When conducting due diligence searches, often times the question arises: should your due diligence search practices include searching the U.S. Patent and Trademark Office and the U.S. Copyright office? If intellectual property (IP) might be involved in your transaction, then the answer in most cases is a resounding “YES.” Similar to searching for statutory and consensual liens on borrowers and debtors, uncovering liens and/or confirming the owner of intellectual property is critical. Intellectual property may be the most valuable asset of a debtor. An entity that has a well-known trade name, service mark, or logo, which differentiates it from others in the marketplace, possesses valuable IP that may be of interest to a secured lender. Thus, knowing all there is to know about a debtor’s IP ownership, assignments and liens can be critical to most due diligence projects.
Intellectual property, by definition, 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. Limiting due diligence to a typical UCC and statutory lien search, however, may not be enough. A thorough investigation should also include a search of the United States Patent and Trademark office (USPTO) and United States Copyright office (USCO). Only by conducting these additional searches can you determine who has the rights to the IP and if other liens exist. It may help you avoid unpleasant surprises and provide a more accurate view of the debtors’ intellectual property assets.
As intellectual property continues to become more valuable in our information society, lenders are increasingly relying on their counsel to conduct the most thorough due diligence possible. When valuable IP collateral is involved, searches of the USPTO and USCO are very important pieces of the due diligence puzzle that shouldn’t be overlooked.