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Intellectual Property

San Diego, CA |
Filed under: Family trust

Is intellectual property treated like any other property like a boat or money? - i.e. can a Judgement Debtor claim it to recover a monetary judgement? What is the best way to protect the IP?

Attorney Answers 4


No, intellectual property is a "general intangible" (as defined in the Uniform Commercial Code), which is different from a tangible such as a boat or a house.

Yes, a judgment creditor can claim intellectual property to recover a money judgment. While a judgment creditor cannot directly levy on intellectual property, a judgment creditor may nevertheless be able to enforce a money judgment against intellectual property.

Probably the only method to cause intellectual property to be sold to satisfy a money judgment is to have the court appoint a receiver under Code of Civil Procedure section 708.620. The judgment creditor should seek the appointment of a receiver to take control of and to sell the intellectual property on the ground that no other method is available for applying the intellectual property to the satisfaction of the judgment. The court may appoint a receiver to enforce a judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and the judgment debtor, the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment.

Frank W. Chen is licensed to practice law in the State of California. The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, consult your own attorney.

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Unlike a boat or money, intellectual property rights are intangible. But there are well-settled methods for valuation of intellectual property rights. Thus, a judgment debtor can look to intellectual property rights as an asset for use in recovering a monetary judgment. In this regard, I have often been surprised with respect to the extent to which Trustees in bankruptcy fail to aggressively move against a debtor's intellectual property rights to generate revenues for the estate of the debtor. For many companies, intellectual property rights are their most valuable assets.

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Are you asking about a judgment creditor, seeking to reach a judgment debtor's IP, or a judgment debtor seeking to protect the IP from the jdugment creditor? My colleagues have answered the former question, and I'd add that filing a UCC statement creating a secured interest in the intangible property also enables a judgment creditor to reach it in the right circumstances.

As for the 2nd question, the IP could possibly be placed in a trust, or possibly sold or assigned, although the Fraudulent Conveyance Act, designed to orevent transfers to thwart creditors, might apply if the transaction's timing or valuation is suspect.

Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.

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The best way to protect IP against a judgment creditor is to put it in a trust owned by someone other than the business or the inventor.

For example, the most prolific American inventor, a valued client of mine, puts all his patents (1300+ of them) in a family trust based in the Grand Cayman Islands, with an independent trustee. The trust then licenses them and the trust receives the royalty and holds it until desired by the family. Aside from simplifying record keeping, there are numerous other advantages, especially tax advantages, to that approach, but frustrating personal or business judgment creditors is a secondary benefit, albeit rarely needed.

If there is need to protect IP is relevant to you and the IP is of great value, there are ways to create protections to protect your creations. Don't let anyone convince you otherwise and find an IP attorney who can.

So far, this is free to you. Until you pay a fee, I am not your lawyer and you are not my client, so you take any free advice at your sole risk. I am licensed in IL, MO, TX and am a Reg. Pat. Atty. so advice in any other jurisdiction is general advice and should be confirmed with an attorney licensed in that jurisdiction.

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