## Facts

- Coldwave Systems, LLC, a Massachusetts LLC, owned a patent covering its freezing technology.
- Coldwave entered into a finance lease/security agreement granting Gateway Management Services Limited a security interest in the patent.
- Gateway recorded its security interest with the USPTO on June 28, 2003.
- Gateway filed UCC-1 financing statements in Washington, D.C. (Dec. 1, 2004) and Massachusetts (Dec. 2, 2004).
- Coldwave was insolvent and in default by December 2004, and Gateway attempted to obtain the patent through an Article 9 strict foreclosure/acceptance of collateral.
- Coldwave filed for Chapter 11 on March 1, 2005 (later converted to Chapter 7), and a trustee was appointed.
- The trustee sued to avoid Gateway’s interest/transfer as a preference under 11 U.S.C. § 547 and to establish that the patent was property of the estate.

## Issues

1. Whether recording a security interest in a patent with the USPTO, without a state UCC filing, perfects the security interest for bankruptcy purposes.
2. Whether Gateway’s Massachusetts UCC filing within 90 days of the petition date constituted an avoidable preferential transfer under 11 U.S.C. § 547(b).
3. Whether Gateway’s purported strict foreclosure/acceptance of the patent was effective, such that the patent was no longer property of the debtor (and thus not property of the estate) as of the petition date.

## Decision

- The court held that USPTO recordation did not perfect Gateway’s security interest in the patent; perfection required compliance with state UCC Article 9 filing rules.
- The court held Gateway’s security interest was first perfected by the Massachusetts UCC-1 filed on December 2, 2004.
- Because that perfection occurred within 90 days of the March 1, 2005 petition, and satisfied § 547(b)’s elements, it was an avoidable preference; the court found for the trustee on liability.
- The court held Gateway’s strict foreclosure was ineffective due to lack of valid debtor consent under Article 9, so the patent remained property of the estate.
- The court rejected Gateway’s estoppel argument based on omission of the patent from schedules.

## Legal Principles

- Federal patent recording provisions do not preempt Article 9 perfection rules for security interests in patents; a secured party generally must perfect through the debtor’s state UCC filing system.
- For preference analysis, a “transfer” includes perfection of a security interest; perfection within the 90-day period preceding the petition may be avoided if § 547(b) is met.
- Article 9 strict foreclosure (acceptance of collateral in satisfaction of debt) requires effective debtor consent in the manner specified by the UCC; a defective acceptance does not divest the debtor of rights in the collateral.
- A bankruptcy trustee is not barred by estoppel merely because the debtor failed to schedule an asset, absent satisfaction of traditional estoppel elements.

## Conclusion

The bankruptcy court held that Gateway’s USPTO recording did not perfect its patent security interest, that its later Massachusetts UCC perfection within 90 days of bankruptcy was an avoidable preference, and that Gateway’s attempted strict foreclosure failed for lack of proper debtor consent, leaving the patent as property of the estate.


Braunstein v. Gateway Mgmt. Servs. Ltd. (In re Coldwave Sys., LLC), 368 B.R. 91 (Bankr. D. Mass. 2007)