Property, intangible

a blog about ownership of intellectual property rights and its licensing

Luckily, Recording a Security Interest Does Not Assign a Patent

This is a situation I don’t recall seeing before, but perhaps that is because it took some chutzpah to make the argument. At any rate, the decision covers some interesting legal history.

The decision is about is security interests. In Raffel Systems LLC v. Man Wah Holdings Ltd. Inc., the plaintiff-patentee had granted security interests in its patents before suing. A non-issue, I expect most of us would think. But the defendant saw an opening.

The defendant thought it hit pay dirt with Waterman v. Mackenzie, 138 U.S. 252 (1891), which likened a security interest in a patent to a mortgage on real estate, where, upon granting a mortgage, the mortgagor can no longer lease the property, accrue rents, etc. Waterman held that, by analogy, the recording of a security interest at the patent office is the “equivalent to a delivery of possession, and makes the title of the mortgagee complete towards all other persons, as well as against the mortgagor.” Thus, the Waterman court held that the patent owner did not have standing for suit, only the owner of the security interest did.

But enter UCC Article 9, which changed the law regarding security interests. A security interest no longer required a transfer of ownership: “except as otherwise provided … the provisions of this article with regard to rights and obligations apply whether title to collateral is in the secured party or the debtor.” U.C.C. § 9-202.

Defendant Man Wah didn’t disagree that the UCC changed the law of security interests generally, but argued that, per Waterman, in the case of a patent an assignment was created by granting a security interest, which was then perfected by recording at the patent office, so that Waterman and § 261 of the Patent Act preempt Article 9 of UCC to the extent they conflict.

Points for creativity, but the court points out “Courts that have addressed this issue have consistently found that the Patent Act does not address perfection of security interests—it addresses assignments of title. … The Patent Office is concerned with the recording of transfers of title only. … [T] failure of the Patent Act to include security interests within its scope means that the Patent Act does not preempt state regulation of security interest in patents.”

The court cited by analogy to various cases that supported this conclusion, concluding that Raffel had standing to bring the patent infringement claim. Which is a result I’m sure every bank and patentee is very happy to hear.

Raffel Systems, LLC v. Man Wah Holdings Ltd., Inc., No. 18-CV-1765 (E.D. Wis. June 15, 2020).

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