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Security Interests In Trademarks





May 7, 1997 

Sponsoring Committee: Security Interests Subcommittee of the Legislative Analysis Committee


Resolution

WHEREAS, the present law in the United States with respect to security interests in trademarks and other types of intellectual property is inconsistent and thus inadequate to serve the needs of trademark owners in the financial marketplace;

WHEREAS, the International Trademark Association has previously endorsed by resolution dated May 6, 1992, the "mixed approach" with respect to security interests in trademarks;

WHEREAS, the American Bar Association Task Force on Security Interests in Intellectual Property has developed draft amendments to the Lanham Act, Patent Act, Copyright Act and Semiconductor Chip Protection Act, each with parallel provisions and which embody the "mixed approach"; and

WHEREAS, it is of benefit to trademark owners and trademark practitioners to have security interests in trademarks treated consistently with security interests in other types of intellectual property;

NOW, THEREFORE, BE IT RESOLVED, that the International Trademark Association (INTA") endorses and supports a U.S. federal legislative approach to adopt parallel amendments to the Lanham Act, Patent Act, Copyright Act and Semiconductor Chip Protection Act which will embody the "mixed approach" with respect to security interests in intellectual property (as further described in INTA's prior resolution of May 6, 1992), and will provide uniform treatment of security interests in patents, copyrights, semiconductor chip mask works, and in marks that are the subject of federal registrations or pending applications. INTA further endorses and supports the following specific amendments to Section 10 of the Lanham Act:

(a) elimination of the present three month retroactive effective date for recordal of assignments and other documents;

(b) the addition of language clarifying that the restrictions on transfer of intent to use applications expire not only upon filing of a verified statement of use, but also upon the filing of an amendment to allege use, and

(c) the addition of a second exception to the restriction on transfer of an intent to use application to allow a secured party who has properly filed and properly foreclosed its security interest in an intent to use application to take assignment of such an application prior to the filing of a verified statement of use or amendment to allege use.


Background

The current state of U.S. law with respect to security interests in trademark and other types of intellectual property is unclear and inconsistent. There is uncertainty as to whether federal or state law governs, and if so, to what extent and for which types of intellectual property. This leads to uncertainty as to where and how to file a security interest, what constitutes proper notice of a security interest, whether a security interest is properly perfected and who has priority. There are inconsistent decisions with respect to the same type of intellectual property, as well as different types of intellectual property. Several decisions have resulted in the loss of trademark rights. The present state of the law thus creates a risk for both intellectual property owners as well as the creditors and lenders who serve them.

The practice which has thus evolved among intellectual property practitioners is to record a financing statement under Article 9 at the state level and to also record a copy of the Security Agreement at the U.S. Patent and Trademark Office and/or the U.S. Copyright Office. This approach is generally adequate for federally registered trademarks provided that the trademark owner only grants a conventional security interest with a provision for a future assignment in the event of default or upon foreclosure. Many lenders, however, have required a present assignment of the rights to the lender with a license back to the original property owner, which has led to several court decisions which have invalidated or voided the trademark registration which was thus assigned to the lender.

INTA/ABA History
INTA first addressed the security interest issue in 1987. The Trademark Review Commission included in its report a recommendation that Section 10 of the Lanham Act be amended to expressly provide for the granting of security interests in trademarks. The Commission's proposal provided for federal pre-emption. The Commission's proposed changes to Section 10 were included as part of the proposed Trademark Law Revision Act. In the process from introduction of the legislation to final passage, the provisions regarding security interests were deleted from the legislation. One of the reasons for the elimination of the proposed amendments to Section 10 with respect to security interests was the number of questions about the provisions which were raised by the financial services industry, including the ABA Business Law Section.

Accordingly in 1989, the ABA Business Law Section formed a task force on security interests in intellectual property (the "Task Force"). The ABA Patent Trademark & Copyright Law Section also formed an ad hoc committee to serve as liaisons to the ABA Business Law Section Task Force. The Task Force first examined the question of whether different types of intellectual property should be treated differently. It ultimately determined, however, that intellectual property owners and their lenders generally deal with intellectual property as a bundle of rights and thus the inconsistencies in the law of security interests in intellectual property would best be resolved by one uniform system governing security interests in all types of intellectual property. The Task Force unanimously recommended adoption of what is known as the "mixed approach", under which security interests would be filed under Article 9 in the applicable state and supplemented by a new notice filing at the federal level (on a debtor's name basis) designed to establish priority over subsequent transferees/assignees. The state filing/filings would create priority against lien creditors, secured creditors and all third parties other than subsequent purchasers for value against whom the federal filing would be required to establish priority. In anticipation of the Task Force's conclusion, the Board of Directors of INTA adopted a Resolution endorsing the "mixed approach" to the treatment of security interests on May 6, 1992.

The Task Force has now produced three parallel amendments to the Patent Act, Copyright Act and Lanham Act and is discussing draft amendments to the Semi-conductor Chip Protection Act.

Proposed Draft Legislation
The subcommittee has reviewed the Task Force's proposed amendments to the Lanham Act. Upon initial review the amendments to the Lanham Act proposed by the Task Force may seem rather extensive. The prevailing view of the Task Force, however, was that, to insure uniformity with respect to treatment of security interests in different kinds of intellectual property, sufficient detail should be set forth in the proposed statutory amendments to insure that substantively inconsistent regulations are not adopted. The Subcommittee believes that the Task Force's proposed amendment to the Lanham Act will achieve the goal of implementing the "mixed approach" and provide uniformity in the treatment of intellectual property.

The Task Force's proposed amendments to the Lanham Act contain one substantive change to Section 10 which is not directly related to security interests. This change is the elimination of the three month "look back" period presently contained in Section 10. This change will make the Lanham Act consistent with the UCC, which does not contain any "look back" period. The Task Force's proposed amendments to the Patent and Copyright Acts also eliminate the "look back" periods in those Acts. If the "look back" period is not eliminated, financing delays for owners of intellectual property would result as lenders and creditors would likely withhold or escrow some portion of the financing until expiration of any "look back" period. The Subcommittee believes that this change to Section 10 is beneficial to trademark owners and will not significantly impact or alter current practice by trademark practitioners.

The Subcommittee has also proposed two further additions to Section 10 of the Task Force's proposed amendments to the Lanham Act. The first is the addition of clarifying language to Section 10 that an Intent To Use application cannot be assigned prior to either the filing of a verified Statement Of Use (as set forth in the current Section 10) or an Amendment to Allege Use. The addition of the reference to an amendment to allege use clarifies the language of Section 10 which only mentions the filing of a verified Statement of Use. The second addition proposed by the Subcommittee is the inclusion of a further exception to the prohibition against assignment of pending Intent To Use applications prior to the filing of an amendment to allege use or verified Statement Of Use, allowing the assignment of any such application upon foreclosure to a secured party who filed a federal financing statement pursuant to Section 10. This amendment insures that a secured party can realize the value of its security, but does not open the door to trafficking in trademarks. The amendment, thus, would overrule the decision of the TTAB in the Clorox case.

Both of the recommendations of the Subcommittee were accepted by the Task Force and were incorporated into its final draft.