The Perfection of Liens in Unregistered Copyrights: Aerocon and Beyond

01/23/2003

Introduction

Copyrights are defined in the Copyright Act  as “Original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”   “Works of authorship” can include such items as literary works, musical works, dramatic works, pantomimes and choreographic works, pictorial, graphic and sculptural works, motion pictures and other audiovisual works, architectural works and sound recordings.   The Copyright Act provides that the owner of the copyright has the exclusive rights to (i) reproduce the copyrighted material; (ii) prepare derivative works based on the material; (iii) distribute copies of the material; (iv) publicly perform the material and (v) publicly display the material.

The Register of Copyrights is appointed by the Librarian of Congress and is responsible for all administrative functions and duties under the Copyright Act.     The Register of Copyrights also serves as the director of the United States Copyright Office (the “Copyright Office”), which is a division of the Library of Congress.   “The Copyright Office is . . .  an office of record, a place where claims to copyright are registered and where documents relating to copyright may be recorded when the requirements of the copyright law are met.”

Every day, businesses and their employees create copyrighted material from the most simple act of placing an original thought into writing, to the creation of a complex computer program.  Of course, the large majority of these copyrights are never registered with the Copyright Office. This is not surprising, since it would exact an enormous tax upon the time and resources of a business if an employer were to register each and every recorded original thought of its employees with the Copyright Office.  The Copyright Act appears to recognize this reality as registration is not a prerequisite for the creation of copyrighted material, although registration is required in order to bring suit for copyright infringement.

The failure to register copyrights becomes consequential, however, when there is a priority dispute between creditors with competing interests in the copyrighted material.  Frequently, creditors will lend money to business entities and will take a security interest in copyrights, both registered and unregistered.  The means to perfect a security interest in registered copyrights is well settled and apparently undisputed.   Surprisingly, the method for properly perfecting a security interest in unregistered copyrights is far from settled and has recently been vigorously disputed.  Lower courts within the Ninth Circuit have espoused conflicting views on this issue.  Unfortunately, no courts outside of the Ninth Circuit have weighed in with their thoughts.

On September 11, 2002, exactly one year after the most devastating attack on United States’ soil, the Ninth Circuit Court of Appeals handed down its opinion in Aerocon Engineering, Inc. v. Silicon Valley Bank (In re World Auxiliary Power Company)  (“Aerocon”).  While the impact of Aerocon cannot compare to the previous year’s disaster, Aerocon will have a significant influence on how creditors approach perfecting a security interest in unregistered copyrights.

In Aerocon, the Ninth Circuit analyzed the Copyright Act, applicable state law and the limited body of case law to determine the proper method of perfecting a security interest in unregistered copyrights.

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