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Moldo v. Matsco, Inc. (In Re Cybernetic Services, Inc.)

United States Bankruptcy Appellate Panel for the Ninth Circuit
239 B.R. 917, 52 U.S.P.Q. 2d (BNA) 1683, 99 Daily Journal DAR 11155 (1999)
ELI5:

Rule of Law:

Perfection of a security interest in a patent is governed by Article 9 of the Uniform Commercial Code (UCC) and requires a filing with the appropriate state authority, not a filing with the United States Patent & Trademark Office.


Facts:

  • Cybernetic Services, Inc. owned a patent for a data recorder.
  • Matsco, Inc. and Matsco Financial Corporation ('Matsco') entered into a security agreement with Cybernetic, granting them a blanket security interest in all of Cybernetic's assets, including its 'general intangibles.'
  • The parties agreed that the patent qualified as a general intangible under the security agreement.
  • Matsco filed a UCC-1 Financing Statement with the Secretary of State of the State of California to perfect its security interest.
  • Matsco did not file any document with the United States Patent & Trademark Office to record its security interest in the patent.
  • Cybernetic Services, Inc. subsequently entered bankruptcy proceedings.

Procedural Posture:

  • Cybernetic Services, Inc. filed for Chapter 7 bankruptcy in the United States Bankruptcy Court.
  • Matsco and Financial filed a motion for relief from the automatic stay in the bankruptcy court to foreclose on the patent.
  • The Chapter 7 Trustee opposed the motion, arguing that Matsco's security interest was unperfected because it was not filed with the Patent Office.
  • The bankruptcy court, as the court of first instance, granted Matsco's motion, concluding that the state UCC filing was sufficient to perfect the security interest.
  • The Trustee (appellant) filed an appeal of the bankruptcy court's decision to the Bankruptcy Appellate Panel.

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Issue:

Does the perfection of a security interest in a patent require a filing with the United States Patent & Trademark Office, or is a state UCC filing sufficient under Article 9?


Opinions:

Majority - Perris, Bankruptcy Judge

No. Perfection of a security interest in a patent is governed by state law under Article 9 of the Uniform Commercial Code, which requires a state-level filing, not a federal filing with the Patent Office. The federal Patent Act does not preempt state law regarding the perfection of security interests because it is concerned with transfers of title and ownership, not with the creation of security liens. The court reasoned that the Patent Act's recording provision, 35 U.S.C. § 261, applies to 'assignments,' which involve a transfer of title, not to modern UCC security interests which do not depend on title. The court contrasted the Patent Act with the federal Copyright Act, which explicitly includes security interests ('mortgage,' 'hypothecation') within its scope and therefore does preempt state law. Because the Patent Act is silent on security interests and does not provide a comprehensive federal registration system for them, the UCC's 'step-back' provisions do not apply, and the state UCC filing requirements remain the proper method for perfection.



Analysis:

This decision provides critical certainty for commercial lenders by clarifying that the standard, state-based UCC filing system is the correct method for perfecting a security interest in a patent. It firmly distinguishes the treatment of patents from copyrights, where a federal filing is required due to the Copyright Act's more comprehensive statutory language. The ruling prevents the need for a dual-filing system (both state and federal) for patents, thereby simplifying transactions and reducing costs for lenders taking intellectual property as collateral. It reinforces the principle that federal preemption in commercial law occurs only when a federal statute provides a comprehensive and specific alternative to the UCC framework.

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