Federal Intellectual Property Due Diligence: Beyond UCC and Lien Searches

What this is: Like due diligence searches for statutory liens and consensual (UCC) financing statements on borrowers and debtors, confirming the owner and status of intellectual property in a transaction is critical in the US. 
 
What this means: As lenders continue to rely on counsel to conduct the most thorough due diligence possible, it is important to be mindful of how federal intellectual property plays into transactions. 

When is it Necessary to Search the USPTO and USCO?  

When conducting due diligence searches, do you wonder:   

“Should I be searching the US Patent and Trademark Office (USPTO) and the US Copyright Office (USCO)?”   

If intellectual property (IP) is involved in your transaction, then the answer (in most cases) is a resounding yes.   
 
A borrower/debtor that has a well-known trade name, service mark or logo, strongly distinguished from others in the marketplace, possesses valuable IP that is likely of interest to a secured lender. The borrower/debtor may also have patents or registered copyrights adding significant value to its portfolio. This valuable IP may be pledged as collateral to secure a loan. USPTO patent and trademark searches and USCO copyright registration searches are vital for uncovering information on assignments, liens and general ownership of the IP that are not necessarily apparent from standard UCC/statutory lien searches.   

Limitations of Typical UCC and Lien Searches    

IP falls within the scope of “general intangibles” as defined in Section 9-102 of Article 9 of the Uniform Commercial Code. As such, searching for UCCs that may include IP as collateral is necessary but limiting your due diligence to a typical UCC and statutory lien search may not be enough. A UCC may only provide a general collateral description, which may not indicate if IP is included because these specific details are only required in the security agreement. Security agreements are rarely found in the public record. Therefore, a thorough public record due diligence investigation should also include a search of the USPTO and USCO. Only by conducting these additional searches can you determine who has the rights to the IP and whether other liens exist. 

Which Search Types and Locations Are Generally Included in a Comprehensive Due Diligence Strategy?  

Typically, a thorough due diligence search strategy includes the following search types and search locations:   

• State central filing office of the debtor’s state of formation for UCCs.  
• If the debtor owns land, a search of the local land records for UCC fixture filings and other liens.  
• State and local-level filing offices in the state where the debtor’s chief executive office resides for statutory liens.  
• State and federal-level litigation searches.  
• USPTO and USCO for intellectual property.  

Don’t Skimp on USPTO and USCO Searches  

IP has increasingly become more valuable and more frequently encountered as collateral in financial transactions. As lenders continue to rely on counsel to conduct thorough due diligence, it is important to be mindful of how IP plays into transactions. Searches of the USPTO and USCO are important pieces of the due diligence puzzle that provide a more detailed view of a debtor’s intellectual property assets and should not be overlooked. 

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What is an important consideration prior to conducting a USPTO search?  

Before starting a search, it is important to understand that the USPTO website is separated into trademark and patent “silos.”   

Within those 2 silos, each database is further broken down into additional areas containing multiple search fields. Consider devising a search strategy in advance that covers the following sections:   

• Pending and registered trademarks 
• Trademark assignments 
• Published pending patents  
• Patent grants 
• Patent assignments   

To learn more about this topic, read our article, The Challenges of Searching the US Patent and Trademark Office Website.   

What is the purpose of a UCC search?  

The primary purpose of a UCC search is to reveal any existing consensual liens/security interests in a debtor’s assets, which is crucial for lenders, creditors and other interested parties to assess the risk associated with extending credit or entering into financial agreements. To learn more, refer to our article, Understanding the Basics of International Lien Searches. 

Can representations and warranties be a substitute for intellectual property due diligence?

In a transaction, IPDD and representation/warranty provisions are often complementary components of risk management. As important as they are, representations and warranties are not an adequate substitute for IPDD, especially when the IP of the seller is essential to the deal. To learn more, refer to Intellectual Property Due Diligence: Are the Seller’s Representations and Warranties an Acceptable Substitute?

This content is provided for informational purposes only and should not be considered, or relied upon, as legal advice.