The Seven Secrets of Security Interests

Well, they’re not really secrets.  But whether you’re representing the bank taking a security interest, an owner granting one, or a buyer who wants to ensure that outstanding security interests are released before a deal closes, here are a few things to keep in mind when it comes to IP security interests.

1. History is good.  Does the latest security interest agreement tell the whole story?  Ideally, recitals should include details of the underlying credit agreement, security agreement, and any other relevant documents.  If your security interest is a reaffirmation or supplemental filing, mention any documents previously recorded with the USPTO.  Lay out all the details so the reader can get up to speed quickly.

2. It’s all in the details.  Make sure dates, corporate names, addresses, entity types, recordation information, and other specifics about agreements and parties referenced in the security interest are all correct.  This also goes for your schedules of IP against which the security interest is granted – mark names and application and registration numbers and dates should all be correct.

3. Keep U.S. IP separate?  If there is IP outside of the United States, and the security interest is granted in U.S. and non-U.S. IP, consider preparing separate security interest agreements for recording in different jurisdictions.  Why disclose a full list of foreign IP in a filing publicly available on the USPTO website?

4. Consider corrective IP filings or use of “DBA’s.”  You might discover ownership inaccuracies relating to the IP against which a security interest is to be granted or released.  For example, the “Inc.” that is part of the corporate name might not be listed in the ownership information on the USPTO website.  Similarly, the corporate name might contain periods or spaces that are not reflected in the owner of record for the trademarks on the schedule.  In some instances, the parties might file corrective documents with the USPTO in order to correct those errors .  In other instances, consider whether you can list the incorrect owner name as a DBA for the granting or receiving party in the USPTO form.  Either way, the parties to the security interest or release should be listed with the correct corporate name.

5. Keep your chain of title orderly.  Did you know that more than one document can be recorded with the USPTO on the same day?  If you need to record a release of one security interest before recording a new security interest, and those documents have the same effective date, you can do that!  On the online recordation form, just fill in “1” or “2” in the “Multiple assignments with the same execution date” section of the ETAS form.

6. Matching scope of grant and scope of release.  When drafting releases of security interests, the scope of the original grant should match the scope of the security interest that is being released.  Often this scope extends well beyond just the registered IP and includes intangibles like the goodwill of the business.  Copy the language from the original security interest into the release document to ensure that the release exactly matches the interest that was originally granted.

7. What to do about dead or new IP for releases of security interests?  Between the time a security interest is granted and a security interest is released, some registrations may have expired and some applications may have been abandoned, and new applications may have been filed.  Should the dead IP and the new IP be included in the release?  When it comes to the new IP, the answer is a more straightforward “no”; there’s no need to confuse chain of title by releasing a security interest that was never recorded to begin with.  But dead IP is a trickier issue.  If there isn’t a lot of dead IP, you might decide to include it in the schedule to a release – especially for any registrations that remain in the grace period or that remain listed as “active” in USPTO records even though the grace periods are long expired.

While these seven tips may not exactly be secrets, they are important to remember when it comes to preparing and recording those all-important security interests and releases!

The “Do’s” of IP Due Diligence

So you’ve been asked to help acquire a company with an extensive IP portfolio. Great! Now it’s time for that mysterious task known as “due diligence.” Due diligence is intended to confirm all of the assets that a buyer will obtain in an acquisition and to resolve any discrepancies before the deal closes.

What should you actually do during due diligence when it comes to IP? How diligent should you be?

Here are the top 5 Do’s to consider when conducting due diligence:

1. Do be thorough. Dig into the details of the IP owned by the seller. Remember that the schedule of trademarks provided by the seller might not exactly match what is listed in USPTO records. Check the owner name, mark, application and registration numbers, and application and registration dates for possible scheduling errors. It’s possible that active applications or registrations might be missing from the schedule altogether. For foreign marks, cross-check the details in publicly available databases or, if possible, subscription databases to assess accuracy of application and registration details. And don’t forget to ask the seller to identify the markets in which the marks are actually used, and since when.

2. Do check chain of title carefully. Review details of all recorded assignments, including assignor / assignee names, address information and entity types. Look out for errors that you don’t want to have to clean up later. Is the assignee’s state in the assignment abbreviated as “AR” but the USPTO records say “Arizona” instead of “Arkansas”? Is an LLC incorrectly characterized as a “Limited Liability Corporation”? Each step in the chain of title should be accurate.

3. Do check goods and services. Did the seller register the marks in the proper classes? Are the goods and services descriptions accurate? The acquired registrations won’t do you much good if they are misclassified or omit key products.

4. Do review applications and registrations for upcoming deadlines. Is there an office action with a response deadline before or shortly after closing? Are renewals or maintenance filings due soon? What about extensive paperwork requirements for foreign registrations? You’ll want to make sure that the IP portfolio that you acquire at closing matches the IP you identified during due diligence. Of course, the seller may choose not to renew registrations in the ordinary course of business – but it’s important to know that information sooner rather than later.

5. Do ensure that any necessary corrective filings are made before closing. If you find any errors in chain of title or current ownership information, the seller is often in a better position to locate old documents or obtain new ones before closing. Having the seller bear the expense of any major corrections may also be in the buyer’s best interest.

Above all, the key to due diligence is being diligent! Do as much digging as time and budget permit, and don’t be shy about asking the seller to give you additional information or make any needed filings.

One final note: if your due diligence determines that one or more of the seller’s top brands is not registered in the markets where the brand is being used, consider filing new applications as soon as your transaction closes.

Stay tuned for our upcoming post on the top 5 “Don’ts” of Due Diligence.