Attachment and Enforcement of Judgments Against Intellectual Property and Associate Rights to Payment
Fall 2003Los Angeles County Bar Newsletter
A. ATTACHMENT OF INTELLECTUAL PROPERTY
Under the Attachment Law,2 property is subject to attachment only if a method of levy is provided for such property or, where the defendant is a natural person, if the property is of a certain type.3 The Attachment Law specifies methods of levy for various types of property.4 In order to determine whether property is subject to attachment under the Attachment Law, one first must determine how the Attachment Law classifies such property.
Classification of property for purposes of the Attachment Law generally follows the classification of property under Division 9 of the California Uniform Commercial Code ("UCC").5 Under the UCC, patents, copyrights, software and other intellectual property (as distinguished from the media in which such intellectual property rights might be contained) fall into the definition of "general intangibles." Section 9102(a)(42) of the UCC provides:
"General intangibles" means any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.
The official Uniform Commercial Code Comment to Section 9102(a)(42) of the UCC states that, as used in the definition of "general intangibles," "things in action" includes rights that arise under a license of intellectual property, including the right to exploit the intellectual property without liability for infringement.6
Section 481.115 of the Code of Civil Procedure, however, narrows the definition of general intangibles for purposes of the Attachment Law. Under Section 481.115,
"General intangibles" means "general intangibles," as defined in paragraph (42) of subdivision (a) of section 9102 of the Commercial Code, consisting of rights to payment.
The definition of general intangibles under the Attachment Law intentionally limits the property included within its scope to general intangibles (as such term is used in the UCC) consisting of rights to payment. The limitation arises out of the drafters' conscious effort to limit the kinds of general intangibles which may be attached to those kinds of general intangibles for which Section 955.1 of the Civil Code provides a method of perfecting a transfer.7 Under Section 955.1 of the Civil Code, a transfer, other than one intended to create a security interest, of a general intangible (as defined in the UCC) consisting of any right to payment generally is perfected against third persons upon there being executed and delivered to the transferee an assignment thereof in writing.8
Under the Attachment Law, to attach a general intangible (as defined in the Attachment Law), the levying officer serves a copy of the writ of attachment and a notice of attachment on the account debtor (the person obligated to make payment on the general intangible).9
Patents, copyrights, software and other intellectual property do not constitute "rights to payment" and do not have any associated "account debtors." Accordingly, intellectual property rights per se do not constitute general intangibles under the Attachment Law and may not be attached as such.10 The Attachment Law does not define a class of property encompassing general intangibles (as defined in the UCC) which do not consist of rights to payment;11 nor does the Attachment Law provide a method of levy for such property.12 Accordingly, such intangible property, including intellectual property, simply is not subject to attachment.
B. ENFORCEMENT OF JUDGMENTS AGAINST INTELLECTUAL PROPERTY
While a plaintiff may not attach intellectual property because no method of levy for such property is provided under the Attachment Law, a plaintiff which prevails in the action and becomes a judgment creditor may be able to enforce its money judgment against intellectual property.
Under the Enforcement of Judgments Law,13 all property of the judgment debtor is subject to enforcement of a money judgment, except as otherwise provided by law.14 Nothing in the Enforcement of Judgments Law generally excludes intellectual property from the enforcement of a money judgment. The question then arises, how does one enforce a money judgment against intellectual property?
One cannot obtain a lien on intellectual property by filing a judgment lien on personal property under the provisions of Section 697.510 of the Code of Civil Procedure, because such a judgment lien only attaches to accounts receivable, chattel paper, equipment, farm products, inventory, and negotiable documents of title.15
Section 699.710 of the Code of Civil Procedure provides that, except as otherwise provided by law, all property that is subject to enforcement of a money judgment is subject to levy under a writ of execution to satisfy a money judgment. Nevertheless, one cannot levy upon intellectual property. The Enforcement of Judgments Law, like the Attachment Law, does not define a class of property encompassing "general intangibles" (as defined in the UCC) which do not consist of rights to payment and does not provide a method of levy for such property.16
One can create a judgment lien on intellectual property under Section 708.110 of the Code of Civil Procedure by personally serving a copy of an order to appear at a judgment debtor's examination on the judgment debtor not less than 10 days before the date set for the examination. Service of the order creates a lien on the personal property of the debtor for a period of one year from the date of the order unless extended or sooner terminated by the court.17
The only means of causing intellectual property to be sold to satisfy a judgment appears to be to have a receiver appointed under Section 708.620 of the Code of Civil Procedure to carry out the sale. Under Section 708.620, 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.18 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.
C. ATTACHMENT AND ENFORCEMENT OF JUDGMENTS AGAINST RIGHTS TO PAYMENT ARISING OUT OF INTELLECTUAL PROPERTY
The Attachment Law and the Enforcement of Judgments Law each provide a method of levy for accounts receivable and other rights to payment, and therefore a plaintiff or judgment creditor may attach and execute upon a defendant's or judgment debtor’s right to receive license fees, royalties or other payments arising out of intellectual property. The right to payment may be attached or executed upon by the levying officer's service of a writ of attachment or writ of execution, as applicable, upon the account debtor.19
The Enforcement of Judgments Law provides other methods of enforcing a judgment against rights to payment. See, for example, Sections 708.210 (creditor’s suit), 708.510 (assignment order) and 708.620 (appointment of a receiver) of the Code of Civil Procedure.
The Enforcement of Judgments Law incorporates the UCC definition of "accounts" in its definition of "accounts receivable" as used in the Enforcement of Judgments Law.20 Under Section 9102(a)(2)(i) of the UCC, an "account" includes a right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of. The right to receive a license fee, royalty or other payment arising out of intellectual property therefore should constitute an account receivable for purposes of the Enforcement of Judgments Law.
Under Section 697.510 of the Code of Civil Procedure, a judgment lien on "accounts receivable" may be created by filing a notice of judgment lien with the office of the Secretary of State. The lien is good for five years unless sooner terminated or released.21
Intellectual property is not subject to attachment or to execution after judgment. A court, however, may appoint a receiver to sell intellectual property in order to satisfy a judgment. Rights to payment arising out of intellectual property generally are subject to attachment, to execution after judgment, and to other post-judgment enforcement proceedings.
1 Brian L. Holman is a partner in the Los Angeles office of White & Case LLP, specializing in the areas of commercial law, bankruptcy and workouts. ©2003 White & Case LLP.
2 Cal. Code Civ. Proc. ("C.C.P.") § § 481.010-493.060. See C.C.P. § 482.010.
3 C.C.P. 487.010.
4 See C.C.P. § § 488.300-488.485.
5 See C.C.P. § § 481.010-481.225
6 Comment 5(d).
7 16 Cal. L. Rev. Comm. Reports 1199, 1612, (1982).
8 Under revised Section 955.1 of the Civil Code, a transfer, other than one intended to create a security interest, of a payment intangible (as defined in Section 9102 of the UCC) generally is perfected against third persons upon there being executed and delivered to the transferee an assignment thereof in writing.
9 C.C.P. § 488.470.
10 The exploitation of intellectual property rights, of course, may result in the creation of rights to payment (such as royalties) due from account debtors. See discussion infra.
11 See C.C.P. § 481.010-481.225.
12 See C.C.P. § 488.300-488.485.
13 C.C.P. §§ 680-010-724.260. See C.C.P. § 680.010.
14 C.C.P. § 695.010.
15 C.C.P. § 697.530.
16 See C.C.P. §§ 680.010-680.380, 699.010-700.200.
17 C.C.P. § 708.110(d).
18 C.C.P. § 708.620. See, e.g., Kenyon v. Automatic Instrument Co., 160 F.2d 878, 884 (6th Cir. 1947) ("It is no longer open to question that a receiver may execute an assignment of a patent owned by an insolvent debtor.") (construing Michigan law).
19 See C.C.P. § 488.470, 700.170.
20 See C.C.P. § 680.130.
21 C.C.P. § 697.510.