COUNSELOR’S CORNER INTELLECTUAL PROPERTY OFTEN REPRESENTS A significant portion of collateral in lending transactions. When a borrower pledges intellectual property, the lender must be the first to “perfect” its security interest to establish priority over other creditors. CPAs should understand how security interests in intellectual property are perfected, as missteps in this area can materially misstate financial risk, asset availability, and creditor priority. The challenge is that perfection rules are not uniform: different types of intellectual property require different filing procedures, and the rules continue to evolve as new asset classes emerge. This article provides a practical overview of perfecting security interests in intellectual property under U.S. and Nebraska law. TRADITIONAL INTELLECTUAL PROPERTY Traditional intellectual property presents tension between two legal systems: state law under Article 9 of the Uniform Commercial Code (UCC § 9-101 et seq.), and federal statutes governing patents, trademarks, and copyrights. For patents and patent applications, Article 9 governs perfection against lien creditors. Under Nebraska law, a creditor perfects by filing a UCC-1 financing statement with the Nebraska Secretary of State. However, to protect against subsequent bona fide purchasers and mortgagees, the security interest should also be recorded with the U.S. Patent and Trademark Office (USPTO). The prudent approach is filing both. The federal Lanham Act (governing trademarks) does not address security interests, so Article 9 governs perfection through a UCC-1 filing with the Nebraska Secretary of State. Though not legally required, recordation with the USPTO is advisable to provide notice to future purchasers who may search the public USPTO records. The Copyright Act preempts state UCC filings. Creditors must record the security agreement with the U.S. Copyright Office to perfect a security interest in a registered copyright. However, no effective mechanism exists for recording security interests in unregistered works with the Copyright Office; perfection is thus accomplished through a UCC-1 filing. Given this complexity, creditors should encourage debtors to register copyrights before taking them as collateral. DOMAIN NAMES Domain names present an emerging category of digital collateral with significant value for many businesses. Courts generally classify domain names as “general intangibles” under the UCC, with perfection accomplished by filing a UCC-1 financing statement. Creditors should note that domain names carry unique risks: registrations can expire if the debtor fails to renew, and unauthorized transfers may occur without the secured party’s knowledge. Accordingly, lenders may wish to obtain additional protections—such as a power of attorney or escrowed instruction letter—to facilitate control of domain names upon default. AI-GENERATED INTELLECTUAL PROPERTY Artificial intelligence can now produce work product integral to a business—software code, for example—with minimal human involvement. The U.S. Copyright Office has taken the position that works generated solely by AI, without meaningful human authorship, are not protected by copyright; thus, the traditional perfection path for copyrighted works does not apply. A security interest may attach to AI-generated material if the lender and debtor agree it constitutes property in which the debtor has rights. Such material may have value as a trade secret, proprietary data, or general intangible. In these cases, perfection is accomplished by filing a UCC-1 financing statement. PERFECTING SECURITY INTERESTS IN INTELLECTUAL PROPERTY BY KAYLA HELGOTH AND ROBERTA CHRISTENSEN, KOLEY JESSEN A Practical Guide for Secured Transactions 14 Nebraska CPA
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