Definitional Cross References: "Authentication": Section 2B-102. "Financier": Section 2B-102. "Good faith": Section 2B-102. "Informational property rights": Section 2B-102. "License": Section 2B-102. "Licensor": Section 2B-102. "Party": Section 1-201. "Record": Section 2B-102.

1. Background. This is an area heavily influenced by federal copyright law as to copyright interests and the rules here trace that influence while providing maximum state law recognition for traditional UCC priorities. As to transfers of ownership and, arguably, security interests, federal law may preempt state law in reference to federal intellectual property rights. There is no such preemption for data, trade secrets and other non-federal rights in reference to priority. For security interests and their relationship in terms of priority to the rights created under a contract, the priority questions might be dealt with in this article as was done in Article 2A or they may be dealt with in Article 9.

Subsection (a) deals with general priorities. Subsection (b) deals with the priority of a security interest in conflict with a non-exclusive license.

2. Prior Oral Licenses. The basic priority rule in subsection (a) grants priority to a prior license contained in an authenticated record. This rule parallels modern copyright law, and while somewhat inconsistent with modern trends, was made part of the Copyright Act in 1976. Statement of that rule here alerts persons who engage in commercial transactions about a priority rule that may not otherwise be expected. It also avoids inconsistent treatment with reference to situations where the copyright rule may not apply to the entire transaction. This avoids traps for unwary licensees.

However, the Copyright Act refers to signed writings. The use in this section of the terms "record" and "authentication" employs concepts whose match with the copyright language has not been explored in court.

3. Security Interests and Licenses. Subsection (b) deals with priority between a security interest and a license. While there are preemption issues here, the case for preemption is less strong since the UCC generally controls priorities and other law relating to security interests. Federal concerns in the priority statute are more focused on title transfers. This section adopts priority rules for a security interest in conflict with a nonexclusive license that parallel priority positions in current Article 9. The goal is to facilitate use of secured lending related to intangibles by creating provisions that enable the licensor whose intangibles are encumbered to continue to do business in ordinary ways.

Article 2A deals with the priority conflicts that arise when the licensor or owner transfers to a third party an interest in the property that is subject to a lease. The focus in such cases is on relating the rights of the transferee to the rights of the lessee in the particular item. That situation does not arise in two nonexclusive licenses since intangibles can be licensed an infinite number of times and each licensee receives the same rights. In contrast, if there is a transfer of ownership of the information there may be a conflict between the transferee and the licensee. There are two types of priority conflicts in such cases and modern law lacks clear guidance or commercially viable solutions. One conflict is between two transferees of ownership. The other is dealt with in this section: conflicting claims of a nonexclusive licensee as against a transferee of ownership rights, including a secured party.

4. Preemption Issues. For rights not created under federal law, priority issues are questions of state law. The same is apparently true for non-ownership rights in patent. The Patent Act contains provisions that deal with the respective priority of transfers of patent ownership. A nonexclusive license is not a transfer of ownership and the relationship between the nonexclusive licensee and a transferee of a patent is not dealt with. The situation is different in copyright law. Section 205(f) of the Copyright Act provides:

17 U.S.C. § 205(f). There is no case law under this provision.

This provision of the Copyright Act can be viewed either as a comprehensive rule of priority (e.g., unwritten license never superior to transfer of ownership; priority of written license entirely controlled by Section 205(f)), or as a minimum condition for a particular result (e.g., that a written nonexclusive license has priority under specified circumstances, but not suggesting that these are the only conditions under which this is true). This Article adopts the view that the priority rule states a minimum and does not establish a comprehensive rule. Thus, a nonexclusive license prevails in the listed situations, but priority of a nonexclusive license in cases not covered by Section 205 is not controlled by federal law.