How to Take a Security Interest in Copyrights, Trademarks, and Patents

Article excerpt

When a lender takes a security interest in a borrower's goods, as that word is used in the Uniform Commercial Code (UCC), there is usually little cause for confusion. Goods are broken down into three types, consumer goods, equipment, and inventory - all familiar and relatively easy to understand. However, when the security interest includes general intangibles, there may be cause for confusion. Although the UCC's Official Uniform Comment states that copyrights, patents, and trademarks are included within general intangibles, the secured lender is at a distinct disadvantage without an understanding of these intellectual property concepts, especially given the possibly enormous potential value of intangible assets.(1)

Hidden Value of Intellectual Property

Copyrights, patents, and trademarks are increasingly being recognized as valuable commodities. Recently, Michael Jackson outbid Yoko Ono and Paul McCartney to purchase the Beatles' song collection for $47 million. What Jackson purchased was not just the sheet music; in fact, the purchase price would have been far lower if the only items purchased were the handwritten originals by John Lennon and Paul McCartney. Instead, Jackson bought the rights under federal copyright law to exploit the compositions. These rights include the exclusive right to make sound recordings, to publicly perform the compositions, and to create other works based on them. In addition, Jackson acquired the exclusive right to authorize others to exercise these rights.

In another intangible asset case, Nintendo was ordered to pay a competitor $208 million for the unauthorized use of the competitor's patent, which helps video game characters move and interact. Although this is a record damage award, it is not unusual for plaintiffs in patent infringement cases to recover millions of dollars. For instance, Dr. Bob Kearns has received $21 million from automakers for the unauthorized use of his design of an intermittent windshield wiper. Sales of this patented device have totaled $1.9 billion annually since 1969 or approximately $43 billion since first introduced.

As for trademark valuation, a recent article in Financial World began by declaring that the Michelin, Levi Strauss, and Intel companies have a surprising fact in common: Their most valuable assets are their trademarks. The article reports that the three most valuable trademarks in the U.S. are Coca-Cola, valued at $35 billion; Marlboro, valued at $33 billion; and Nescafe, valued at $11 billion. Even a little-known trademark like 555 for cigarettes was valued at $384 million.(2)

Copyrights

A copyright protects against the unlawful copying of original literary and artistic expressions, such as personal and business correspondence, speeches, magazine articles, books, music, art, fabric and upholstery designs, architectural drawings, cartoons, motion pictures, photographs, recorded sounds, computer programs, advertising copy, and product labeling. A copyright attaches upon creation of an original, tangible work. However, there are certain benefits to formally registering a claim of copyright in the federal Copyright Office including, under certain circumstances, a right to special damages and legal fees in the event of infringement.

For copyrights, the term of protection depends on the following:

* When the work was created.

* Who the author was, as defined in the Copyright Act.

* Whether, in certain circumstances, the work was federally registered and renewed.

If the work was registered for copyright before January 1, 1978, it is protected for 75 years from the date the copyright was secured, provided certain statutory formalities were followed. For works created on or after January 1, 1978, the copyright generally lasts for the lifetime of the author plus 50 years. The copyright of an anonymous or pseudonymous work or a work made for hire is protected 75 years from publication or 100 years from creation, whichever is shorter. …

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