for the foreclosing lender is how to under- take a public or private sale of IP collateral in conformance with commercially reasonable practices, as required under Article 9. Although case law has not established precisely what is called for in the sale of IP in order to satisfy the UCC, a good discussion of general factors to be considered in the sale of unique items is found in In re Four Star Music Co. , 2 B.R. 454 (Bankr. M.D. Tenn. 1979). Four StarMusic involved the sale of a copyrighted music catalog that was held not to have been carried out pursuant to commercially reasonable practices based upon the lender’s failure to seek specialized advice, obtain competent appraisal, and make attempts to reach logical purchasers. Locating the best market and find- ing the most promising buyers within that market are often the most difficult aspects of the disposition process for the secured lender. Key Bank of Maine v. Dunbar , 28 U.C.C. Rep. Serv. 2d 398 (E.D. Pa. 1995) A sale that misses the mark because the secured lender failed to target the correct group of potential buyers will not be saved because it is otherwise conducted as a “public sale.” Secured lenders are advised to enlist the borrower or persons who know the borrower’s business, or the kind of IP the bor- rower provided as collateral, to assist in finding the correct market. In some cases the best market for the borrower’s IP may not be the same as themarket for the borrower’s business as a whole. SeeWells Fargo Business Credit v. Environamics Corp. , 77 Mass. App. Ct. 812, 821-22 (2010) (In short, there is a dispute as to whether WFBC’s methods of sale were com- mercially reasonable among dealers in the type of property that was the subject of the disposition.) Advertising in the correct market is equally important to a commercially reasonable disposition. In the case of IP with a specific use within a specific industry, trade publications and the appropriate sections of publications with general circulation may be required. Connex Press, Inc. v. Interna- tional Airmotive, Inc. , 436 F. Supp. 51, 55 (D.D.C. 1977) (An advertisement for an airplane appeared in the Wall Street Journal but not in the “Aviation” section.) Such advertising should reach the relevant market and also disclose whatever information necessary to allow buyers in the particular trade to value the assets involved. In re Four Star Music Co., Inc. , 2 B.R. at 462– 63 (In disposing of intellectual property rights in amusic catalogue, the secured party must make significant attempts to reach the most logical purchasers, and the basic information, which should be made available to potential buyers, must be accumulated.) In a typical default situation, the secured lender has a legal right to take possession of the collateral without judicial pro- cess if it can proceed without a breach of the peace. However, because IP collateral is intangible, it is simply not possible to take possession of this type of collateral. Further, while the UCC provides for non-judicial disposition of collateral, i.e., sale of the collateral to a third party, there are typically no regular markets for patents, trademarks, and copyrights, which may significantly hinder any effort to make a third- party sale. Accordingly, without a signed acknowledgement of surrender and transfer of the asset from the borrower, the best way to ensure a “clean” foreclosure of IP collateral and the transfer of title, whether through strict foreclosure (where the lender retains the collateral and takes title) or through a public or private sale, is to involve a court, either by an ac- tion for foreclosure or through a declaratory judgment filing. What This Means to You Because federal law is silent on enforcement of security interests in IP collateral, foreclosure on all types of IP is handled under Article 9 or other applicable state law. A UCC foreclosure sale is the usual method of disposition, which necessitates finding the correct regular market to produce a commercially reasonable sale. In light of the fact that no universally recognizedmarket for intellectual property exists in most cases, ensuring that the disposition is “commercially reasonable” presents difficulties. Unless the borrower consents to a strict foreclosure pro- cess—this remedy provides great flexibility and is often used in workouts—the safest route to enforce security interests in IP collateral is through the judicial process. Z For more information, contact Jeff Makovicka or Chris Bikus at Husch Blackwell LLP at (402) 964-5000 or jeff. makovicka@huschblackwell.com or chris.bikus@ huschblackwell.com. Makovicka is a member of Husch Blackwell LLP’s Banking & Finance practice where he concentrates on bank regulatory matters. Bikus is a member of Husch Blackwell LLP’s Intellectual Property practice and has significant experience in trademark and copyright matters. He has worked on numerous acquisitions and divestitures of intellectual property assets and specializes in intellectual property counseling and trademarks and copyrights.