The University of Chicago 5/21/2019 Class 22 Secured Transactions, Fall, 2018 Limits of Article 9: Intellectual Property Randal C. Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright © 2001-18 Randal C. Picker. All Rights Reserved.

9-109(c) (c) [Extent to which article does not apply.] 5/21/2019 9-109(c) (c) [Extent to which article does not apply.] This article does not apply to the extent that: (1) a statute, regulation, or treaty of the United States preempts this article; May 21, 2019

9-311 (a) [Security interest subject to other law.] 5/21/2019 9-311 (a) [Security interest subject to other law.] Except as otherwise provided in subsection (d), the filing of a financing statement is not necessary or effective to perfect a security interest in property subject to: (1) a statute, regulation, or treaty of the United States whose requirements for a security interest’s obtaining priority over the rights of a lien creditor with respect to the property preempt Section 9‑310(a); May 21, 2019

9-311 Cont. (b) [Compliance with other law.] 5/21/2019 9-311 Cont. (b) [Compliance with other law.] Compliance with the requirements of a statute, regulation, or treaty described in subsection (a) for obtaining priority over the rights of a lien creditor is equivalent to the filing of a financing statement under this article. … May 21, 2019

Cybernetic Services Stipulated Facts 5/21/2019 Cybernetic Services Stipulated Facts Matsco, Inc., and Matsco Financial Corporation (Petitioners) have a security interest in a patent developed by Cybernetic Services, Inc. (Debtor) Security interest was “properly prepared, executed by the Debtor and timely filed with the Secretary of State of the State of California” May 21, 2019

Cybernetic Services Question 5/21/2019 Cybernetic Services Petitioners did not record their interest with the PTO. Question Is the security interest perfected? May 21, 2019

5/21/2019 35 USC 261 … An assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage. May 21, 2019

8‑1: Hypo Hypo Debtor Bank 5/21/2019 TTYN 8‑1: Hypo Hypo Debtor 35 USC 261: An assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage. 5/1: $ SA: Patent FS: UCC Bank Is Bank perfected? May 21, 2019

8‑1: Answer This turns on whether filing in UCC records suffices 5/21/2019 8‑1: Answer This turns on whether filing in UCC records suffices Cybernetic Services (CA9, 2001) says yes based on its detailed reading of key terms in the Patent Act May 21, 2019

8‑2: Patently Absurd? Debtor Finco Bank Who has priority? 6/1: $ 5/21/2019 TTYN 8‑2: Patently Absurd? Debtor Finco 6/1: $ SA: Patent 6/1 Records Transfer 5/1: $ SA: Patent FS: UCC Who has priority? US PTO Bank May 21, 2019

5/21/2019 8‑2: Patently Absurd? Again, Cybernetic Services suggests that Bank wins Treats grant of SI as outside of “assignment, grant or conveyance” in 35 USC 261 May 21, 2019

8‑2: Patently Absurd? Debtor Finco Bank Who has priority? 6/1: $ 5/21/2019 TTYN 8‑2: Patently Absurd? Debtor Finco 6/1: $ Mortgage: Patent 6/1 Records Transfer 5/1: $ SA: Patent FS: UCC US PTO Bank Who has priority? May 21, 2019

8‑2: Patently Absurd? Cybernetic Services doesn’t seem to answer this 5/21/2019 8‑2: Patently Absurd? Cybernetic Services doesn’t seem to answer this May 21, 2019

102. Subject matter of copyright: In general 5/21/2019 102. Subject matter of copyright: In general (a) Copyright protection subsists, in accordance with this title, in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. May 21, 2019

17 USC 408: Copyright registration in general 5/21/2019 17 USC 408: Copyright registration in general (a) Registration Permissive. At any time during the subsistence of the first term of copyright in any published or unpublished work in which the copyright was secured before January 1, 1978, and during the subsistence of any copyright secured on or after that date, May 21, 2019 Copyright © 2001-11 Randal C. Picker

17 USC 408: Copyright registration in general 5/21/2019 17 USC 408: Copyright registration in general (a) Registration Permissive. the owner of copyright or of any exclusive right in the work may obtain registration of the copyright claim by delivering to the Copyright Office the deposit specified by this section, together with the application and fee specified by sections 409 and 708. Such registration is not a condition of copyright protection. May 21, 2019

17 USC 205: Recordation of transfers and other documents 5/21/2019 17 USC 205: Recordation of transfers and other documents (a) Conditions for Recordation. Any transfer of copyright ownership or other document pertaining to a copyright may be recorded in the Copyright Office if the document filed for recordation bears the actual signature of the person who executed it, or if it is accompanied by a sworn or official certification that it is a true copy of the original, signed document. May 21, 2019

17 USC 205 Cont. (c) Recordation as Constructive Notice. 5/21/2019 17 USC 205 Cont. (c) Recordation as Constructive Notice. Recordation of a document in the Copyright Office gives all persons constructive notice of the facts stated in the recorded document, if— May 21, 2019

5/21/2019 17 USC 205(c) Cont. (1) the document, or material attached to it, specifically identifies the work to which it pertains so that, after the document is indexed by the Register of Copyrights, it would be revealed by a reasonable search under the title or registration number of the work; and (2) registration has been made for the work. May 21, 2019

17 USC 205 Cont. (d) Priority Between Conflicting Transfers. 5/21/2019 17 USC 205 Cont. (d) Priority Between Conflicting Transfers. As between two conflicting transfers, the one executed first prevails if it is recorded, in the manner required to give constructive notice under subsection (c), within one month after its execution in the United States or within two months after its execution outside the United States, or at any time before recordation in such manner of the later transfer. May 21, 2019

5/21/2019 17 USC 205(d) Cont. Otherwise the later transfer prevails if recorded first in such manner, and if taken in good faith, for valuable consideration or on the basis of a binding promise to pay royalties, and without notice of the earlier transfer. May 21, 2019

17 USC 101 A “transfer of copyright ownership” is 5/21/2019 17 USC 101 A “transfer of copyright ownership” is an assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license. May 21, 2019

8‑3: First-to-file (or Not)? (1/3) 5/21/2019 TTYN 8‑3: First-to-file (or Not)? (1/3) Debtor Finco 5/15 SA: Song Reg. Copy. FS $ 5/1 SA: Song Reg. Copy. FS $ 5/15 Records Transfer Who has priority? Copyright Office Bank 5/22: Records Transfer May 21, 2019

8‑3: Answer If under Article 9 If under 17 USC 205 5/21/2019 8‑3: Answer If under Article 9 Bank filed first, Bank wins If under 17 USC 205 Bank filed within one month of 5/1 and therefore has priority under 205(d) Bank wins either way here May 21, 2019

8‑3: First-to-file (or Not)? (2/3) 5/21/2019 TTYN 8‑3: First-to-file (or Not)? (2/3) Debtor 5/7: Knowledge Finco 5/15 SA: Song Reg. Copy. FS $ 5/1 SA: Song Reg. Copy. FS $ 5/15 Records Transfer Who has priority? Copyright Office Bank 6/22: Records Transfer May 21, 2019

8‑3: Answer If under Article 9 If under 17 USC 205 5/21/2019 8‑3: Answer If under Article 9 Knowledge irrelevant, Bank wins If under 17 USC 205 Even though Bank is outside one month window, Finco has knowledge; Bank wins under 205(d) Bank wins under either system here May 21, 2019

8‑3: First-to-file (or Not)? (3/3) 5/21/2019 TTYN 8‑3: First-to-file (or Not)? (3/3) Debtor Finco 5/7: Knowledge 5/15: $, SA: Song Reg. Copy. FS 5/1 SA: Song Reg. Copy. FS $ 5/15 Records Transfer 5/20: S, SA: Song Reg. Copy., FS Creditco Who has priority? Copyright Office 5/20: Records Transfer Bank May 21, 2019 6/22: Records Transfer

8‑3: Answer If under Article 9 Knowledge irrelevant 5/21/2019 8‑3: Answer If under Article 9 Knowledge irrelevant Bank beats Finco who beats Creditco May 21, 2019

8‑3: Answer If under 17 USC 205 Bank beats Finco (knowledge) 5/21/2019 8‑3: Answer If under 17 USC 205 Bank beats Finco (knowledge) Finco beats Creditco (executed first and filed within window) Creditco beats Bank (executed later but Bank filed outside window) Circular priority May 21, 2019

8‑3: Answer Which system controls? 5/21/2019 8‑3: Answer Which system controls? Aerocon says for registered copyrights, the federal filing controls, while for unregistered copyrights, Article 9 controls May 21, 2019

Filing with the Copyright Office 5/21/2019 Filing with the Copyright Office The Filing Security agreement suffices Indexing Filings are indexed by title or copyright registration number (205(c)), not the debtor’s name Requires individual filings for each item claimed May 21, 2019

Filing with the Copyright Office 5/21/2019 Filing with the Copyright Office Substantially multiplies the number of filing in an initial transaction and offers no good mechanism for after-acquired property May 21, 2019

Buys 1/3 interest in assets and avoidance rights 5/21/2019 Aerocon Aerocon WAP/WA/ARS Pays $90K Buys 1/3 interest in assets and avoidance rights $ SA: All Assets FS: Calif SS Gets 2/3 interest SV Bank Airweld Is Bank perfected? May 21, 2019

How Should We Resolve This Case? 5/21/2019 How Should We Resolve This Case? Under Current Article 9? Does It Matter Whether the Copyrighted Works are Registered or Unregistered? May 21, 2019

Start with 17 USC 205 Key Questions 5/21/2019 Start with 17 USC 205 Key Questions Does the federal statute displace the Article 9 filing requirement? To what extent are other Article 9 rules displaced by the federal scheme? May 21, 2019

5/21/2019 Start with 17 USC 205 205(d) Fed priority rule should be understood to displace Article 9 priority rules, when 205(d) applies Limited to situations where constructive knowledge given under 205(c) 205(c) in turn applies only to registered works May 21, 2019

Start with 17 USC 205 Implication? Problems? 5/21/2019 Start with 17 USC 205 Implication? One set of rules for registered works, another for unregistered File in fed system for registered works, state system for unregistered Problems? What happens when unregistered work is registered? May 21, 2019

Switching Status Debtor Finco Bank Who has priority? 5/15: $ SA: Song 5/21/2019 TTYN Switching Status Debtor Finco 5/15: $ SA: Song 5/1: $ SA: Song Unreg. Work Files FS w/SS 5/15 Records Transfer 5/2: Registers work Copyright Office Bank Who has priority? May 21, 2019

Answer Registration seems to switch applicable law 5/21/2019 Answer Registration seems to switch applicable law But note limits in last sentence of 205(d) Good faith Without notice of earlier transfer May 21, 2019

How to Deal with this Possibility? 5/21/2019 How to Deal with this Possibility? Transaction Design? Insist on registration? Update with registrations? May 21, 2019