Aerocon Eng'g, Inc. v. Silicon Valley Bank (In re World Aux. Power Co.) - 303 F.3d 1120 (9th Cir. 2002)

Rule:

Former Article 9 of the Uniform Commercial Code (UCC), as adopted in California, former Cal. Com. Code § 9101 et seq. (1990), treats copyrights as "general intangibles." Former Cal. Com. Code § 9106 & official cmt. (1990). Security interests in general intangibles are properly perfected under the UCC by state filings. Former Cal. Com. Code §§ 9302(1), 9401(1) (1990).

Facts:

The bank provided financing to the bankruptcy debtors and obtained a security interest in the debtors' assets, including the unregistered copyrights at issue. The bank perfected its security interest pursuant to the California Uniform Commercial Code (UCC) and did not register the copyrights or record a transfer with the United States Copyright Office. The appellant purchaser obtained from the bankruptcy estate an interest in the copyrights and the trustees' right to sue to avoid the bank's security interest. The bank foreclosed on the copyrights. Appellant brought an adversary proceeding in bankruptcy court against the bank and its transferees, seeking to recover the copyrights or their value. The bankruptcy court found for the appellees. The district court affirmed the bankruptcy court’s decision. Appellant challenged the decision. 

Issue:

1. Did the bank have a perfected security interest in the copyrights? 
2. Could the purchaser, standing in the bankruptcy trustees’ shoes, prevail against the bank? 

Answer:

1) Yes. 2) No.

Conclusion:

The court of appeals found that the bank had a perfected security interest in the copyrights. Under former Cal. Com. Code §§ 9104(a) and 9302(3)(a) (1990), the UCC could not be used to perfect a security interest in a registered copyright; recording the transfer in the Copyright Office was required. However, the UCC governed perfection and priority of security interests in unregistered copyrights because the Copyright Act of 1976, 17 U.S.C.S. § 101 et seq., did not provide any way to perfect such interests. Also, the Copyright Act preempted state law with respect to perfection of security interests in registered, but not unregistered, copyrights. Accordingly, the district court’s judgment was affirmed.