Insight Trademarks as Collateral

Trademarks and other intellectual property can be critical to a borrower’s financial success and may represent a significant portion of the value of the borrower’s business.  Thus, trademarks may be an important part of the lender’s collateral.  With a few extra steps, the lender can better protect its interest in these valuable assets.

First, the lender should determine what trademarks are part of its collateral base.  Trademarks can include a variety of design marks and phrases, in addition to company and product names .  A registered trademark is registered with the United States Patent and Trademark Office (USPTO), but the borrower may also have common law trademarks, which are trademarks it uses in commerce within its geographic area but are not registered.  As part of the underwriting package,  the lender should request a list of the borrower’s registered trademarks, any trademark applications in process, and all common law trademarks.

Next, the lender should determine what its lien position will be on the trademarks.  A standard Uniform Commercial Code (UCC) lien searches will show if there is a prior lien recorded against the borrower’s trademarks.  In addition, the lender should also search for other potential security interests in the form of assignments, with the United States Patent and Trademark Office (USPTO).

Security interests in trademarks are governed by Article 9 of the Uniform Commercial Code (UCC).  While the standard lender security agreement and UCC financing statement are sufficient to perfect a security interest in common law trademarks, notice of the lender’s security interest should also be recorded in USPTO for registered trademarks and applications in process in order to protect the lender against bona fide purchasers and mortgagees.  A short-form trademark security agreement is recommended when filing with the USPTO to protect the borrower’s privacy and avoid disclosing the terms of the loan that appear in the traditional security agreement.  The trademark security agreement filed with the USPTO must specifically identify the trademarks, which is typically accomplished by attaching a schedule which lists the mark, the jurisdiction, registration number, registration date, and record owner.

The trademark security agreement and schedule of trademarks can be electronically uploaded to the USPTO.  Using the automated process will automatically create a form  known as Trademark Assignment Cover Sheet and require payment of the recording fee.  Of note, the USPTO does not examine the filings, so the content is the responsibility of the filing party.  The filing fees are based on the number of trademarks, with $40.00 for the first trademark and $25.00 for the second and each subsequent trademark in the same document.

In summary, for valuable registered trademarks, a lender should consider further protecting its security interest against bona fide purchasers and mortgagees by filing a trademark security agreement with the USPTO.  Please contact us with any questions or concerns.