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USA / INTELLECTUAL PROPERTY / SECURITY INTERESTS

Proposal for Security Interests in Intellectual Property

IDEA: Journal of Law and Technology, Vol 41 Nos 3-4, 2002

William J Murphy

A relatively brief Digest can scarcely do justice to an article as substantial and important as this: all it can do is to point to the reasons for the article's significance and, as with all the other articles selected for inclusion in the list of digests, to encourage readers to go to the source. The length of the article, some 300 pages, results in its occupying exclusively two issues of the journal in which it appears. Strictly speaking, the article is a report resulting from arrangements made under Professor Murphy's aegis, between the United States Patent and Trademark Office and Franklin Pierce Law Center, together with the University of Maine School of Law, the University of New Hampshire Whittemore School of Business and three distinguished New England law firms, setting out a proposal for a centralised and integrated Registry for security interests in intellectual property. The starting point for the report is the proposition that "for many companies and individuals intellectual property rights may represent their most valuable assets"; yet, when assets are in the form of intangible property, specifically patents, copyrights and trade marks, the creation and perfection of a security interest in the assets are significantly more uncertain and difficult. As a result, the availability and cost of capital are negatively affected. Accessible collateral with predictable value is the lynch-pin of traditionally secured financing; and what the author calls "industrial-age assets", or "hard assets", such as equipment and real estate, are usually satisfactory to creditors and well understood by the courts. But "information-age assets" are harder to assess. The report examines existing laws and concludes that, since their principal function was to establish title to intellectual property rights, they are inadequately designed to accommodate encumbrances to those rights, such as security interests. Moreover, the state statutory scheme (UCC) designed to govern encumbrances creates complications in the intellectual property field. It was designed to accommodate the financing of industrial age assets; and some of its provisions do not appropriately address the issues surrounding information age financing. Further difficulties arise over the relationship between federal and state law; and courts have come to "varied and conflicting conclusions". The report therefore proposes three statutes creating a centralised or integrated Registry for security interests in intellectual property, as well as a technological solution for the implementation of the Registry. The proposals take the form of Recommendations for Legislative Models. The report concludes with two warnings. "The most notable challenge to implementing such a system is the current lack of electronic databases in some states… A second challenge is the potential debate regarding the fair sharing of search revenues." Nevertheless, under the scheme, states will continue to maintain independence and sovereignty over their own information; and, above all, information will become more accessible and useful. [20065]