Uncertainty and confusion probably always have existed bout the employment of intellectual property as collateral for a loan. Since the drafting of Article 9 of the Uniform Commercial Code, an uneasy coexistence of state and federal law has developed. Both state and federal law now arguably apply when a debtor attempts to use a patent or trademark to secure a loan. The extent to which each body of law is applicable and the interaction between the two systems was left unclear by the drafters of Article 9 and has not been clarified by Congress. The radical differences between the state and federal systems, both conceptually and as implemented, further complicate the uncertainty in the law.

This Article proposes reforms for both the federal and state systems, specifically, the Patent and Lanham Acts and state secured transactions law contained in Article 9 of the Uniform Commercial Code. Although the primary focus is on the methods for using patents and trademarks as collateral and the devices for giving third parties notice of the lender’s interest, this Article also addresses priority issues encountered when different parties make claims to the patent or trademark.

This Article begins with two premises. The first is that the optimal mesh between the federal Patent and Lanham Acts and Article 9 is one that will maximally reduce uncertainty and legal complexity and thereby will add (or restore) value to intellectual property. The second premise is that the optimal interaction between the two systems can be accomplished without compromising important value of federal intellectual property law. These include the encouragement of innovation and the early disclosure of inventions in the case of patents, and the assurance that trademarks designate the manufacturing source or qualities of particular goods.

This Article is intended to provide discussion that will move the law forward toward a resolution of these problems. Part II compares the fundamentally divergent treatments of personal property security found in federal law and in Article 9. In Part III, several reform proposals that have been advanced are surveyed. In Part IV, this Article considers a solution that the authors have developed and expect will be controversial. The authors ask whether it would be sensible to enact a version of Article 9 at the federal level to cover security interests in patents and trademarks, and at the same time, establish an electronically accessible U.C.C. filing office within or near the Patent and Trademark Office in Washington D.C. For reasons that are set forth below, this solution could substantially reduce the cost of secured lending on these forms of intellectual property without adding appreciably to the costs of either transferring these assets or lending on other kinds of personal property not subject to the federally enacted Article 9.

The authors recognize that all reform proposals to date concerning security interests in patents and trademarks, including this Article’s, are based on limited data concerning what is undoubtedly a very diverse universe of financing transactions shaped by the disparate needs of many different creditors and debtors. For this reason Part V is intended to serve two purposes. First, Part V surveys remaining issues that should be considered by policy makers should federal law embrace Article 9 principles in the way contemplated. Second, recognizing that data developed in the future ultimately may point to a solution in which state law controls federal intellectual property financing, Part V suggests ways in which Article 9 may be revised to serve this purpose as a matter of state law. The conclusion in Part VI suggests some additional questions that belong on the reform agenda.

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Notes/Citation Information

Kentucky Law Journal, Vol 79, No. 1 (1990-91), pp. 61-137



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