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Intangible Asset Levies
While a judgment debtor's intangible assets can often be attached by levy and sold, the process is usually more complex and less reliable. Examples of intangible assets are copyrighted works, trademarks, trade secrets, patented inventions, art, music and literary works, internet domain names, the goodwill of a judgment debtor company's name, etc.
This article is my opinion, and not legal advice. I am the judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.
Most judgment debtors do not own any intellectual property, and even when they do, discovering it is not always easy. Ways to discover intellectual property include Google searches, debtor examinations and document production requests, talking with ex-friends or ex-spouses of the debtor, specialized web searches and services, or hiring a private investigator.
A challenging levy situation happens when a debtor company has few physical assets, yet their business has many customers and lots of goodwill; an example is a financial planning company. To attempt to avoid paying a judgment, they might change their company name, requiring an (e.g.) alter ego or successor-liability court battle. This is a reason to include people on lawsuits in addition to companies, whenever appropriate and possible.
A company's goodwill and intellectual property can be fraudulently transferred. Many successor corporation liability claims and alter ego claims are accompanied by fraudulent transfer claims. Many fraudulent transfer claims are accompanied by unjust enrichment claims.
Attempting to levy a judmgent debtor's intellectual property is something that one should probably hire an attorney for. Sometimes a court-approved receiver is appointed to enforce the judgment and is empowered to sell the (e.g.) patent, marketing, or copyright. A judgment debtor's intellectual property usually has some financial value, and may also have some sentimental or pride-related value too. For this reason, sometimes starting a levy procedure will cause your judgment debtor to quickly satisfy the judgment.
Before you spend money trying to levy a patent, with an assignment order, etc., make sure the patent has value, and somebody did, is, or will make money from the patent in some way. Many patents are for very obsolete technology that has lost all value over time.
In California, a cheap shortcut is to get a JL1 UCC lien, and send it to the US Patent Office with a check for $40, with a few forms and they will record your lien, which might get you paid someday, if they try to sell it or collect royalties. By now you can probably do this on the US Patent office's website. In California at least, you might be able to get an assignment order to attach revenue from patents. See CCP 708.510 and the CEB action guide titled "Enforcing Civil Money Judgments".
Before one try the process of execution, they should run a search through the office of the Secretary of State for any filed financing statements for trademarks and patents as well as the U.S. Copyright Office for a security interest in registered copyrights. (See In re Peregrine Entm't, Ltd., 116 B.R. 194, 201 [C.D. Cal. 1990].) The mere hint of loss to the judgment debtor's intangible assets (e.g. patents, trademarks, copyrights, etc.) through their assignment and subsequent sale by a court-ordered receiver, may get your judgment paid.
It would be ideal if you could get the court to approve assigning the rights to a patent in order to satisfy your judgment. A case file that shows what can and cannot be done, is the case of Peterson v. Sheriff of the City and County of San Francisco (46 P. 1060, 1060 [Cal. 1896]). The case stands for the proposition that a judgment creditor is barred from reaching a patent using a writ of execution. However, Peterson suggests that a judgment creditor may reach a patent by seeking an order compelling the judgment debtor to assign the patent to a receiver, who would then sell the patent or copyright in a court of equity. The Peterson court reasoned that federal law provides that a patent can be transferred by way of assignment and that assignment is the only method by which it can be transferred. The court held that if a creditor of the patentee can have patent rights subjected to satisfaction of the judgment at all, the judgment creditor must seek equitable relief, acting in personam, and compel the patentee to make an assignment.
In the case of Peterson v. Sheriff of the City and County of San Francisco, the court likewise noted that the patent right is a general intangible and is therefore incapable of "manual delivery". The patent right is held by the judgment debtor, not by a third-party, and it does not come under the category of "debts and credits" due from a third-party subject to garnishment. The Peterson court reasoned that a patent cannot be advertised and sold under a common execution because a patent is not capable of being levied upon. Put another way, the mere advertisement and sale of a patent upon notice would convey nothing to the purchaser.
In reaching this conclusion, the Peterson court cited to Carver v. Peck (131 Mass. 291 ), holding that the incorporeal and intangible right of an inventor or author in a patent or copyright cannot be taken on execution at law. (Id. at 292 ) The Peterson court also quoted Pacific Bank v. Robinson (57 Cal. 520, 524 ), "as a creation of legislation it is transferable only according to the provisions of the statutes which created it, and the only question is, has a court of equity power to compel its assignment and sale for the benefit of judgment-creditors". Peterson at 1060 (quoting Pacific Bank v. Robinson, 57 Cal. 520, 523 [Cal. Jan. 1881].)
Peterson barred relief because the patent statute permitted transfers by way of assignment, and only the equitable powers of the court can compel an assignment. Compare this to the statutory process of common execution through the county sheriff. Peterson followed the earlier decision in Pacific Bank, authorizing the appointment of a receiver and an order compelling the judgment debtor to assign the patent to the receiver because of the inability of the sheriff to seize a general intangible property. Patents can be transferred based on an instrument in writing. Therefore, the remedy to reach the patent is to seek equitable relief of an order compelling the patentee (i.e. the judgment debtor) to transfer the patent to a court-appointed receiver.
The Supreme Court firmly established this process as the method to reach the intellectual property of a judgment debtor in the seminal case of Ager v. Murray (105 U.S. 126 .) In Ager, the Supreme Court laid out the underpinnings of current modern day enforcement against patents. Citing to Pacific Bank, Ager provides for the assignment of the patent and sale through a receiver to satisfy the judgment. Ager lumps copyrights into the category of assets subject to the equitable reach of a receiver. For a more current and illustrative explanation, see Olive Branch Holdings, LLC v. Smith Tech. Dev., LLC, 909 N.E.2d 671, 681-82 (Ohio Ct. App. 2009). See also Kenyon v. Automatic Instrument Co., 160 F.2d 878, 884 (6th Cir. 1947) "It is no longer open to question that a receiver appointed by a court may execute an assignment of a patent owned by an insolvent debtor.
In California, for any lawsuit, including intangible asset and/or fraudulent transfer lawsuits, when it comes to evidence exhibits; one needs to prepare documents that conform with the laws and court rules. Examples are subpoenas for the production of business records. Subpoenaed records need to be sent to a deposition officer, usually a professional photocopier who is a non-related third party. Relevant California laws related to topics in this article include CCPs 680.210, 699.080, 700.170, 982, 2020.420, and section 9102 of the Commercial Code.
There are a few judges who still do not fully understand the idea of transfers involving intangible assets. This difficulty can come up if a judge cannot point to a thing, such as a truck or business equipment; which can make it harder to argue and prove a case. However, success is possible, especially for an attorney.
If a lawsuit is post-judgment, such a proceeding is a hearing, not a trial. Because the hearing is post-judgment, a post judgment subpoena is used, not a deposition subpoena. When you need documents or answers/testimony from the debtor or third parties, you need to prepare your own (pleading paper style) document. Such documents are usually titled a "judgment creditor's post-judgment demand for the production of documents and other tangible things". Subpoenas (alone or with document requests) must be personally served on the parties or their attorney(s) of record. The timeline for serving subpoenas depends on the particular court.
Post-judgment examinations begin by asking the clerk of the court to issue a subpoena, and then perhaps preparing Subpoena Duces Tecums (SDTs), requesting the production of documents from the debtor or third parties. Third parties are usually limited to persons who have direct knowledge of the (e.g.) nature of, value, or how the debtor's intellectual property is used.
You might need to hire an expert witness to attest to the present or future value of your debtor's intellectual property. When you hire a witness, they are considered to be a friendly witness. When you bring in other third party witnesses, for example, the accountant for the judgment debtor; they might be hostile witnesses. Hostile or friendly, witnesses can usually be compelled to produce records and answer questions about (e.g.) how much in royalties or commissions were transferred to whom and when, etc.
A good PDF about this subject is at: http://cookcollectionattorneys.com/ >IntellectualProperty.pdf.
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