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The holder of a security interest in a patent is not required to register that interest with the U.S. Patent and Trademark Office (PTO) to perfect it as against a bankruptcy trustee, the 9th U.S. Circuit Court of Appeals ruled June 6. In re: Cybernetic Services Inc., d/b/a Silent Radio Inc., Nos. 99-56856 and 99-56868. A three-judge panel of the court affirmed a ruling by the 9th Circuit Bankruptcy Appellate Panel that Matsco Inc. and Matsco Financial Corp., owners of an interest in a patent developed by Cybernetic Services Inc., have priority over a claim asserted in the patent by the trustee appointed to oversee Cybernetic’s bankruptcy estate and are entitled to relief from the automatic bankruptcy stay to foreclose on their interest. The patent, related to a data reorder designed to capture data from a video signal, is the primary asset of Cybernetic’s bankruptcy estate. Matsco recorded its interest in the patent with the California Secretary of State pursuant to a document executed by Cybernetic. After the interest was recorded, several creditors filed an involuntary Chapter 7 petition against Cybernetic. Matsco moved for relief from the automatic stay to foreclose on its interest; the bankruptcy trustee opposed the motion, arguing that the interest was not perfected because it was not recorded with the PTO. BANKRUPTCY COURT RULING The bankruptcy judge granted Matsco’s motion, finding that it had perfected its security interest by following the provisions of Article 9 of the Uniform Commercial Code (UCC), as adopted by the California Legislature. The Bankruptcy Appellate Panel affirmed. Affirming, the 9th Circuit held that neither Section 261 of the Patent Act nor Article 9 of the UCC requires that the interest be recorded with the PTO. Section 261 governs assignments of patents; Article 9 governs the perfection of security interests NO PREEMPTION The panel rejected the trustee’s argument that the Patent Act pre-empts the filing requirements set forth in Article 9, finding no pre-emptive language in the Patent Act and holding that Article 9 does not purport to grant patent-like protection to a product. Further, the panel said, Section 261, which provides that any “assignment, grant or conveyance shall be void as against any subsequent purchaser or mortgagee unless it is recorded in the Patent and Trademark Office” does not conflict with, and therefore pre-empt, Article 9′s filing requirements because Section 261 does not cover the type of transaction at issue here. “[T]he statute’s text, context, and structure, when read in the light of Supreme Court precedent, compel the conclusion that a security interest in a patent that does involve a transfer of the rights of ownership is a ‘mere license’ and is not an ‘assignment, grant or conveyance’ within the meaning of 35 U.S.C. �261,” the panel said. “And because � 261 provides that only an ‘assignment, grant or conveyance shall be void’ as against subsequent purchasers and mortgagees, only transfers of ownership interests need to be recorded with the PTO.” Moreover, the court said, the phrase “subsequent purchaser or mortgagee” does not include subsequent lien creditors, such as bankruptcy trustees. ARTICLE 9 Nor does Article 9 itself require that a creditor file notice of a secured transaction with the PTO to perfect a security interest, the panel said. The panel noted that Section 9302(3)(a) of the California Commercial Code provides that filing under Article 9 is not necessary to perfect a security interest in property subject to “a statute … which provides for a national or international registration … or which specifies a place of filing different from that specified in” Article 9. However, the panel said, that provision has been interpreted “as providing that federal filing is necessary only where there is a statute that ‘provides for’ a national registration of security interests.” Under that definition, the panel said, “it is clear that the Patent Act is outside the scope of � 9302(3)(a).” Matsco is represented by James A. Tiemstra of Miller, Starr & Regalia in Walnut Creek, Calif. The trustee is represented by Lorin Brennan of Newport Beach, Calif., Damon G. Saltzburg of Saltzburg, Ray & Bergman in Los Angeles and Paul M. Brent of Steinberg, Nutter & Brent in Santa Monica, Calif. �; Copyright 2001 Mealey Publications, Inc.

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