Statement of Marybeth Peters
The Register of Copyrights
Subcommittee on Courts and Intellectual Property
Committee on the Judiciary
United States House of Representatives
106th Congress, 1st Session
June 24, 1999
Recordation of Security Interests in Intellectual Property
Mr. Chairman, members of the Subcommittee, I am pleased to testify today on a
proposal of the American Bar Association Joint Task Force on Security Interests
in Intellectual Property labeled the "Federal Intellectual Property
Security Act." While it is widely known that the Copyright Office has
registered copyright claims since 1870, it is less commonly known that this
Office has also recorded transfers of copyrighted materials from that date.
Today, transfers of huge catalogs or libraries of copyrighted works occur
frequently. Recordation of transfers - including security interests - is one
of the core functions of the Copyright Office.
Our testimony today is based upon our expertise and experience in the
administration of copyright law. We do not profess to be experts in the law or
business of secured transactions. Nor would we presume to speak to the merits of
the ABA proposal insofar as it may address needed reforms in the patent and
trademark laws. In preparing for this hearing, we have consulted with
representatives of various segments of the copyright community who have a stake
in the system of recordation of transfers of interests in copyrights. We also
recognize that lending institutions have an interest in a system that reliably
and efficiently provides constructive notice of interests in copyrights,
including security interests. We hope that today's hearing will represent the
beginning of a dialog between those who believe that the framework of the
current system is fundamentally sound - a view that we believe is shared by
most copyright owners - and those who perceive a need for a system that better
accommodates the requirements of their lending practices.
As I have suggested, it is the Copyright Office's understanding that some
businesses producing copyrighted property and many financial institutions may
support the ABA proposal. However, the Copyright Office also believes that the
current recordation system, which requires the submission of actual documents
and makes them part of the public record, is preferred by most copyright owners.
Additionally, many prefer that constructive notice be limited to documents that
specifically identify works and support the requirement that the work identified
in the document be registered. I believe these are real strengths of the current
Background to Copyright Recordation
The current copyright recordation system had its origins in the first
copyright statute assigning copyright responsibilities to the Librarian of
Congress. In the Copyright Act of 1870, section 89 [later recodified as section
4955] provided as follows:
"That copyrights shall be assignable by law, by any instrument of writing,
and such assignment shall be recorded in the Office of the librarian of Congress
within sixty days after its execution, in default of which it shall be void
as against any subsequent purchaser or mortgagee for valuable consideration,
Courts interpreting the provision ruled that the requirement of recordation
The 1909 Copyright Act enlarged the grace period but otherwise maintained the
essence of the previous recordation system. Section 44 [later recodified as
section 30] provided as follows:
"Every assignment of copyright shall be recorded in
the copyright office within three calendar months after its execution in the
United States or within six months after its execution without the limits
of the United States, in default of which it shall be void as against any
subsequent purchaser or mortgagee for a valuable consideration without notice,
whose assignment has been duly recorded."
As with the 1870 Act, courts interpreted the recordation provision in the
1909 Act to be mandatory. With respect to mortgages, the Second Circuit ruled in
1921 that copyrights can only be mortgaged under the federal copyright law.
Based on our review of the background to the adoption of the general revision
of the Copyright Act in 1976, it seems clear that Congress intended to create a
federal system of copyrighted works which included a registry of claims to
copyright and of transfers of copyright ownership. The 1961 Report of the
Register of Copyrights on copyright law revision noted that although the
previous law's requirement of recordation in the Copyright Office applied only
to "assignments," it was not entirely clear under that law whether
"assignments" included exclusive licenses or other transfers of less
than all rights. The Report proposed that the law be clarified to state that
other instruments, such as wills, trust indentures, decrees of distribution,
mortgages and discharges, and corporate mergers should be considered transfers
of copyright ownership. The Office recommended that the new statute specifically
cover exclusive licenses and all other transfers of ownership. (Emphasis
The Register stated that the purposes of a recordation system for copyright
(1) to enable a transferee to give constructive notice to all third persons
of the transfer of ownership to him; and
(2) to enable third persons to determine from the record who is the owner.
These goals were also enumerated by Alan Latman in his study of the
recordation system. To meet these goals, the recordation system had to embrace
all instruments by which the ownership of copyright is transferred in whole or
in part. The Report of the Register stated that "records of copyright
ownership are particularly important in view of the nature of copyright as a
form of intangible and incorporeal property not capable of physical
With respect to what should be filed, the Office stated that there
"should be practical assurance that the instrument recorded is precisely
the same as the one executed." Therefore, the Office recommended that the
statute explicitly require that any instrument filed for recordation bear the
actual signature of the person executing it or a sworn or official certification
that it is a true copy. The Office stated that constructive notice should be
confined to the facts specified in recorded instruments. Unrecorded documents
could not get such effect. Moreover, the Office rejected blanket transfers. The
Register's Report stated that "in some cases a recorded transfer will
cover 'all the copyrights' owned by the transferor with no identification of the
individual works," and concluded that constructive notice should be
confined to copyright in works specifically identified by the recorded
instrument. Otherwise, it might be "extremely difficult and time-consuming
for a third person to ascertain whether the copyright in a particular work is
covered by such a blanket transfer."
The transfer provisions in the current law reflect the goals and
recommendations of the Register. They were determined early in the revision
process; the recordation provision of the first revision bill in 1964 was
virtually identical to section 205 of the current law. During the next twelve
years (i.e., up to and including the passage of the Copyright Act of
1976), this section generated no controversy.
Today processing transfers of copyright ownership involves several steps. The
original document that transfers copyright ownership which bears the actual
signature of the person who executed it must be submitted for recordation;
alternatively, a copy of the document may be submitted if it is accompanied by a
sworn or official certification that it is a true copy of the original signed
document. A Document Cover Sheet may be used to facilitate the cataloging
process. Documents are verified, numbered, cataloged, and imaged for the public
record. Certificates of recordation are issued; they bear the date of
recordation and the volume and document number identifying the recorded
document. The original document is returned to the sender with the certificate.
An online record is created of recorded documents which is searchable by parties
and titles. In addition, registration numbers, if any, the nature of document,
the date of execution and other bibliographic data appearing in the document are
included in the online record. Processing time is currently about 6 months.
Before 1990, no question had been raised about the scope of the recordation
provision. That changed with the decision of In re Peregrine Entertainment
Ltd.,116 B.R. 194 (C.D. Cal. 1990), which held that the only way to perfect
a security interest in copyrighted works was to record the security interest
with the U.S. Copyright Office. This was the intent of the drafters of the 1976
Act. However, after Peregrine some questioned whether section 205 of
Title 17 was intended to be the sole method of perfection for security interests
in copyrighted works. Moreover, the banking industry apparently believes the UCC
filing system for security interests should play a prominent role in financing
arrangements regarding copyrighted property.
The Peregrine decision was followed by two additional cases with
similar holdings. In re AEG Acquisition Corp., 127 B.R. 34 (Bank. C.D.
Cal. 1991), amended, 161 B.R. 50 (9th Cir. BAP 1993); In re
Avalon Software, Inc., 209 B.R. 517 (Bank. D. Ariz. 1997). Recently, the
United States Court of Appeals for the Ninth Circuit held in Broadcast Music,
Inc. v. Hirsch, 104 F.3d 1163 (9th Cir. 1997), that an assignment
to creditors of an interest in royalties from a copyrighted work is not a
transfer of copyright ownership or a "document pertaining to a
copyright" under section 205, and therefore need not be recorded with the
Copyright Office. The Court distinguished Peregrine as a case involving a
security interest in a copyright subject to recordation under section 205.
The Peregrine decision stimulated a study of the recordation system
and a movement towards reform. The proposed Copyright Reform Act of 1993, H.R.
897, 103rd Cong. 1st Sess., would have permitted
perfection of security interests by either a UCC filing or recordation with the
Copyright Office. The bill also proposed other changes, such as the elimination
of the requirement that the work be registered in order to be accorded
constructive notice. Register of Copyrights Ralph Oman did not oppose reversing
the Peregrine decision, but advised against making precipitous changes
without adequate study. The American Bar Association and other interested groups
testified in favor of reform, but desired a more comprehensive reform
incorporating a registry of security interests in all intellectual property
including patents and trademarks. The provisions were deleted from the proposed
legislation in order to study whether a single system could be developed.
The ABA Proposal
The ABA proposal would create a dual system permitting the perfection of
security interests in federal intellectual property through a UCC filing at the
state level or a filing of a new type of "federal financing statement"
at the federal level. The proposed system would be radically different than the
UCC filing systems are maintained by the Secretaries of State of the various
states; under the ABA proposal, security interests filed at the state level
would be filed in the state where the debtor lives. Alternatively, under section
(b)(2)(B) of the proposal, holders of security interests in federal intellectual
property would also have the option of filing a federal financing statement with
the appropriate federal intellectual property agency. The federal financing
statement, which would broadly describe the covered intellectual property
rights, would encumber all copyrights owned by the debtor without specifying
actual works. The proposal encourages the Copyright Office and the Patent and
Trademark Office to create a system of joint administration; it does not mandate
one unitary system. Priority between state filings and federal filings would be
given to the first-to-file.
While the basic system for recording transfers of copyright under section 205
would remain the same, in two areas there would be important changes. First, the
one-month grace period in section 205 would be eliminated in favor of a first to
file system. Second, procedures for recording transfers secured through a
default of a security interest would be substantially different from the
requirements for recording other transfers.
Concerns of the Copyright Office
In preparation for this hearing, we met with representatives of a number of
copyright industries. They stated their preference for a continuation of the
present system. We asked what the problem was that the ABA proposal was trying
to address; they indicated it was after acquired property, i.e., the
needs of venture capitalists and the needs of start-up companies seeking
investment capital. When we asked how they dealt with works that have yet to be
created, a representative of a major motion picture company stated that periodic
registrations are made for the work as it progresses (e.g., registrations
of various versions of a screenplay). We recognize that this may not be a
solution for all of the copyright industries.
In our meeting, a number of concerns were expressed. One had to do with the
proposal to have only a financing statement which might simply refer to
intangibles and not include any specific titles. A second had to do with the
fact that the actual document would not be on file in any public place. As our
comments will indicate, we share these concerns. The copyright owners also
expressed other concerns which I am sure they will bring to your attention.
We believe that most copyright owners oppose elimination of the exclusivity
of the federal copyright system. At this point, it appears that for the sake of
clarity and simplicity a federal system is better than coexisting federal and
state systems. Clearly, the ABA's proposal represents a radical change in the
recordation system. It deserves a full and deliberate study. Later in this
testimony, I will mention a couple of ways in which the current system might be
modified to accommodate the needs of lenders.
The Copyright Office has comments on a number of aspects of the ABA proposal,
including: (1) changes in the section 205 system for recording copyright transfers
other than security interests; (2) permitting perfection of security agreements
without requiring specific identification of the works by titles or registration
numbers; (3) making an exception, for security agreements, to the requirement
that the actual document embodying the transfer of copyright be submitted for
recordation; (4) the interplay between state UCC systems and the federal
system; (5) the feasibility of and need for a joint administration of the system
of recording security interests in federal intellectual property; and (6) administrative
burdens posed by the proposed system. Our specific comments in these six areas
are as follows:
1. Changes in the section 205 recordation system under the copyright law.
The ABA proposal would modify the section 205 recordation
system in two areas. First, the one-month (two months for documents executed
outside the United States) grace period in section 205(d) would be eliminated
in favor of a first to file system. Second, procedures for recording transfers
secured through a default of a security interest would be substantially different
from the requirements for recording other transfers.
The current system giving priority to the first to execute, with a grace
period for recordation, has been in place since 1870. The system provides that
between two conflicting transfers, the first purchaser is protected as long as
the transfer is recorded, in the manner required to give constructive notice,
within one month of its execution in the United States or two months after its
execution outside of the United States, or at any time before recordation in
such manner of the later transfer. Otherwise, the later transfer prevails if it
is recorded first in the manner to give constructive notice provided it was
taken in good faith and without notice of the earlier transfer. The ABA proposes
going to a first to record system. There are advantages to the ABA proposal. A
system with a grace period means that a prospective purchaser cannot be
completely certain that the silence of the record insures his protection. He
cannot detect from the record an earlier purchase that has not been recorded;
and the later recordation of the prior purchase will defeat him if takes place
within one month after its execution.
On the other hand, the concept of an initial grace period is deeply rooted in
U.S. copyright law. See Latman, Study No. 19 at 121. Latman notes that the
drafters of the Uniform Conditional Sales Act in 1922 provided for a 10 day
period during which a purchaser was protected against subsequent purchases even
if he had not yet recorded; this was warranted by considerations of distance and
unavoidable delays. Latman went on to note that such considerations were less
persuasive in light of modern facilities for transmission of documents but that
recordation in Washington, D.C. for transactions occurring throughout the United
States might call for some grace period.
It is difficult to predict what the effect of abolition of a grace period
would be. Despite tremendous advances in communication and transportation, a
document executed today in Washington, D.C. can be submitted for recordation
before a document executed yesterday in Moscow or even Los Angeles. The factors
that justified a grace period in the 1870, 1909 and 1976 Acts may still be
present today, although even proponents of the grace period cannot deny that the
length of the period could be shortened considerably.
With respect to recordation of transfers secured through default of security
agreements, section 3(b)(4)(G) would establish special procedures based on
recording financing statements rather than the actual security agreements. Thus,
for transfers of ownership that result from such defaults, the public record
would be confined to a statement by the secured party identifying what was
transferred as a result of the default. This would be in contrast to the public
record for all other types of transfers, which would still require the
recordation of the actual document of transfer. The result could be an
impairment of the comprehensiveness and integrity of the public records of
Moreover, the Office would have to establish different procedures with
respect to records of transfer of ownership, depending upon whether the transfer
was in exercise of a secured party's post-default rights or remedies.
Administratively, it is difficult and burdensome to establish different
procedures according to the type of document which is being recorded. We see no
reason to abandon the current legal requirement that the actual document be
submitted; in fact, we regard the requirement to be a strength of the current
system. The Copyright Office therefore has serious concerns about the creation
of a second category of procedures within section 205.
2. The perfection of security agreements not limited to specific titles of
Ideally, a public record of copyrighted works should permit title searches to
ascertain who owns rights in a particular work, and the nature of those rights.
That is the clear goal of the current system, which allows any document to be
recorded, but gives constructive notice only to documents which specifically
identify works by title or registration number. Recordation of transfers
performs a vital informational function; titles of works covered by a transfer
are extremely important and seem indispensable if the recording system is to be
Under the ABA proposal, federal financing statements making general
statements as to "intangibles" or "intellectual property"
would cover all copyrights owned by the debtor. Since there is no requirement
that federal financing statements identify the specific property which the
statement covers, it would be impossible to ascertain through a search of the
public record the works encumbered by the financing statement. As a result,
clearing titles through a search of the public record could become impossible.
Adding to the complexity would be the perfection of security interests in
federal intellectual property which had been secured at the state level through
UCC filing. We discuss this below.
3. The lack of recordation of the actual security agreement, which best defines
the rights of the parties.
As mentioned above, the documents submitted for recordation are reproduced
and maintained in the Copyright Imaging System. Before October, 1997, they were
reproduced on microfilm. Retrieving documents is a central feature of the public
record, enabling a determination of the precise language used by the parties in
transferring, allocating or encumbering various rights. We believe there are
clear advantages to a public record that provides public access to the very
document that accomplishes a transfer of rights, rather than mere access to one
party's characterization of the rights transferred to that party.
Under the ABA proposal, recordation of security agreements in either the
federal system or the state UCC system would be accomplished by submission of a
fairly simple financing statement completed by the financial institution. There
is no requirement that the debtor sign the financing statement, and inaccuracies
do not invalidate the filing "as long as such errors or omissions are not
seriously misleading." The fact that the debtor would have no input to the
filing of financing statements raises the possibility of abuse. Third parties
interested in knowing what rights have been encumbered would find little useful
information in the public record; there would be no means to gain access to the
actual security agreement (and the language therein which states what rights are
being encumbered) or to learn anything beyond the general description such as
"intangibles" or "intellectual property." We recognize that
there would be legal advantages for the financing institution to describe the
encumbered property as broadly as possible, but we believe that those advantages
would be outweighed by the disadvantages described above.
4. The interplay between state UCC systems and the federal system.
On previous occasions, the Copyright Office has not objected to proposals to
overrule the Peregrine decision through statutory modification of the
copyright law. This position was based on an assumption that this was what
copyright owners as well as lenders wanted. However, after conferring with
copyright owners we have concluded that there is no consensus that Peregrine
should be overturned. Moreover, the ABA's proposed two-level system that would
replace the current system seems unduly complicated.
Judge Kozinski noted in Peregrine that a recording system works by
virtue of the fact that interested parties have a specific place to look in
order to discover with certainty whether a particular interest has been
transferred or encumbered. He wrote, "[t]o the extent there are competing
recordation schemes, this lessens the utility of each...." He stated that
"[i]t is for that reason that parallel recordation schemes for the same
types of property are scarce as hen's teeth.... No useful purposes would be
served -- indeed much confusion would result -- if creditors were permitted to
perfect security interests by filing with either the Copyright Office or state
offices." He added, "if state methods of perfection were valid, a
third party (such as a potential purchaser of copyright) who wanted to learn of
any encumbrances thereon would have to check not merely the indices of the U.S.
Copyright Office, but also the indices of any relevant secretary of state.
Because copyrights are incorporeal--they have no fixed situs--a number of state
authorities would be relevant. Thus, interested third parties could never be
entirely sure that all relevant jurisdictions have been searched." He found
that such a system could hinder the purchase and sale of copyrights and
frustrate Congress's policy that copyrights be readily transferable in commerce.
We believe that Judge Kozinski made a compelling case for a single federal
recording system for transfers of copyrights, including security interests.
However, the single system need not necessarily be as comprehensive as suggested
in Peregrine. We recognize at least two areas where there may be room for
the filing of security interests with the states rather than with the Copyright
Office: (1) security interests in receivables, and (2) recordation of security
interests for purposes of constructive notice to other secured creditors, as
distinguished from constructive notice to other assignees.
The Copyright Office agrees that the Peregrine decision, insofar as it
relates to recordation of security interests in copyrights themselves, reflects
the copyright law. Until Peregrine, there was no dissatisfaction of which
we are aware with the recordation provisions of the law. We are aware that the
banking community and some copyright owners believe that the Peregrine
decision should be overturned, and we recognize that they are motivated by
legitimate concerns. There may be gaps in the current system that should be
One controversial aspect of Peregrine is Judge Kozinski's conclusion
that federal copyright law preempts state methods of perfecting security
interests not only in copyrights, but also in related accounts receivable. We do
not believe section 205 necessarily requires that conclusion, and we do not
believe that the policies underlying section 205's centralized recordation
system necessarily require such a result. The Ninth Circuit may have undercut
this aspect of the Peregrine ruling in Hirsch when it ruled that
assignments of a right to receive royalties are not subject to section 205's
recordation requirement. To the extent that financial institutions and their
borrowers are concerned that their ability to engage in secured transactions is
adversely affected by this aspect of Peregrine, it may be that the
problem is relatively easy to resolve. A system that recognizes recordation of
security interests in receivables at the state level likely would do no harm to
the policies underlying section 205.
We also recognize that secured lenders desire to establish the priority of
their liens vis-a-vis other lenders by resorting to the UCC system with which
they are familiar. It may be that the considerations that led Congress to adopt
a unitary filing system for copyright transfers do not require that the federal
system be utilized for purposes of prioritizing rights of creditors among
themselves. Thus, it may make sense to recognize perfection of security
interests in copyrights at the state level for the limited purpose of allocating
rights among lien creditors. On the other hand, it would do violence to the
statutory scheme if a secured creditor who simply files a UCC-1 with a state
secretary of state could obtain priority over a bona fide purchaser for value of
all rights in a copyrighted work who has diligently searched the Copyright
Office records and has discovered that those records reveal that the seller has
clear title to the rights being sold. A secured creditor who wishes to secure
his or her rights against the entire world, including those who have purchased
all rights in a copyrighted work, should be required to use the centralized
system established to provide constructive notice to the world.
5. The feasibility of joint administration of the system of recording security
interests in federal intellectual property.
The major systems of federal intellectual property protection are copyright,
patent, and trademark. The concepts and laws underlying these systems of
protection are very different, and we believe administering these rights in the
different agencies with specialized expertise enhances efficiency rather than
inefficiency. Our other comments make clear that we view as strengths of the
current system the requirement that the affected works be identified
specifically and the requirement that the document of transfer be recorded and
available for public inspection. These features may be irrelevant to the needs
of the patent and trademark systems. We do not believe the case has been made
for standardizing the system of recordation of security interests or other
transfers in all federal intellectual property; therefore, we see no need or
benefit from coordination of the various recordation systems.
6. Establishing a Totally New System of Recordation For Security Interests
at the Federal Level
We have additional concerns about some of the details of the proposed new
federal system for recording security interests which removes them from the
system used for recording transfers of copyright ownership. We have already
indicated some reasons why the proposed system based on federal financing
statements seems inferior to the present system. The proposed system is also
more complicated in many ways and would impose administrative burdens that do
not seem warranted.
Under the ABA proposal, each filing statement would have to be date-stamped
with the hour of filing. This is not currently done. Statements would lapse
after 10 years unless a continuation statement is filed before the lapse. If the
continuation statement is filed by someone other than the secured party of
record, it must be accompanied by a separate assignment statement authenticated
by the secured party of record. The system anticipates terminations and release
statements as well as transfer statements.
Such a system would take time to develop and establish, require additional
personnel and a new computer system. It would force all users to learn this
potentially complicated new system. Additionally, a filing in the proposed new
federal system may not prevail if there was first perfection at the state level.
In short, the benefits of such a system appear to be outweighed by its burdens.
Records of copyright ownership are increasingly important
in our global, networked society. The current recordation system has been in
place since 1870. Enactment of the ABA proposal would change many of the established
practices. The Copyright Office would not oppose any change on which a broad
consensus has been achieved. However, the Office believes many of the proposed
changes are controversial. Today's hearing serves a useful function as a starting
point for discussion and debate about these issues. We caution, however, that
any changes should be considered only after a careful study of the current system,
of the needs of copyright owners, creditors and other users of the recordation
system, and of the desirability and feasibility of changing the system that
has for so long served the interests of the copyright community.