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

Mon, 6/2/2014 - 10:34AM — VALUATION

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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Ocean Tomo’s Valuation professionals are recognized as experts in IP and intangible asset valuation, having performed hundreds of strategic valuations for Fortune 500 companies, and small-to-mid-sized businesses, across a variety of industry segments. Managing Director Greg Campanella leads the Management Services Group and the Valuation Practice for Ocean Tomo.

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