Filling of notice of a security interest in a trademark with the U.S. Patent and Trademark office insufficient to perfect such security interest

Secured Lender, The, Nov/Dec 2001 by Bernstein, H Bruce

Filing of notice of a security interest in a trademark with the U.S. Patent and Trademark Office insufficient to perfect such security interest

A New York federal district court affirmed a bankruptcy court decision which held that federal trademark law does not preempt Uniform Commercial Code filing requirements for perfection of a security interest in a trademark. Trimarchi v. Together Development Corporation, 255 B.R. 606 (D. Mass. 2000).

Horace Trimarchi ("the Creditor") owned 25 percent of the outstanding shares of Together Development Corporation, a corporation with its chief executive office in Connecticut ("the Debtor"). In 1986, Debtor entered into a stock repurchase agreement with Creditor to buy back the 25% of its stock owned by Creditor. Debtor's obligations to Creditor under the repurchase agreement were secured by a security interest in, among other collateral, the Debtor's trademark "Together Dating Service" (the "Trademark"). Creditor filed a signed UCC- 1 financing statement ("UCC-1") with the United States Patent & Trademark Office ("PTO") but did not file the UCC- 1 with the Secretary of State of Connecticut. Approximately 18 months later, Debtor filed under Chapter 11, and as part of the reorganization, the bankruptcy court ordered Debtor to sell substantially all its assets, including the Trademark. Creditor objected to the sale, claiming that he held a perfected security interest in the Trademark, and consequently, the sale of the Trademark was precluded by a prior "assignment." The bankruptcy court overruled the objection, holding that a security interest in a trademark may not be perfected solely by the filing of a UCC-I with the PTO. Creditor appealed.

Creditor presented two arguments to the federal district court in support of his claim that filing with the PTO was sufficient to perfect his interest in the Trademark: first, that the Trademark Act of 1946, as amended, 15 U.S.C.A. 1051 et seq. (the "Lanham Act") created an exemption to New York's Uniform Commercial Code (the "UCC") filing requirements set forth in 9-302(3); and second, that the Lanham Act preempted the UCC filing requirements pursuant to the Supremacy Clause of the United States Constitution. U.S. Const. Art. VI. 2.

Section 9-302 of the UCC under pre-revised Article 9 provided, in pertinent part, that "[t]he filing of a financing statement otherwise required by this Article is not necessary or effective to perfect a security interest in property subject to (a) a statute or treaty of the United States which provides for a national or international registration... or which specifies a place of filing different from that specified in this Article for filing of the security interest." Creditor argued that the Lanham Act, which provides that "[aln assignment shall be void as against any subsequent purchaser for a valuable consideration without notice, unless it is recorded in the Patent and Trademark Office" is precisely the type of federal statute contemplated by the Section 9-302. Creditor contended that because the Lanham Act provides for national registration of assignments of trademarks, Section 9-302 applied and filing with the PTO, not the state of Connecticut, was required to perfect its security interest in the trademark.

The court rejected this argument, basing its holding primarily upon the legislative history of Section 9-302, comparisons with other Federal statutes and caselaw. The court explained that the purpose of Section 9-302 is to exempt from UCC filing requirements "transactions as to which an adequate system of filing, state or federal, has been set up outside this Article." While the Lanham Act does establish a national system of registration for "assignments" of trademarks, it is not the sort of system contemplated by Section 9-302 of the UCC. The court explained that Lanham Act registration does not even "speak of security interests in trademarks as such nor does it provide for the filing of notification of such interests." The court stated that if Congress had intended the Lanham Act to concern security interests, it would have made explicit reference to security interests in the text of the Act, such as it did in the Copyright Act and the Federal Aviation Act. The court further noted that caselaw "consistently supports the proposition that the Lanham Act does not pertain to security interests and that Article 9, therefore, continues to govern the perfection of such interests." The court thus held that the UCC governed perfection of security interests in trademarks, and consequently, Creditor should have perfected his interest in the Trademark under the UCC and not by filing with the PTO.

The court also rejected Creditor's second claim that the Lanham Act preempts UCC filing requirements pursuant to the Supremacy Clause. In rejecting this argument, the court noted that federal law can preempt state law in any one of four circumstances: (1) by the federal law's express terms, (2) where federal regulation is sufficiently comprehensive to infer that Congress left no room for supplementary state regulation, (3) where federal interest is so dominant as to preclude enforcement of state laws on the same subject or, (4) where state law actually conflicts with federal law. The court stated that none of these four circumstances existed in this case, restating that the Lanham Act concerns assignments of, and not security interests in, trademarks, as contrasted to the UCC which clearly makes direct references to security interests. The court reiterated that: