Intellectual Property (IP) Valuation in Bankruptcy: Perfection of Security Interests in IP

Mon, 6/2/2014 - 10:34AM — ROY D’SOUZA

As the value of corporations continues to shift from tangible assets to intangibles such as patents, copyrights, trademarks and customer contracts, an increasing number of bankruptcies and corporate restructurings involve intellectual property (IP) matters. Due to this increase in disputes related to IP rights and value, the potential risk exposure for all creditors of improper or delayed perfection of security interests in intangible assets has increased in tandem.

Creditors can perfect a security interest in a corporate borrower’s IP by filing a Uniform Commercial Code-1 financing statement with the state.  Such creditors may also record their security interests with the USPTO.  However, as demonstrated by the disputes surrounding the bankruptcies of companies such as Kodak, Cengage Learning and Nortel, the process of accurate and timely perfection of security interests in IP often receives less attention than it requires.  In instances of inadequate or tardy perfection, the value of these IP assets comes to center stage in bankruptcy proceedings since their value must be calculated and ultimately allocated to the appropriate creditors.

The proper execution of the perfection process up front will not only remove complexities and ambiguity in the case of a bankruptcy filing, but will most importantly reduce risk and unnecessary expense for all parties involved.

A special thanks to Sean Sheridan and Elizabeth Quinlivan for contributing to this post.

 

Photo by Jorge Franganillo / CC BY-SA 4.0

 

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Roy D'Souza is a Managing Director responsible for leading Ocean Tomo’s Valuation practice. Mr. D’Souza’s work has focused on valuations of intangible, intellectual property, and tangible assets for acquisitions and divestitures, bankruptcy and restructuring, establishment of intellectual property monetization strategies including licensing, mergers and joint venture/partnership formations, litigation support, and financial reporting and tax matters. Mr. D’Souza also has experience performing business enterprise, equity and debt valuations. Industries in which he has experience include wireless and wired communications, semiconductors, life sciences/pharmaceuticals, computer hardware and software, various light and heavy manufacturing (e.g., pulp/paper, automotive, plastics), and energy/utilities (primarily power generation).

Contact: RdsouzaBlogs@OceanTomo.com

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