## Facts

- Three affiliated California corporations designed and sold FAA-approved airplane modification products and owned copyrights in related drawings, manuals, blueprints, and software, some tied to Supplemental Type Certificates.
- The corporations granted Silicon Valley Bank a broad security interest covering substantially all assets, expressly including copyright rights and related interests, whether then owned or later acquired.
- Silicon Valley Bank filed UCC-1 financing statements with the California Secretary of State to perfect its security interest under California’s U.C.C. Article 9.
- The copyrights at issue were not registered with the U.S. Copyright Office, and no recordation was made in the Copyright Office.
- The corporations later filed for bankruptcy; the bankruptcy trustees sold the copyrights and the estate’s avoidance rights to Aerocon Engineering and another buyer as tenants in common.
- After the co-owners’ relationship ended, Aerocon brought an adversary proceeding seeking to avoid the bank’s security interest, which had been transferred to other parties through foreclosure and resale.

## Issues

1. Whether federal copyright law or state U.C.C. Article 9 governs perfection and priority of a security interest in unregistered copyrights.
2. Whether a creditor that perfected by state UCC filing holds priority over the bankruptcy trustee (and a purchaser asserting the trustee’s avoidance powers) as to unregistered copyrights.

## Decision

- The Ninth Circuit affirmed summary judgment for Silicon Valley Bank and related appellees.
- The court held that state law (U.C.C. Article 9) governs perfection and priority for security interests in unregistered copyrights.
- The bank’s UCC-1 filings properly perfected its security interest under California law, making the interest effective against the bankruptcy trustee and Aerocon.

## Legal Principles

- The Copyright Act’s registration and recordation provisions are permissive and do not create a mandatory, comprehensive federal perfection system for interests in unregistered copyrights.
- For unregistered copyrights, U.C.C. Article 9 filing under applicable state law can perfect a security interest and establish priority.
- Federal preemption does not displace state commercial law on perfection and priority where the federal statute provides no workable national notice system for the unregistered works at issue.
- Federal priority rules tied to Copyright Office recordation apply in the context of registered (or recordable) copyrights and do not bar state-law perfection for unregistered copyrights.

## Conclusion

The court concluded that, because the copyrights were unregistered and the federal statute did not supply a complete perfection and priority mechanism for such works, California’s Article 9 governed; the bank’s UCC filing perfected its security interest and defeated the trustee-derived avoidance claim.


In re World Auxiliary Power Co., 303 F.3d 1120 (9th Cir. 2002)