South-Western Legal Studies in Business

Claims on Unregistered Copyrights Subject to State Security Interest Rules
Description Federal appeals court held that state law governing perfection of security interests determined which creditor had a claim on the unregistered copyrights of a debtor that went into default. The fact that the copyrights were not registered with the Copyright Office was not relevant to the determination of the security interests.
Topic Negotiable Instruments and Credit
Key Words Security Interest; Recording; Copyright
C A S E   S U M M A R Y
Facts A company owned copyrights in its drawings of product designs. The copyrighted material was not registered with the Copyright Office. The company received financing from Silicon Valley Bank, which had a security agreement that gave the bank a security interest in "all goods and equipment" including blueprints, drawings, and other work products. The bank perfected its security interest in the collateral by filing a UCC financing statement with the California Secretary of State. When the company went bankrupt, one of the creditors wanted the copyrighted designs. The creditor contended that because the copyrights were not registered with the Copyright Office the bank did not have a valid interest in them. The creditor registered a claim over the copyrights with the Copyright Office. The bankruptcy court and district court held that the copyrights were properly claimed by the bank. The creditor appealed.
Decision

Affirmed. State law governs perfection and priority of security interests in a debtor's unregistered copyrights. Therefore, the bank's security interest in the copyrights, which were perfected, had priority and could not be avoided regardless of their status in the Copyright Office. Recording a security interest in a copyright at the Copyright Office does not control a creditor's status. "There just isn't any way for a secured creditor to preserve a priority in an unregistered copyright by recording anything in the Copyright Office. And the secured party can't get around this problem by registering the copyright, because the secured party isn't the owner of the copyright."

Citation In re World Auxiliary Power Company, 303 F.3d 1120 (9th Cir., 2002)

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