Patent lien search and USPTO security interest search for lenders and buyers

The people who order lien searches on patents are almost always about to put money at risk. A lender taking a patent portfolio as collateral needs to know it will hold first priority. A buyer needs to know the patent comes free of a creditor's claim, or that the claim will be released at closing. A licensee paying a large upfront fee wants to know a foreclosing lender cannot take the patent out from under the license. Investors in a venture debt round, acquirers in an asset purchase and the bankruptcy counsel on either side of a distressed sale all run the same check.

Timing matters. Run the search when the term sheet is signed, so a surprise lien can be negotiated, and again right before closing, so nothing recorded in between slips through. A search from six weeks ago is a historical document, not a clearance.

Lenders record security agreements at the USPTO as a matter of routine, and the assignment records show them alongside ordinary assignments. Each entry carries a conveyance type, the parties, an execution date, a recordation date and a reel and frame number that points to the recorded document. A useful search does four things with those entries.

1. 1

   Pull every recorded document for the patent and for the application it issued from, since many security agreements were recorded while the application was pending.

2. 2

   Pick out each conveyance that is a security agreement, a grant of security interest or a similar collateral document.

3. 3

   Find the matching release, or a later assignment from the secured party that shows a foreclosure or a transfer of the loan.

4. 4

   Confirm the debtor named in the security agreement was actually the owner of record at the time, which takes the full chain of title.

The third step is where manual searches go wrong. A portfolio that changed hands twice may carry security agreements from three different lenders, each with partial releases that name only some of the patents. Matching each release to the agreement it ends, patent by patent, is slow and easy to get wrong on a spreadsheet. A patent chain of title report does that pairing for every patent and lists any security interest that has no release. Lenders can turn the steps above into a pre-closing routine with the patent title search checklist for lenders.

Courts have treated a patent as a general intangible under Article 9 of the Uniform Commercial Code. In In re Cybernetic Services, the Ninth Circuit held in 2001 that a security interest in a patent is perfected by filing a UCC financing statement, and that the Patent Act's recording provision covers transfers of title rather than liens. The practical result is that a lender can hold a perfected lien on a patent with nothing at all recorded at the USPTO.

So the second half of the search goes to the filing office of the state where the debtor is located. For a corporation or LLC, that is the state where it was organized, so a Delaware company is searched in Delaware even if every engineer works in California. Search the exact legal name from the formation documents, plus former names, because a financing statement filed under an old name can stay effective for a period after a name change.

UCC filings rarely list patent numbers. Most describe the collateral as all assets or all general intangibles, which covers every patent the debtor owns. Read the collateral description of each filing, then ask the debtor for the underlying security agreement when it is unclear.

The last row is the reason buyers run the USPTO half against the whole chain of title and not just the current owner. If a prior owner granted a security interest and then sold the patent without a release, the lender may still claim it, and a UCC search on the current owner will never show that filing.

• A security agreement recorded at the USPTO with no release and no later document from the secured party
• A release that names some patents from the original agreement but not the one you are buying
• A UCC financing statement against the debtor describing all assets, with no termination statement
• A security agreement granted by a company that was not the owner of record on that date
• A lender that merged or sold its loan book, so the party that must sign the release is no longer the name on the record
• An owner whose legal name differs from the name on the USPTO records, which hides UCC filings from a name search

Any one of these is fixable before closing. The usual cure is a payoff letter and a signed release from the secured party, recorded at the USPTO, together with a UCC termination statement filed in the right state. The cure is cheap when it is found early and expensive when it is found by the buyer's counsel the night before signing.

Pricing depends on who does the work. Corporate service companies sell federal IP searches and state UCC searches as separate products, usually priced per name searched or per patent, with extra charges for rush delivery and document copies. Law firms bill the review by the hour, and a portfolio of a few hundred patents with several prior owners can take days of paralegal time before an attorney reviews the result.

The USPTO half is the part that scales badly, because the work grows with every patent and every owner in the chain. On Assignee, each chain of title report covers the full recorded history of one patent, including security interests and their releases, and the Analyst plan includes 25 reports a month at $49 a month billed yearly. The Firm plan covers 600 reports a month, enough to clear a mid-sized portfolio in one pass and export the open liens to a spreadsheet. The UCC half still needs a state search, which most lenders order from their usual service company.

1. 1

   Build the patent list from the seller's schedule and check it against the patent assignee search results for the seller and its former names, since schedules are often incomplete.

2. 2

   Run a chain of title report on each patent and export every security interest without a release.

3. 3

   Order UCC searches in the state of organization for the seller and for each prior owner that still exists.

4. 4

   Send the seller a list of open items with reel and frame references, and ask for payoff letters and releases.

5. 5

   Record the releases at the USPTO before closing, file the UCC terminations, and rerun the reports the day before signing.

6. 6

   After closing, add the portfolio to patent monitoring so a new security agreement recorded against it reaches you by email.

The lien search covers the collateral. The borrower's own credit file, from tax returns to bank statements, still needs its own loan underwriting review before the loan is approved. The two checks answer different questions and both belong in the closing file.

How do I find out if a patent has a lien?

Search the USPTO assignment records for any security agreement recorded against the patent, and check whether a release follows it. Then search UCC filings in the state where the owner is organized, since a lien can be perfected there without any USPTO record.

Does recording a security interest at the USPTO perfect it?

Generally no. Courts, including the Ninth Circuit in In re Cybernetic Services, have held that a security interest in a patent is perfected by a UCC financing statement. Lenders record at the USPTO as well, so later buyers of the patent see the lien.

How long does a patent lien search take?

The USPTO part takes seconds per patent with Assignee and 30 minutes or more per patent by hand. State UCC searches usually come back the same day or within a few business days, depending on the state and the provider.

For the full ownership check that sits around the lien search, read the patent due diligence checklist.