AIPLA | Testimony on the Report of the U.S. Copyright Office on Copyright and Digital Distance Education and Intellectual Property Security Registration (June 24, 1999)

STATEMENT OF

MICHAEL K. KIRK
EXECUTIVE DIRECTOR
AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

BEFORE THE

SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES

AT THE

OVERSIGHT HEARING

ON THE

REPORT OF THE U.S. COPYRIGHT OFFICE
ON
COPYRIGHT AND DIGITAL DISTANCE EDUCATION

AND

INTELLECTUAL PROPERTY SECURITY REGISTRATION

JUNE 24, 1999

Mr. Chairman:

I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) to the Subcommittee on Courts and Intellectual Property on possible changes to the existing federal systems for recording security interests in intellectual property.

The AIPLA is a national bar association whose nearly 10,000 members are lawyers in private and corporate practice, in government service, and in the academic community. AIPLA members comprise a wide and diverse spectrum of individuals involved directly or indirectly in the practice of patent, trademark, copyright, trade secret, and unfair competition law, as well as other fields of law affecting intellectual property.

Intellectual property assets patents, trademarks, copyrights, trade secrets, etc. are often the major assets held by a modern company, and are frequently used to secure loans critical to the company's existence and for growth. Often for individuals trying to start up a commercial enterprise, intellectual property may be the only asset upon which a loan might be based. To have a system where there is certainty for both the lender and the borrower greatly increases the value of intellectual property in its use as collateral for a loan.

The present approach to recording security interests in intellectual property is to use a mixture of federal and state systems. In their administration of the Uniform Commercial Code, the states have embraced a system where intellectual property is handled as personal property and security interests in such personal property are generally perfected by recording with the Secretaries of States. A security interest in some types of intellectual property, however, must be recorded federally in order to perfect that security interest. This is true of copyright. Security interests in intellectual property which has a basis in the laws of the states is solely handled by the states. For example, perfection of a security interest in unregistered trademarks and trade secrets may only be accomplished by a state filing. With respect to a federally registered trademark, however, a federal filing also needs to be made to affect bona fide purchasers for value of such marks. Case law is unsettled regarding perfection of interests in patents, although filing probably must be done federally. It is this melange of uncertainty, particularly in regard to perfecting security interests in the various types of federal intellectual property, as well as the inability to include after-acquired rights, that has prompted an effort to uniformly treat security interests in all types of intellectual property.

These problems have been the subject of a great deal of work over several years, beginning with the International Trademark Association at least as early as the late 1980s and, more recently, by the Joint Task Force of the Business Law and Intellectual Property Law Sections of the American Bar Association. The AIPLA has been active in this effort for the past year. The draft bill resulting from this effort, the "Federal Intellectual Property Security Act," advances the IP community toward the goal of a more integrated and rationalized security interests recording system at the federal level. While still a work-in-progress, it is a beginning toward bringing greater certainty into the recording of security interests in federal intellectual property.

The AIPLA supports the concept of permitting a filing in federal agencies with respect to security interests in intellectual property. We believe these filings should be notice filings, similar to those used in states under the Uniform Commercial Code. These federal filings should also be made in the name of the debtor and the creditor. Unlike the federal filings regarding ownership of federal intellectual property, it should not necessarily require a specific identification of the intellectual property being used as collateral, although it should permit the filing to be limited to specific intellectual property if desired by either party. Moreover, federal security interest filings should not require the filing of the actual agreement or contract giving rise to the security interest.

The AIPLA also supports a system where it is not only possible to generically identify the intellectual property that is the collateral for the security interest, but to also have the security interest cover after-acquired intellectual property of the debtor, if that is the agreement of the parties. Under the present system, for example, computer software developers and book publishers may have difficulty in securing financing based on the projected value of software under development or books not yet written.

The AIPLA supports uniformity in the various systems for filing security interests or ownership changes involving federal intellectual property rights. From the standpoint of intellectual property owners and lending institutions, the optimal approach would be to eliminate all look-back provisions in the various systems. With the existing look-back periods in federal systems for recording ownership changes, a bona fide purchaser for value taking advantage of a look-back provision could be seriously disadvantaged. For example, an assignee of a patent taking advantage of the three-month look-back provision in existing 35 U.S.C. §261 to record his or her assignment may end up taking the patent subject to a security interest in the patent filed in a state earlier in the three-month period. Of course, the full benefits of the elimination of the look-back provisions in existing law for patents, trademarks and copyrights could only be practically achieved, however, if electronic filings of federal security interest and ownership documents is implemented.

If security interests in and ownership documents for intellectual property could be filed electronically, all concerned would benefit. This would include the financial institution making loans with intellectual property as collateral, the intellectual property owner using the intellectual property as collateral for a business loan, and the public. Establishing a system for electronically filing federal security interests and ownership documents would also facilitate the creation of a system for the public to electronically search all the filings. A number of states already permit the filing of security interests by electronic means and several of them also provide for electronic searching of their collection of security interest filings.

Further benefits could be achieved by having uniformity among the federal systems for security interest filings and ownership recordation so as to enable simultaneous filing and simultaneous searching across the various systems. The ability to electronically access numerous systems would achieve many of the benefits of a centralized system. This would enable a person to simultaneously electronically file a security interest in intellectual property in numerous offices. Likewise, one could readily search the various federal agencies for information regarding a security interest recorded in regard to a given debtor or information about a given intellectual property owner, or to obtain ownership information regarding a specific copyright or patent.

When the exercise to improve the system for recording security interests in intellectual property was started, the electronic filing, record keeping and searching option for such records was not possible. Now that it is possible, automating the process in this manner should be considered and made part of any accommodation or change suggested for individual systems. Consideration of the electronic filing, record keeping and searching option will undoubtedly be part of the study to be undertaken by the Franklin Pierce Law Center regarding the feasibility of establishing a centralized intellectual property registry. The study, which is referred to on page 83 of Senate Report 105-235, will involve assessing and defining the technical, economic, and legal requirements associated with a centralized registry.

As indicated earlier, the draft bill is a work-in-progress. There are many questions yet to be answered and a number of issues yet to be resolved. For example, the funding necessary to establish electronic systems for the filing of federal security interest statements needs further study, and it is likely that the Patent and Trademark Office and the Copyright Office will have to be authorized to administratively set the fees for both financing statements as well as assignments to fund the system. Moreover, some Congressional direction will likely be necessary to achieve the desirable coordination and implementation of the electronic filing and searching systems by the respective Offices. Nonetheless, the effort holds out considerable promise and we intend to continue our efforts to achieve a workable solution.