Federal Intellectual Property Due Diligence: Moving Beyond UCC and Lien Searches
In transactions, verifying IP ownership and status is as vital as performing due diligence for UCC financing statements and statutory liens.
For comprehensive due diligence, lenders must evaluate the significance of federal intellectual property in their deals.
When is it Necessary to Search the USPTO and USCO?
During due diligence investigations, you may ask yourself:
“Is searching the US Patent and Trademark Office (USPTO) and US Copyright Office (USCO) really necessary?”
For transactions involving intellectual property (IP), the response is almost always an emphatic yes.
When a borrower/debtor owns a distinctive trade name, service mark, or logo that stands out significantly in the market, they possess valuable intellectual property that secured lenders should consider. Patents or registered copyrights may further enhance the borrower/debtor’s portfolio value. This IP could serve as loan collateral. To uncover critical information about assignments, liens, and overall IP ownership that standard UCC/statutory lien searches might miss, USPTO patent and trademark searches, along with USCO copyright registration searches, are essential.
Limitations of Typical UCC and Lien Searches
Under Section 9-102 of Article 9 of the Uniform Commercial Code, IP is classified as “general intangibles.” While searching for UCCs potentially listing IP as collateral is necessary, restricting due diligence to conventional UCC and statutory lien searches proves insufficient. UCCs typically provide broad collateral descriptions, potentially omitting specific IP details since these are only mandatory in security agreements. As security agreements rarely appear in public records, comprehensive public record due diligence must include USPTO and USCO searches. These additional searches are crucial for determining IP rights ownership and identifying existing liens.
What Key Elements and Areas Are Typically Covered in a Thorough Due Diligence Process?
A thorough due diligence search strategy typically encompasses the following search types and locations:
- USPTO and USCO databases for intellectual property assets.
- State central filing office in the debtor’s formation state for UCC searches.
- Local land record searches for UCC fixture filings and related liens when debtors own real property.
- Statutory lien searches at state and local offices where the debtor’s primary executive operations are based.
- Comprehensive state and federal litigation search records.
The Importance of USPTO and USCO Searches
As intellectual property continues to gain prominence and frequently serves as collateral in financial dealings, thorough IP due diligence becomes paramount. Lenders increasingly rely on legal counsel for comprehensive due diligence, making it essential to understand IP’s role in transactions. USPTO and USCO searches represent vital components of the due diligence process, offering detailed insights into a debtor’s intellectual property portfolio that shouldn’t be disregarded.
What is an important consideration prior to conducting a USPTO search?
It’s crucial to recognize that the USPTO platform maintains separate “silos” for trademarks and patents.
These two main silos are further subdivided into specific databases with multiple search parameters. It’s advisable to develop a pre-search strategy encompassing these key areas:
- Active and pending trademark applications
- Documentation of trademark transfers
- Issued patent documents
- Patent applications in publication
- Records of patent assignments
What is the purpose of a UCC search?
UCC searches primarily aim to identify existing consensual liens and security interests in a debtor’s assets, providing essential information for lenders, creditors, and stakeholders to evaluate credit-related risks and financial agreement considerations.
Can representations and warranties serve as a replacement for intellectual property due diligence?
While representations and warranties work alongside IPDD in risk management for transactions, they cannot replace comprehensive IPDD, particularly when the seller’s intellectual property assets are fundamental to the transaction.
This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
