The most valuable assets for many companies – and especially for many startups – are their intellectual property (IP).
As with other forms of property, intellectual assets can be used as security for loans. However, the process of perfecting a security interest in intellectual property is somewhat more complicated than with other forms of property.
To “perfect” a security interest means to take additional steps needed to make it effective against third parties, or to retain its effectiveness if the party granting the interest defaults on the loan.
There are three main ways a security interest can be perfected:
- Possession of the collateral
- Statutory registration or filing
- Notice to the debtor or a fund-holder
For example, a pawn shop takes physical possession of collateral. A document of title can also serve as collateral.
To perfect a security interest in intellectual property, a lender must describe and record the security interest with the appropriate government authority.
Article 9 of the Uniform Commercial Code (UCC) deals with security interests in personal property – including intellectual property.
To perfect a security interest in intellectual property under Article 9, a lender must file a UCC financing statement with the Secretary of State in the state where the borrower lives.
However, different additional steps are required for different forms of IP.
Patents: The security interest should also be recorded with the US Patent and Trademark Office (USPTO).
Copyright: If the copyright is registered, the lender must record the security interest with the US Copyright Office.
Trademarks: Security interests in trademarks should be recorded with the USPTO.