Community Bankers Association of Kansas - Issue 1 2020

www.cbak.com 14 In Touch V irtually every commercial enterprise owns some form of intellectual property (IP), and those assets—while sometimes difficult to quantify—hold real value. When companies run into financial difficulties, however, lenders all too frequently ignore these valuable assets and instead opt to liquidate only the borrower’s tangible collateral. This frequently contributes to a shortfall that is charged off. By ignoring the value of IP during the documentation stage many lenders may be inadvertently leaving money on the table when some of those loans falter. Perfecting Your Interest in Copyrights, Patents & Trademarks So how can lenders better protect themselves? To begin, it is essential to obtain a security agreement which grants a lien in the borrower’s general intangibles. This is the broad catchall category into which IP falls under the Uniform Commercial Code (UCC). But lenders should not be satisfied with a generic allusion to “general intangibles” in the description of collateral. Additional specificity is important when it comes to IP. If the borrower owns patents, copyrights or trademarks, those assets should be identified with detail. The point of the security interest is making clear to the borrower that, in the event the loan is in trouble, lenders will be looking to use those assets potentially to pay down the debt. Ideally, the UCC-1 that you file with the secretary of state’s office will mirror your collateral description so as to generally inform other creditors that you have taken a first priority position in these assets. Getting a signed security agreement and filing your financing statement with the secretary of state may not be sufficient to adequately protect your interests. When it comes to patents, trademarks and copyrights, you need to take additional steps to protect yourself under applicable federal law. Indeed, a complicating problem with patents, copyrights and trademarks is that each is partially dealt with by federal law but in different ways. For example, perfection in copyrights is dependent on whether or not the copyright has been registered. If it has been registered, then the Copyright Act preempts the UCC, and a lender must perfect its security interest by filing a short form security DON’T LEAVE MONEY ON THE TABLE: Troubled Loans and Intellectual Property BY MICHAEL FIELDING Continued on Page 16

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