Indiana Law Review


The Immunity of Intangible Assets from a Writ of
Execution:

Must We Forgive our Debtors?*

DOREEN J. GRIDLEY"

Introduction

An attorney and her client were diligent and thorough in considering the risks of
filing suit against the ABC Company (ABC). After assessing the net worth ofABC to be
substantially more than the client's claim against it and weighing the other risks

associated with litigation, the client decided to proceed against ABC. Now, the end oftrial

is imminent and it is evident the client will prevail.

Both the client and the attorney are pleased with the probable outcome of the case.

The client is particularly anxious to receive the monetary damages it will be awarded as

a result ofABC's actions. However, although ABC's net worth is appreciable, ABC does
not possess sufficient cash to satisfy the judgment, nor does ABC possess substantial
tangible assets. Instead, ABC is a software company whose primary assets are the
copyrights to the software products it has developed and licenses. Therefore, additional

time and expenditures beyond the issuance of a judgment must be incurred to satisfy the

judgment. The attorney asks her client to be patient, but the client's patience is wearing

thin—three years have passed since the initial consultation with the attorney on the
subject of the litigation.

The client is also confused. Last year, the client lost a lawsuit for a breach ofcontract

action. The client explains that "almost as soon as the gavel came down at the end of the

trial," the sheriffcame to its facility and seized the company truck, many of the tools used

in manufacturing the client's product, and the office computers. The equipment seized

was sold a few weeks later, and the proceeds from the sale were used to satisfy the

judgment against the client. The client expresses its desire to receive the same kind of

expeditious action to acquire its just rewards. The client further comments that significant

debt was incurred at a high interest rate to replace the seized equipment and that this trial

has already been costly. Addressing the client's valid concerns, the attorney reminds the

client that, whether "just" or not, the effect of the applicable law is that satisfaction of the

judgment will not occur "as soon as the gavel goes down." Also, the client will incur

additional filing costs and attorneys' fees before the judgment is satisfied.

From a client's perspective, the above hypothetical illustrates the problems associated

with reaching intangible assets to satisfy a judgment of a monetary award rendered in the

client's favor. Absent statutory authority to the contrary, intangible assets,* including

* ©Copyright 1994, Doreen J. Gridley. The express reproduction and distribution permission granted

on page viii of this issue does apply to this Note.

** J.D. Candidate, 1995, Indiana University School ofLaw—Indianapolis; B.S., Secondary Education
(Physics), 1977, Slippery Rock University; M.S., Engineering Physics, 1979, University of Virginia; M.S.,

Management, 1987, Indiana Wesleyan University. Registered Patent Agent, Ice Miller Donadio & Ryan,
Indianapolis, Indiana.

1 . An intangible asset is "[p]roperty that is a 'right' such as patent, copyright, trademark, etc., or one

which is lacking physical existence, such as goodwill." BLACK'S LAW DICTIONARY 808 (6th ed. 1990).



756 INDIANA LAW REVIEW [Vol. 28:755

choses in action^ and intellectual property rights associated with a patent, trademark, or

copyright, are immune from access by a judgment creditor by a writ of execution to
satisfy the judgment.^ The immunity of intangible assets from a writ of execution does

not mean that the judgment creditor is without recourse. Rather, the judgment creditor
may reach the judgment debtor's intangible assets through alternative procedures.''

Reaching an asset for satisfaction of a judgment by a writ of execution is preferred

over the alternatives used to reach intangible assets. In a writ of execution, the assets are

seized with relative expediency, and the sale of the assets occurs shortly thereafter. The

timeliness of the seizure is particularly important where the asset is of a nature that its

value may be easily destroyed or diminished by the judgment debtor. Even though
intellectual property rights are subject to such destruction or diminution in value, the

seizure of such rights through alternative procedures to the writ of execution does not

occur with the expediency desired to protect the judgment creditor's interest in those

rights. In addition, the alternatives result in added expense to both parties through

discovery, hearings, or other activities.^ Thus, the judgment creditor's interest in

maintaining the value of the judgment debtor's intellectual property assets is heightened

by the additional expenses incurred. Also, additional expense to the judgment debtor

caused by such proceedings reduces the amount recoverable by the judgment creditor in

satisfaction of its judgment. As one author stated, "[s]urely many a victor has emerged
from exhausting litigation only to leam from her lawyer that collecting the judgment will

cost more than the judgment is worth."^

It is probably undisputed that the value of intellectual property rights is greater today

than in the past. Consider, for example, the expeditious manner in which newly formed

countries such as the Czech Republic and Latvia have joined the Patent Cooperation

Treaty.^ Also, the North American Free Trade Agreement (NAFTA) recognizes and
provides for consideration of intellectual property rights.^ Furthermore, due to various

factors such as product development costs, lost profits due to non-enforcement of

intellectual property rights, and the global economy, the "assessment, procurement, and

protection of intellectual property rights have become a priority for management willing

2. A "[r]ight of proceeding in a court of law to procure payment of [a] sum of money, or right to

recover a personal chattel or a sum of money by action" is a chose in action. Id. at 241.

3. For purposes of this Note, a writ of execution is the formal process, usually initiated by a writ or

decree at or near the time ofjudgment, whereby the judgment debtor's non-exempt assets are seized by an

officer of the court, such as a sheriff, for subsequent sale in satisfaction of the judgment. Id. at 568, 1610.

4. See infra subpart LB.

5. See infra subpart I.B.

6. William J. Woodward, Jr., New Judgment Liens on Personal Property: Does "Efficient" Mean

"Better"?, 27 Harv. J. ON Legis. 1 (1990).

7. Listing ofPCTMember Countries, 1155 T.M.O.G. 34 (Oct. 1 2, 1 993).

8. North American Free Trade Agreement Between the Government ofthe United States of America,

the Government ofCanada and the Government ofthe United Mexican States, Chapter 1 7: Intellectual Property,

1992 WL 486274. Articles 1701-1721 ofNAFTA constitute the provisions directed toward "protection and
enforcement of intellectual property rights" among its member countries. Id. Art, 1 70 1 . Some even suggest that

NAFTA's intellectual property provisions are "a model" for future trade agreements. Intellectual Property:

NAFTA IP Provisions Called 'Model', Industry Concerned by Cultural Exemption, 9 ITR 1433 (1992).



1 995] DEBT SATISFACTION WITH INTANGIBLES 757

to confront the realities of competition."^ A recent estimate provided by the U.S.
International Trade Commission indicates that U.S. companies are incurring a loss of $40

to $60 billion per year due to violations of intellectual property rights. '° Consider also

that, although cases involving infringement of intellectual property rights are not without

cost, the monetary damages awarded in infringement cases may be substantial and, in
some instances, "represent significant revenue streams for corporations successftil in

asserting their . . . [rights] against infringers."'

'

In addition to the perceived increase in value in the rights conferred by grant of a

patent, trademark, or copyright, the advent of technology may inherently affect the
number of entities whose sole or primary assets are classified as intellectual property. The

introduction of the personal computer, for example, created a boom in the number of
electronics and software companies.'^ The primary assets ofmany ofthese companies are

intellectual property rights including the protection ofmask works, software copyrights,

and electronics and software patents. Today, the primary business of thousands of

companies is licensing software products.'^

The importance of intellectual property rights, as reflected by the increase in value

ofthose rights and the prevalence of the number of companies having solely or primarily

intellectual property rights as their assets, seems incongruous with the judgment creditor's

inability to seize such assets by a writ of execution for satisfaction of a judgment. Yet,

for most causes of action, no statutory provision exists to override the common law
immunity of intellectual property from a writ of execution. This antiquated distinction of

intellectual property from tangible assets has spurred demands for change.''* Nevertheless,

intellectual property still must be seized by procedures other than a writ of execution in

most civil litigation.'^

As previously stated, the alternative procedures to the writ of execution often result

in the consumption of additional time and money for the judgment creditor. Further, if

the intellectual property assets of the judgment debtor are not seized with sufficient

expediency, the judgment debtor may, in the interim period between the issuance of a

judgment against it and the actual seizure of the assets, destroy or diminish the value of

its intellectual property assets. Thus, the immunity of intellectual property assets from a

writ of execution results in special treatment of intellectual property, which appears to

9. Daniel F. Perez, Exploitation and Enforcement ofIntellectual Property Rights, THE COMPUTER

Lawyer, 10:8, Aug. 1993, at 10.

10. Id.

11. Id

12. See, e.g.. Otto Friedrich, The Computer Moves In, TIME, Jan. 3., 1983, at 14; Daniel P. Wiener,

Closing Down the Garage ofthe Little Guy, U.S. NEWS &WORLD REPORT, Aug. 1 7, 1 987, at 45. See also Peter
Huber, Software's Cash Register, FORBES, Oct. 18, 1993, at 314.

13. For example, there are over 1 2,000 companies having a secondary standard industrial classification

(SIC) of computer software development. This number does not include some of the major players in the

software industry, such as Microsoft Corporation, who are identified instead as a business services organization.

Dun & Bradstreet Electronic Business Directory, Q3/93, Oct. 29, 1993.
14. Cherie L. Lieurance, Judgment Creditors' Access to Intellectual Property Rights—Is Simple

Execution in Sight?, 7 Whittier L. Rev. 375 (1985).

15. See infra subpart I.A.



758 INDIANA LAW REVIEW [Vol. 28:755

protect the judgment debtor and to hinder the judgment creditor from obtaining a lawfully

determined judgment. This "special treatment" which benefits the judgment debtor

presents a greater risk in satisfying ajudgment if the judgment debtor possesses primarily

or exclusively intangible assets, such as intellectual property, rather than tangible assets.

The increased risk may result in chilling effects in filing suit or in selecting business
partners.

A potential plaintiff filing suit against an entity having primarily intangible assets
must consider the risk and the additional costs, both time and monetary, for satisfaction

of the judgment. The potential plaintiff may possibly be "chilled" from bringing a
legitimate cause of action. Further, in view of this risk, business arrangements may be
affected. One entity may be less likely to engage in a business relationship with another
entity having intellectual property assets as its primary assets. If the engagement is likely

to stimulate disagreement between the parties, the first entity would have an incentive to

deal with businesses which hold primarily tangible assets. Thus, "chilling" is also

implicated in the selection of a business partner.

Not only are the alternative procedures to a writ of execution costly from the

judgment creditor's perspective, they are also costly to the judicial system. Judicial

economy is compromised by the requirement to engage in proceedings supplemental to

the judgment. Additional filings must be received by the court and, in many instances,
the court must accommodate a hearing between the parties. Discussion and discovery of

the judgment debtor's assets are better considered at the time ofjudgment to reduce the

time and monetary costs to the courts in determining which of the judgment debtor's

assets, including intangible assets, are necessary to satisfy the judgment.

The purpose of this Note is to provide practical guidance to a litigator whose client

is considering filing an action against an entity possessing primarily or exclusively

intangible assets from which a judgment would be satisfied. Part I provides the historical

development of the law regarding the use of the judgment debtor's intangible assets to

satisfy a judgment. Part II examines some of the jurisdictional differences that impact the

satisfaction of the judgment with the judgment debtor's intellectual property assets. Part

III discusses the ability to pursue tangible assets associated with intellectual property

rights. Finally, Part IV explores equitable measures that may be utilized in conjunction
with the alternative procedures to the writ of execution and the risks involved with the use

of such procedures.

I. REACHrNG THE Judgment Debtor's Intangible Assets

The common law immunity of intangible assets from a writ of execution was firmly
established through Supreme Court cases in the 1850s which maintained the English

common law view of intangible assets. Over the next century, alternatives to a writ of
execution were sanctioned by the courts and made available via statute. This Part

examines the development of the law with regard to the appropriate procedure(s) for

reaching the judgment debtor's intangible assets to satisfy a judgment.



1 995] DEBT SATISFACTION WITH INTANGIBLES 759

A. Unavailability ofa Writ ofExecution

Two cases decided by the United States Supreme Court in the 1850s stand for the
proposition that intangible assets are immune from a writ of execution.'^ Both cases
centered on the sale of a copperplate engraving utilized to print a map that was
copyrighted.'^ Ajudgment was obtained against the copyright owner and, to satisfy that
judgment, the copperplate engraving was sold in a judicial sale following a writ of

execution identifying the plate as an asset. '^ The purchaser of the plate claimed that he

obtained the right to print and sell maps made with the plate. '^ The Court in the first case

determined that, pursuant to common law, the "incorporeal right, secured by the statute
to the author, ... is not the subject of seizure or sale by means" of a writ of execution.^^

Instead, the owner of the incorporeal right could be compelled to transfer the rights for

subsequent sale following a creditor's bilP' so long as such a transfer complied with the

requirements of the copyright act.^^

The immunity of intangible assets to a writ of execution was revisited in the second

case, Stevens v. Gladding?^ In Stevens, the Court considered whether the right to publish

the maps passed with the purchase of the copperplate.^'* Although the Court thought it

unnecessary to reconsider the issue of the availability of a writ of execution for a

copyright, it did offer some additional justification for its holding in Stephens v. Cady}^

The Court added the following to the common law reasoning:

[IJncorporeal rights do not exist in any particular state or district; they are

coextensive with the United States. There is nothing in any act of congress, or

in the nature of the rights themselves, to give them locality anywhere, so as to

subject them to the process of courts having jurisdiction limited by the lines of

states and districts.^^

After all, the United States Constitution granted Congress the power to create patents and

copyrights=^^ The Court appeared to be concerned with the logistics of allowing a local

16. Stephens v. Cady, 55 U.S. (14 How.) 528 (1852); Stevens v. Gladding, 58 U.S. (17 How.) 447

(1854).

1 7. Stephens, 55 U.S. (14 How.) at 528.

18. Id.

19. Id.

20. Id. at 531. Incorporeal rights are "[r]ights to intangibles, such as legal actions, rather than rights

to property." Black's Law Dictionary 767 (6th ed. 1990).

21. A creditor's bill is an "[e]quitable proceeding brought to enforce payment of debt out of property

or other interest of [the] debtor which cannotbe reached by ordinary legal process." BLACK'S LAW DICTIONARY

369 (6th ed. 1990); 5ee m/ra subpart LB.

22. Stephens, 55 U.S. (14 How.) at 531.

23. 58 U.S. (17 How.) 447 (1854).

24. Id at 450.

25. 55 U.S. (14 How.) 528 (1852).

26. 58 U.S. (17 How.) at 451.

27. U.S. Const, art I, § 8, cl. 8 (granting the power "[t]o promote the Progress of Science and useful

Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and



760 INDIANA LAW REVIEW [Vol. 28:755

court to exercise its powers at law to reach a federally-conferred right, although the Court

apparently had less difficulty with the notion that a local court of equity, as through a

creditor's bill, may exercise such power.
The Court had previously considered the proper procedure for reaching an equitable

interest of a judgment debtor. Specifically, several years prior to the decisions of

Stephens v. Cady and Stevens v. Gladding^ the Court considered the availability of a writ

oifierifacias^^ against an equity ofredemption^^ in Van Ness v. Hyatt?^ The Court ruled

that the right of the mortgagor to purchase the property in the event of foreclosure was

"nothing more than a contract ...[,] a conditional right to purchase, which, in effect, was

nothing more than a chose in actionP^ Because choses in action could not be seized via

a writ oifieri facias, the sale of the equity of redemption was held to be improper.^^

However, the Court stated that the appellant did have standing in a court of equity for

redemption.^^

Although the Court in Van Ness decided the issue by using a contract rights analogy,

it first discussed the state ofthe law at that time regarding the availability ofa writ offieri

facias for reaching an equitable interest.^'* Absent legislation or a judicial holding to the

contrary, the law of the United States was generally the same as England's—equitable
interests were not subject to levy by a writ offieri facias.^^ The view that intangible

assets are immune fi'om a writ of execution and implicitly immune from a writ offieri
facias was voiced by the Supreme Court in a later decision.-*^

The apparent general immunity ofintangible assets fi'om any judicial sale as set forth

in Stephens v. Cady and restated in Stevens v. Gladding resulted in the ability of a

judgment debtor to hide its assets. Succinctly stated by the Indiana Supreme Court in

1866 in Keightley v. Walls^^ "[a] defendant might be worth millions, and yet, if his wealth

consisted of choses in action, he could successfiiUy defy his creditors."^* However,

legislators began to seek alternatives to the writ of execution to reach intangible assets,

such as choses in action.^^ For example, in Keightley, it was stated that, although

generally a court in equity may exercise jurisdiction over choses in action of the debtor,

Discoveries").

28. A writ o^fieri facias is a "writ directing the sheriff to satisfy a judgment fi'om the debtor's

property." BLACK'S Law Dictionary 627 (6th ed. 1990). Originally, only goods and chattels could be seized

by a writ offierifacias. Id.\ Van Ness v. Hyatt, 38 U.S. (13 Pet.) 294, 298 (1839).

29. An equity ofredemption is a right of a mortgagor to save the mortgaged property from foreclosure

"after it has been forfeited, at law, by a breach of the condition of the mortgage {i.e., default in mortgage

payments), upon paying the amount ofdebt, interest and costs." BLACK'S LAW DICTIONARY 541 (6th ed. 1990).

30. 38 U.S. (13 Pet.) at 297-98.

31. /^. at 301.

32. Id.

33. Id.

34. /^. at 298-300.

35. Id at 298.

36. Ager v. Murray, 1 05 U.S. 1 26 ( 1 88 1 ); see infra text accompanying note 5 1

.

37. 27 Ind. 384(1866).

38. /</. at386.

39. Id



1 995] DEBT SATISFACTION WITH INTANGIBLES 76

1

Indiana does not so permit absent a statute to the contrary."^^ Indiana courts were granted

jurisdiction through proceedings supplementary to execution"*' via statute/^

B. Alternatives to a Writ ofExecution

In 1881, the United States Supreme Court opened the door to alternatives to a writ

of execution for reaching the intangible assets ofthe judgment debtor."*^ The facts ofAger

V. Murray are similar to the hypothetical posited in the Introduction to this Note.

Specifically, a monetary judgment was issued against an individual who owned no real
nor personal property in the jurisdiction ofthe lower court but did own interests in patents
which, if sold at a judicial sale, would produce enough money to satisfy the judgment."*"*

A writ offierifacias was executed on the judgment, but because the patent owner had no
real nor personal assets, the judgment was not satisfied."*^ The patent owner assigned his

interest in the patents to his wife and she, in turn, reconveyed all the interest to her

husband."*^ The judgment creditor then sought to reach the patent rights of the original

patent owner and his wife in satisfaction of the judgment."*^ The Court, in exercising its

power of equity, affirmed the order of the lower court that interest in the patents should

be sold at a judicial sale to satisfy the judgment, and the patent owner was required to

assign his interests to the purchaser."*^ If the patent owner did not voluntarily assign his

rights, a court-appointed trustee would execute the assignment.^'

The Court in Ager stated that the rights granted to copyright owners and patent

owners "do not exonerate the right and property thereby acquired . . . from liability to be

subjected by suitable judicial proceedings to the payment of his debts.**^° To reconcile its

holding with the decisions of Stephens v. Cady and Stevens v. Gladding, the Court

emphasized that it was not exercising its powers at law as through a writ ofexecution, but

rather was exercising its equitable powers, which "may be enforced in all cases where the

person is within its jurisdiction."^' Thus, the Court reaffirmed the unavailability ofa writ

of execution to reach intangible assets of the judgment debtor, absent a statute to the

contrary. However, the holding ofAger established that a court in equity may seize the
intangible assets by other judicial proceedings.

40. Id.

41. Supplementary proceedings, also known as proceedings supplementary or proceedings

supplemental, are procedures instituted after an execution that are "directed to the discovery of the debtor's

property and its application to the debt for which the execution is issued," BLACK'S Law DICTIONARY 1439

(6th ed. 1990).

42. Keightley, 27 Ind. at 386.

43. Ager v. Murray, 105 U.S. (15 Otto) 126 (1881).

44. Id. at 127.

45. Id

46. Id

47. Id

48. Id at 132.

49. Id

50. Id at 128.

51. /t/. at 129-31.



762 INDIANA LAW REVIEW [Vol. 28:755

The law/equity distinction of Ager led to the eventual identification of specific
alternatives to the writ of execution. Garnishment, creditor's bills, and proceedings

supplemental are examples of viable equitable proceedings. Interestingly, a writ offieri

facias, a proceeding at law, has also been held a viable alternative, despite the law/equity

distinction ofAger.^'^

Garnishment is a "proceeding whereby a plaintiff creditor . . . seeks to subject to his

or her claim the property or money of a third party . . . owed by such party to defendant

debtor, i.e., principal defendant.'*" Choses in action and other intangible assets are

subject to garnishment in some jurisdictions.^'* Thus, royalties from intellectual property

may be gamished.^^ Intangible assets of the judgment debtor may also be reached by a
creditor's bill.^^ Similarly, proceedings supplemental (supplementary proceedings) are

used to reach the judgment debtor's intangible assets."

A writ offieri fiicias has also been utilized for reaching the intellectual property
rights of the judgment debtor.^* Despite the aforementioned holding of Van Ness that

intangible assets cannot be reached by a writ offieri facias^^ and without reference

thereto, the United States Court of Appeals for the Third Circuit in McClaskey v.

Harbison-Walker Refractories Co.^ reversed the finding of the district court which held

that a writ offierifacias and a special (statutory) writ offierifacias may not be used to
reach the judgment creditor's patent rights.^' Because the McClaskey courts did not

consider the Van Ness case, the reasoning of these courts is worthy of discussion.

In McClaskey, the judgment creditor did not proceed by a bill of equity for

satisfaction ofthe judgment fi-om the judgment debtor's patent rights, but sought to reach

the patent rights via a special writ offieri fiicias.^^ The statutory writ offieri facias

provided that the sheriff would seize the patent rights for judicial sale." The district

52. See infra notes 58-61 and accompanying text.

53. Black's Law Dictionary 680 (6th ed. 1990). For purposes of this Note, garnishment is

distinguished from attachment. Attachment is a proceeding instituted at the time suit is filed or during trial to

seize property intended to be utilized to satisfy the eventual judgment. The order for attachment occurs prior

to the issuance of a judgment. Ager, 105 U.S. at 126.

54. See, e.g., Baltimore & Ohio R.R. Co. v. Hostetter, 240 U.S. 620, 622 (1916); Sanders v. Armour
Fertilizer Works, 292 U.S. 190, 203 (1934).

55. See. e.g., Davis v. Tingley, 9 A, 32 (Pa. 1877); Victory Bottle Capping Mach. Co. v. O. 8c J. Mach.

Co.,280F. 753(lstCir. 1922).

56. See, e.g., Ager, 105 U.S. (15 Otto) 126; Kenyon v. Automatic Instrument Co., 160 F.2d 878, 884

(6th Cir. 1947).

57. See, e.g., Keightley v. Walls, 27 Ind. 384, 386 (1866); Coldren v. American Milling Research &
Dev. Inst., 378 N.E.2d 870, 872 (Ind. Ct. App. 1978) (holding that patent and contract rights may be reached

via proceedings supplemental).

58. McClaskey v. Harbison-Walker Refractories Co., 138 F.2d 493, 497-500 (3rd Cir. 1943).

59. See supra text accompanying notes 28-33.

60. 138 F.2d 493 (3rd Cir. 1943).

6 1

.

McClaskey v. Harbison-Walker Refractories Co., 46 F. Supp. 937, 938 (W.D. Pa. 1 942), rev 'f/, 1 38

F.2d 493 (3rd Cir. 1943).

62. Id. at 937.

63. Id. at 938.



1 995] DEBT SATISFACTION WITH INTANGIBLES 763

court, using Ager as authority, opined that the levy of the property by the sheriff through

the writ offierifacias was akin to a levy by writ of execution which Ager had explicitly

deemed unavailable for incorporeal rights.^ The United States Court of Appeals for the

Third Circuit reversed, reasoning that the efifect of the writ oifierifiicias was essentially

the same as that of a creditor's bill^^ and "that to effect the assignment of a patent it is not

necessary to observe a precise formula so long as what is done meets the substance of the

requirements of the federal statute."^^

Both a creditor's bill and a writ oifierifixcias are invoked by the judgment creditor

when the judgment is not satisfied by a writ of execution.^^ Although the judgment
creditor in McClaskey had the option of proceeding by a creditor's bill, it chose not to.^^

A creditor's bill is an equitable proceeding initiated to enforce a judgment.^^ The writ of
fierifiicias is likewise used to enforce a judgment after a writ of execution is unsuccessfiil.

However, as stated in McClaskey, it is issued at the request of the judgment creditor
7^

The judgment creditor in McClaskey thus referred to the writ of fieri facias as "an

adequate remedy at law."^' Therefore, it was probably less difficult and less expensive

to achieve the desired result by a writ offieri facias than to complete the equitable

proceeding of a creditor's bill.

In McClaskey, the circuit court focused on the end result rather than on the means

used to achieve that result. The law/equity distinction ofAger is applicable to the means

of achieving the desired result. The holding ofMcClaskey circumvented the distinction

established by the Supreme Court, but the fact that the intangible assets of the judgment

debtor cannot be reached until after the judgment is left unsatisfied by a writ of execution

remains intact.

Van Ness, as previously discussed, stands for the proposition that intangible assets

(equitable interests) cannot be reached via a writ offierifaciasJ^ In Van Ness, the writ

offierifacias was referred to throughout the opinion as an "execution."^^ Though the writ

offierifacias is issued after judgment,^"* it is a remedy at law akin to a writ of execution.^^

As previously stated, the court in McClaskey did not address the holding of Van Ness.

Although the law/equity distinction of Van Ness, Stephens v. Cady, Stevens v. Gladding

and Ager may not seem "just'* given today's view of intangible assets and in particular
today's view of intellectual property, at least the law/equity distinction had a justifiable

basis. The inclusion of a writ offierifacias as an alternative proceeding for reaching the

64. Id.

65. 138F.2dat499.

66. Id. at 500. The federal statute referenced, 35 U.S.C. § 47, identifies valid assignments of patents

rights.

67. See supra notes 21, 28.

68. 46 F. Supp. at 937.

69. See supra note 21,

70. 46 F. Supp. at 938.

71. 138F.2dat498n.7.

72. See supra text accompanying note 32.

73. Van Ness v. Hyatt, 38 U.S. (13 Pet.) 294 (1839).

74. The writ offierifacias in Van Ness was issued seven months after judgment. Id. at 297.

75. Black's Law Dictionary 627 (6th ed. 1 990).



764 INDIANA LAW REVIEW [Vol. 28:755

intangible assets of the judgment debtor makes the law more difficult to accept as "just"

because the judgment creditor must wait to seize the assets for judicial sale, even though

no such waiting period exists for reaching tangible assets.^^

As previously mentioned, intangible assets may be immediately available for seizure
if statutory authority so provides/^ Thus, in some civil causes of action, the judgment

creditor's interests in the judgment debtor's intangible assets are protected with relative

expediency. Bankruptcy proceedings, for example, have provided for seizure of

intangible assets for some time.^* Because immediate seizure of intangible assets is the

exception rather than the rule, the judgment creditor's interest in the judgment debtor's

intangible assets is afforded different levels of protection depending on the particular

cause of action. This cause-of-action dependency, coupled with the jurisdictional

differences discussed below, makes the law as applied to intangible assets in general even

less consistent and more difficult to justify.

II. Jurisdictional Differences/Dependencies

Whether suit is filed in state or federal court generally has no impact on the

alternatives to the writ of execution utilized to levy the judgment debtor's intangible

assets for judicial sale to satisfy the judgment. Rule 69 of the Federal Rules of Civil

Procedure states, in pertinent part:

The procedure on execution, in proceedings supplementary to and in aid of

judgment, and in proceedings on and in aid of execution shall be in accordance

with the practice and procedure of the state in which the district court is held,

existing at the time the remedy is sought, except that any statute of the United

States governs to the extent that it is applicable.^^

Therefore, for most causes of action, other than those brought under and act promulgated

by the federal government, such as the Bankruptcy Act, state law prevails. Consequently,

in preparation for bringing suit, the litigator must become familiar with the applicable

state law and properly assess jurisdictional differences if an action may be brought in
more than one state. Some issues of concern are: (1) the types of property which

76. Since McClaskey, there has been a split among the states as to whether a writ offierifacias may

be used as an alternative to the writ of execution for reaching the judgment debtor's intangible assets. The

Delaware Supreme Court, for example, stated that the seizure ofequitable interests in stock certificates by a writ

of sequestration was closer to sequestration in equity rather than a writ of 2M2xAim&nXfierifiicias and therefore

was permissible. Greene v. Johnston, 99 A.2d 627, 636 (Del. 1953); compare Burchett v. Roncari wherein the

Connecticut Supreme Court held that choses in action may not be seized by a writ offierifiicias. 434 A.2d 941

,

942 (Conn. 1 980). The court in Burchett pointed out that the writs offierifiicias and scirefacias are the ancient

writs of execution. Id.

11. Ager V. Murray, 105 U.S. (15 Otto) 126, 129 (1881).

78. In Ager., the Court noted that in bankruptcy proceedings in England, a patent right may be required

to be assigned for payment of debts to creditors even though not so stated in the statute. Id. at 128. In the

United States, the Bankruptcy Act specifically included intangible assets as property to be assigned and sold

to pay the bankrupt party's creditors. Id. at 129.

79. Fed. R. Civ. P. 69.



1 995] DEBT SATISFACTION WITH INTANGIBLES 765

constitute intangible assets; (2) the procedural alternatives available to reach intangible

assets in satisfaction ofthe judgment; (3) the point in time at which a lien is levied on the

intangible asset by such procedures; and, (4) precautionary measures required by law to

protect the judgment creditor's interest in the judgment debtor's intangible assets. Each

of these issues is presented below.

A. What Constitutes an Intangible Asset?

In determining whether to file suit, a litigator and her client generally consider, as a

practical matter, the probability of success in the action. One factor is the ability of the
potential adverse party to satisfy the judgment. Hence, an assessment of the potential

adverse party's worth is an early consideration. It is also advisable, especially in view of

the "special treatment" ofintangible assets discussed herein, that the nature ofthe entity's

assets be determined. Moreover, different jurisdictions may define intangible assets
differently, and each jurisdiction's definition may be dynamic.

Consider, for example, the holding of Rowe v. Colpoys,^^ which modified the
common law rule that licenses were not considered "goods and chattels" and, therefore,
were not available for levy by a writ offieri facias. ^^ The court pointed out that the

requirement that "equitable and incorporeal interests were required to be reached by

proceedings in equity" had been tempered by the then-recent adoption of the Federal

Rules of Civil Procedure, which dispensed with the distinction between courts of law and

courts of equity.^^ Considering that no law to the contrary existed in the District of

Columbia, the court found no justification for "preserving disparate categories ofproperty,

or of rights or interests in property, out of which to satisfy judgments"^^ and held that

transferable licenses, such as the license to sell alcoholic beverages, are subject to levy

by a writ offierifiicias in the District of Columbia.^"*

The definitions of intangible assets among jurisdictions are too numerous for

complete expose in this Note. A few additional examples may be helpful, however. In
Illinois, a seat or membership on the Chicago Mercantile Exchange was not subject to

execution because it was an intangible asset, not a "good or chattel."^^ In Utica National

Bank & Trust Co. v. Marney^^ oil and gas leasehold interests were deemed intangible
personal property in Kansas.^^ The court in Bedingfield v. McLarty^^ held that hunting and

80. 137 F.2d 249 (D.C.Cir. 1943), cert, denied, 320 U.S. 783 (1943).

81. Mat 250-51.

82. Id at 250.

83. Mat 251.
84. Id. Note that McClaskey and Rowe (see supra notes 58-71, 80-83 and accompanying text) were

decided in the same year and that both involved the use of a writ offierifacias to seize intangible assets in

satisfaction of the judgment. The court in McClaskey circumvented the law/equity distinction for intangible

assets, while the court in Rowe directly addressed the law/equity distinction. McClaskey used the end result to

justify its holding and did not change the definition of an intangible asset. Rowe broadened the definition of

property subject to the writ.

85. Rochford v. Laser, 414 N.E.2d 1096, 1 102 (111. App. Ct. 1980).

86. 661 P.2d 1246 (Kan. 1983).

87. M at 1248.
88. 324 S.E.2d 312 (S.C. 1984).



766 INDIANA LAW REVIEW [Vol. 28:755

fishing rights are both intangible assets and also personal property under South Carolina

law.^^ An unsecured, unliquidated counterclaim was found to be a chose in action in In
re Great Lakes Steel & Fabricating Industries, Inc.^^ A vested interest in certificates of
deposit is an intangible asset subject to Ohio's garnishment procedures.^' Similarly, a

depositor's interest in her bank deposits was found to be property of nature subject to

garnishment or attachment but not subject to a writ of execution under Arkansas law.^^

Perhaps the only properties universally deemed intangible assets are the rights

conferred by grant of a patent, trademark, or copyright. The very definition of intangible

assets enumerates these rights.^^ For other property, the litigator should consult the

applicable state law, recognizing that the issue ofwhether or not an asset is intangible may
be defined by cases having causes of action that differ fi-om those being considered by the

litigator. The litigator must also be conscious of the type of asset (intangible, tangible,

goods and chattels, etc.) encompassed within the specific statutes authorizing an

alternative procedure to the writ of execution for application to intangible assets.

B. What Alternatives May be Utilized?

The types of procedures available as an alternative to the writ of execution for

reaching the intangible assets of the judgment debtor and the specific requirements for

such procedures vary among the states. The alternative procedures for a few states are

examined in this Note for illustrative purposes.

In Indiana, intangible assets may only be reached by procedures established by
statute.^"* The Indiana General Assembly has provided such a mechanism for reaching

intangible assets in its proceedings supplementary to execution.^^ Indiana does not

recognize a bill in equity for reaching those assets.
^^

One of Indiana's neighbors, Illinois, recognized two procedural alternatives to the

writ of execution. Specifically, the judgment creditor could file a creditor's bilF^ or could

institute proceedings to discover the assets of the judgment debtor.^^ Today, both

procedures have been combined into Illinois' supplementary proceedings.^^

Under New York law, several procedures are provided for enforcement of money
judgments. '^^ Included are a delivery or "turn-over" order,'^' an installment payment

89. Mat 312-13.

90. 83 B.R. 1015, 1022 (Bankr. N.D. Ind. 1988).

9 1

.

Park v. Park, 54 1 N.E.2d 640, 64 1 (Ohio Civ. Div. 1 988).

92. In re Frazier, 136 B.R. 199, 202 (Bankr. W.D. Ark. 1991).

93. See supra noXQ \

.

94. Keightley v. Walls, 27 Ind. 384, 386 (1 866); Coldren v. American Milling Research & Dev. Inst.,
378 N.E.2d 870, 872 (Ind. Ct. App. 1978).

95

.

iND. Code Ann. §34-1 -44-2 (West 1 993).

96. Coldren. 378 N.E.2d at 872.

97. Rochford v. Laser, 414 N.E.2d 1096, 1 102 (111. App. Ct. 1980).

98. Id.; Asher v. United States, 436 F. Supp. 22, 25 (N.D. 111. 1976), qff'd, 570 F.2d 682 (7th Cir. 1978).

99. III. Ann. Stat. ch. 735, para. 5/2-1402 (Smith-Hurd 1993); III. Ann. Stat. S. Ct. R. 277 (Smith-

Hurd 1993).

1 00. N.Y. Civ. Prac. L. & R. 520 1-5251 (McKinney 1 993).
101. M§5225.



1995] DEBT SATISFACTION WITH INTANGIBLES 767

order, '^^ and appointment of a receiver.'^-' Other states, such as California, also permit

appointment of a receiver to satisfy the judgment.
'^'^

Garnishment has been used to reach a vested interest in a certificate of deposit in

Ohio'^^ and Arkansas. '^^ As already discussed, the District of Columbia and Pennsylvania

have permitted the seizure of intangible assets by a writ oifierifacias}^^

Thus, the litigator must consult statutory and decisional authority to determine what

types of procedures are available to reach the judgment debtor's intangible assets.

Obviously, the requirements for such a procedure will impact the cost of reaching the

assets as well as the time required between issuance of a judgment and the actual seizure

of the assets. If the adverse party is likely to refuse to comply with the judgment, time

may be a very important consideration. Also, the cost of the procedure is frequently an
issue with the client.

C When is a Lien Levied Against the Asset?

An important consequence of the specific alternative procedure used in lieu of a writ
of execution is the time at which a lien is imposed on the asset. Because the imposition

of a lien on an asset establishes the judgment creditor's "claim, encumbrance, or charge

on property for payment of some debt, obligation or duty,"'^* the time the lien attaches

indicates the level of protection for the judgment creditor's interest in the judgment

debtor's assets.

The time at which a lien attaches varies among the states and may depend on the type
ofproperty levied. In Indiana, for example, for property reachable by a writ of execution,

a lien attaches to that property upon the issuance of an execution. '^^ A lien is not secured
at that time against property immune from a writ of execution."^ Unfortunately, in

Coldren v. American Milling Research & Development Institute, a commonly cited case
on the issue, the question of when a lien is secured for intangible assets via proceedings

supplementary was rendered moot and not addressed.'"

102. Id. § 5226.

103. Id. § 5228.

1 04. Cal. Civ. Proc. Code § 564 (West 1 993). California specifically excludes some types ofproperty,

including choses in action, from a writ of execution. Id. § 699.720. However, intellectual property rights are

not enumerated as immune. Nevertheless, the annotations of § 695.010, entitled Property Subject to

Enforcement Generally, cite an 1 896 case that deems patents as immune from a writ of execution. Intellectual

property rights are therefore presumably immune from a writ of execution in California.

105. Park v. Park, 541 N.E.2d 640, 641 (Ohio Civ. Div. 1988).

1 06. In re Frazier, 1 36 B.R. 1 99, 202 (Bankr. W.D. Ark. 1 99 1 ).

1 07. Rowe V. Colpoys, 137 F.2d 249, 25 1 (D.C. Cir. 1 943); McClaskey v. Harbison-Walker Refractories,

138 F.2d 493, 497-500 (3rd Cir. 1943); see supra note 84.

108. Black's Law Dictionary 922 (6th ed. 1990).

109. IND. Code Ann. § 34-1-34-9 (West 1994); Coldren v. American Milling Research & Dev. Inst.,
378 N.E.2d 870, 871 (Ind. Ct. App. 1978).

110. Co/Jre«,378N.E.2dat871.

111. Mat 872.



768 INDIANA LAW REVIEW [Vol. 28:755

In Illinois, a lien is secured against real property upon recordation ofjudgment;''^

against personal property when a writ of execution is delivered to the sheriff;"^ and, for
intangible assets not leviable by a writ of execution, at the "time a writ of execution is

delivered to the sheriff, and not at the commencement of the citation to discover assets
proceeding."'"* As stated by the United States Court of Appeals for the Seventh Circuit,

"if a lien is given upon tangible personal property by delivery of the writ to the sheriff,

a different method of exercising the right of sale should not prevent the similar creation

of a lien on intangible property."''^

Ajudgment creditor would prefer the Asher court's view over that of Indiana because
it affords the judgment creditor with some protection prior to the commencement or
conclusion of an alternative proceeding. However, time limits to the lien resulting from

a writ of execution exist. In Illinois, such a lien is only enforceable for ninety days."^

Also, if no writ of execution is issued, initiation of the alternative proceeding alone does

not result in the imposition of a lien on the tangible or intangible assets sought to satisfy

the judgment."^ When using a citation to discover assets, a lien is not secured until the
court orders the delivery of the assets.''^

In New York, a lien attaches to personal property reachable by a writ of execution at
the time the writ is delivered to the sheriff"^ For real property subject to a writ of

execution, the imposition of the lien is dependent upon the docketing of the writ.'^^ For

supplementary proceedings used to satisfy the judgment, a lien is imposed at the time the

order is secured.'^' In a few states, such as California, the judgment creditor may request
the imposition of a nonpossessory judgment lien at the time judgment is issued.

'^^

These examples illustrate the differences among jurisdictions as to the time at which

a lien is imposed on intangible assets. As shown by the state of the law in Illinois, in

addition to jurisdictional variations, different assets may be treated differently, even when
the same procedure is used to reach the asset. The litigator must, therefore, be cognizant

of any special precautionary measures necessary to protect the client's interests.

112. III. Ann. Stat. ch. 735, para. 5/12-101 (Smith-Hurd 1993).

113. /(i. para. 5/12-111.

1 14. Asher v. United States, 436 F. Supp. 22, 25 (N.D. 111. 1976), ajfd, 570 F.2d 682, 684 (7th Cir.

1978). For purposes of this Note, citation to discover assets is akin to a creditor's bill.

115. Asher, 570 ¥.2d at 6S4.

1 1 6. III. Ann. Stat. ch. 735, para. 5/12-110 (lien on real property); see also Rochford v. Laser, 414

N.E.2d 1096, 1 103 (111. App. Ct. 1980) (liens on intangible assets may expire).

117. Rochford v. Laser, 414 N.E.2d 1096, 1 101-04 (111. App. Ct. 1980); Bamett v. Stem, 93 B.R. 962,

976 n.5 (Bankr. N.D. 111. 1988), rev 'don other grounds, 909 F.2d 973 (7th Cir. 1990).

1 1 8. Rochford, 414 N.E.2d at 1 1 04; Barnett, 93 B.R. at 976 n.5.

1 19. Knapp v. McFarland, 462 F.2d 935, 938 (2nd Cir. 1972).

1 20. N.Y. Civ. Prac. L. & R. § 5203 (McKinney 1 994).
121. M§ 5202(b).
122. Cal. Civ. Proc. Code §§ 697.550, 697.570 and 697.530; see also infra notes 214-20 and

accompanying text.
^



1 995] DEBT SATISFACTION WITH INTANGIBLES 769

D. Must the Judgment Creditor Take Precautionary Measures?

Differences among the states exist in the type of assets that constitute intangible
assets, the alternative procedures available for reaching intangible assets, and the level of

protection afforded the judgment creditor before or during such proceedings through the

imposition of a lien on the intangible assets of the judgment debtor. There appears,

however, to be little, if any, discrepancy in identifying intellectual property (namely,

patents, trademarks, and copyrights) as intangible assets, perhaps due to decisions in the

early cases such as Stephens v. Cady, Stevens v. Gladding, and Ager v. Murray}^^

Whatever the reason, the rights conferred by the grant ofpatents, federal trademarks, and

copyrights are at least classified as intangibles. Why, then, are these rights treated

differently among the states?

The procedures used and the protection afforded the judgment creditor are variable.

Hence, the judgment debtor—the patent owner, the trademark owner, and the copyright

owner—is also afforded different levels of protection among the states. If, as stated in
Stevens v. Gladding, "these incorporeal rights do not exist in any particular State or

district; [and] they are coextensive with the United States,'*'^'* should not the owner be

accorded the same rights in every state for the forcible stripping ofthe owner's federally-

granted rights? Without federal guidance, the litigator is free, when an action may be
brought in more than one state, to select a forum to gain any advantage she may legally
obtain for her client. Further, the United States has set forth procedures for enjoining and

stripping the owner's rights in infringement actions—^both during trial and at judgment
'^^—and for bankruptcy proceedings.'^^ Though not every cause of action has a federal
counterpart, it seems logical that the United States has an interest in the transfer by the

courts of the rights it grants in intellectual property.

The court's jurisdiction over the intellectual property rights of the judgment debtor

may also be an obstacle to reaching the assets. If a court does not have jurisdiction over
the owner ofa federally-conferred intellectual property right, the court has no jurisdiction

over the right. '^^ For example, in the case of Independent Film Distributors v.

Chesapeake Industries, the court was asked to consider whether, under New York state
law, a lien was imposed on a British company's copyrighted plays when movie reels of

the plays were sold at a judicial sale.'^* The sale followed a default judgment against the

British company and its U.S. distributor after the distributor failed to pay a film laboratory

for the processing of negatives and the manufacturing of prints. '^^ Although the New
York court had jurisdiction over the tangible objects, i.e., the movie reels, the court held

it had no jurisdiction over the British company's copyrights because it had no jurisdiction

123. Stephens v. Cady, 55 U.S. (14 How.) 528 (1852); Stevens v. Gladding, 58 U.S. (17 How.) 447

(1854); Ager v. Murray, 105 U.S. (15 Otto) 126 (1881); see supra subparts I.A., LB.

1 24. Stevens, 58 U.S. at 45 1

.

125. 5egi«^a notes 182-91 and accompanying text.

126. See supra note IS.

127. Independent Film Distrib. v. Chesapeake Indus., 148 F. Supp. 611,614 (S.D.N.Y. 1957), rev'd, 250

F.2d 857 (2d Cir. 1958) (The Second Circuit questioned the imposition ofthe lien under the New York statute.).

128. Id. at 614.

129. Id. at 613.



770 INDIANA LAW REVIEW [Vol. 28:755

over the British company. Therefore, no lien could be levied on the copyrights. '^^

Although no issue ofjurisdiction arises if the judgment debtor is the owner of intellectual

property rights to be used to satisfy the judgment, the court is without jurisdiction if the

judgment debtor's intellectual property rights are contractually granted by an owner not

within the court's jurisdiction. Therefore, the litigator must be cautious to bring the action

in the proper forum if the intangible assets anticipated to be used to satisfy the judgment

are granted by a third party. For patents, trademarks, and copyrights, the appropriate

public records should be consulted. For other intangible assets, such a determination may
be difficult due to the absence of an accessible record.

The imposition of a lien on intangible assets is a concern not only to the judgment

creditor trying to reach those assets. Knowledge of any lien on intangible assets is also

important to the purchaser of such assets at a judicial sale. The purchaser should be

apprised of all claims or encumbrances on the property purchased.

Property to be sold at judicial sale may be encumbered. Consider, for example, the
case ofKenyon v. Automatic Instrument Co.,

'^'
where an inventor had assigned the rights

to his patent to a company while reserving a right to royalty payments from the sale of

each machine covered by the patent.'-'^ The patent was sold at a judicial sale conducted

by a court-appointed receiver.'" The court held that the inventor's right to royalty

payments passed with the sale ofthe patent from the original assignee to another company

through the receiver.'^"*

In the bankruptcy action of/« re Spitzel, title to pens held in inventory by the party

in bankruptcy passed to the bankruptcy trustee. '" The bankrupt party was under a license

from the manufacturer ofthe pens, and the license contained conditions regarding the sale

of the pens.'^^ The court held that the trustee was bound by the terms of the license in

selling the pens to satisfy the debts of the bankrupt party.
'•'^

These cases represent the types of encumbrances that may be associated with
intangible and tangible assets. Although the judgment creditor in these cases was not

prevented from reaching the assets, the purchasers were hurt by the encumbrances. Thus,

let the buyer beware.

III. Reaching THE Tangible Assets Associated WITH

Intellectual Property Rights

Intellectual property may be different in at least one respect from other types of
intangible assets. Unlike the typical chose in action, contract right, or license, intellectual

property rights are often coupled with tangible assets. For example, patent rights may be
embodied in a machine or chemical composition. The legal rights of intellectual property

130. /^. at 614.

13L 160F.2d878(6thCir. 1947).

132. Id. at 880, 883.

133. Id. at 883.

134. Id at 884.

135. In re Spitzel, 168 F. 156, 156 (E.D.N.Y. 1909)

136. Id

137. /^. at 156-57.



1 995] DEBT SATISFACTION WITH INTANGIBLES 77

1

are independent from that of the tangible property associated therewith: "Intellectual

property rights do not encompass rights to any tangible property embodying or derived

from such rights and, conversely, rights to tangible property do not include intellectual

property rights associated with that property.*''^^ Thus, the immunity of intellectual

property does not, as discussed below, apply to the tangible property associated with the

intellectual property rights.

A. Tangible Assets Associated with Copyright

A copyrighted work is usually distributed on tangible media such as paper, audio or
video tape, computer diskette, or compact disc. In addition, a tangible object may be used
to duplicate the copyrighted material for subsequent sale. Recall that a copperplate

engraving used to print a copyrighted map was the subject of litigation in Stephens v.
Cady and Stevens v. Gladding.

^^^

In Stephens v. Cady, the Court held that the engraving could be sold via a writ of

execution, but the copyright could not.''*^ In Stevens v. Gladding, the Court held that the

exclusive right to print and publish the map granted by copyright did not attach to the
engraving and, thus, was not sold nor transferred to the owner of the engraving.'"*' The

Court stated that "there is no necessary connection between [the plate and the copyright].

They are distinct subjects of property, each capable of existing, and being owned and

transferred, independent of each other."'"*^ Although the plate was sold at a judicial sale

for the benefit of the judgment creditor, the purchaser ended up with a plate, which only

had value as scrap until the copyright to the map expired. In fact, the purchaser could
have suffered additional loss because he had duplicated and sold copyrighted material,

i.e., maps made with the plate, but a jury found the purchaser not guilty of infringement.'''^

Again, let the buyer beware.'"'*

More recent cases have also recognized the distinction between copyright and

associated tangible objects: master disks used to reproduce records are separate from the

copyright of the recording; '"^^ materials used to ftimish a copyrighted map puzzle are
separate from the copyright thereon;'''^ and motion picture negatives for copyrighted

movies are tangible objects independent of the copyright."*^ While the tangible objects

138. Thomas L. Bahrick, Security Interests in Intellectual Property, 1 5 AM. INTELL. PROP. L. ASS'N Q.J.

30,32(1987).

1 39. See supra notes 1 7-24 and accompanying text.

140. Stephens v. Cady, 55 U.S. (14 How.) 528, 531 (1852).

141. Stevensv.Gladding, 58U.S. (17How.)447,453(1854).

142. Mat 452.
143. Stevens v. Gladding, 60 U.S. (19 How.) 64, 65 (1856).

144. See also Knickerbocker Toy Co. v. Winterbrook Corp., 554 F. Supp. 1309, 1324 (D.N.H. 1982)

(The purchase of a copyright pattern for Raggedy Ann and Andy dolls does not result in the transfer of the

copyright to the purchaser.).

145. Capitol Records, Inc. v. Mercury Record Corp., 109 F. Supp. 330, 333, 338-339 (S.D.N.Y. 1952),

ajfd, 221 F.2d 657 (2d Cir. 1955).

146. Piatt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 854 (2d Cir. 1963).
147. Wah Disney Prod. v. United States, 327 F. Supp. 189, 192 (CD. Calif 1971), modified on other

grounds, 480 F.2d 66 (9th Cir. 1973), cert, denied, 415 U.S. 934 (1974).



772 INDIANA LAW REVIEW [Vol. 28:755

associated with copyright may be seized for judicial sale by a writ of execution, a
purchaser of those tangible objects should understand that it does not necessarily receive

the copyright associated with those objects as a result of the acquisition.'
"**

B. Tangible Assets Associated with Patent Rights

Tangible objects that are the subject of a patent may be created. In Wilder v. Kent,^^^
two patented machines were sold by a judicial sale held subsequent to the issuance of a

writ of execution. '^° The patent owner claimed that, pursuant to Stephens v. Cady and

Stevens v. Gladding (copyright cases), the purchase did not result in a grant ofright to the

purchaser to use the patented machines.'^' The court held that although the purchaser did

not acquire a right in the patents by purchasing the machines, "[b]y implication he is

invested with a license to use that particular machine."'^^ As a practical matter, the court
recognized that the tangible property had no value unless a license to use the property

passed to the purchaser. '^^ This holding seems inconsistent with Stephens v. Cady and

Stevens v. Gladding where the purchasers also ended up with tangible objects having no

value because no rights passed with them.

On the other hand, the sale of the patented machine in Wilder is probably more akin
to the acquisition ofcopyrighted materials, such as copies ofthe map in Stephens v. Cady
and Stevens v. Gladding. Sales occurring subsequent to a writ ofexecution do not violate

the owner's copyright. '^"^ However, copyrights do not encompass an exclusive right to use

as do patents.'" Further, if an entity holds a patent to a process for which an unpatented

machine is developed to execute and that machine is sold after a writ of execution, there

appears to be conflict as to whether the purchaser of the machine acquires a license to use

the patented process pursuant to Wilder or whether the tangible object used to execute the

process is useless without a license from the patent owner to use the process pursuant to

Stephens v. Cady and Stevens v. Gladding. In addition, if an entity holds a design patent

and the molds used to manufacture the patented design are sold, does the purchaser obtain

a license to manufacture the design by acquiring the molds or are the molds useless to the

purchaser unless the purchaser obtains a license to manufacture the patented design?

Pursuant to 35 U.S.C. § 154, the patentee ofa machine or composition is granted "the

right to exclude others from making, using or selling the invention throughout the United

148. The distinction of copyright and the material objects embodying the work is now codified in 17

U.S.C. §202(1988).

1 49. Wilder v. Kent, 1 5 F. 2 1 7 (C.C.W.D. Pa. 1 883).

150. Mat 217-18.
151. Id. at 219.

152. Id.

153. Id

154. See Piatt & Munk Co. v. Republic Graphics, Inc.. 3 1 5 F.2d 847, 854-55 (2d Cir. 1 963) (Sale of a
copyrighted object at a judicial sale does not mean that the purchaser infringed the copyright.); see also 17

U.S.C. § 1 09 (1 988) (Generally, the lawful owner ofa copy ofthe copyrighted work is free to "sell or otherwise

dispose" of the copy possessed.).

155. See 17 U.S.C. §§ 106-120 (rights conferred in copyrighted works) and 35 U.S.C. § 154 (rights

conferred to patentees).



1 995] DEBT SATISFACTION WITH INTANGIBLES 773

States
"'^^ For a patented process, the patentee is granted "the right to exclude others

from using or selling throughout the United States, or importing into the United States,

products made by that process. . . ."'" Patentees of design patents are granted the same
rights to exclude as are granted for machine or composition patents. '^^ Thus, with regard

to use ofthe invention, the rights conferred for machine and composition patents, process

patents, and design patents are essentially identical.

Some distinction does exist regarding the type of tangible objects that are associated
with the various types of patents. In all instances, a product that embodies the invention

may be made. A patented machine, a product made using a patented process, and a
patented object for which a design patent exists embody inventions for which the patentee

has exclusive rights. Pursuant to Wilder, a court would likely permit the purchaser of

these embodiments to use them without violating the patent owner's rights.

Process patents and design patents may be associated with another type of tangible
object—an object used to execute the process or to duplicate the invention. For process
patents, a machine or series of machines may be needed to execute the process. For
design patents, molds may be used to duplicate products embodying the patented design.
These tangible objects are akin to the copperplate of Stephens v. Cady and Stevens v.

Gladding. A court would not likely imply a license to use the patented process or to
duplicate the patented design by acquisition of the aforementioned tangible objects. To

imply a license would result in granting the purchaser the intellectual property rights of

the judgment debtor for as long as the tangible object is able to execute the process or to

duplicate the design. The foregoing discussion reveals that, in actions that implicate the

intellectual property rights ofpatent owners, the ability to acquire valuable tangible assets

varies according to the type of tangible object possessed by the judgment debtor.

C. Tangible Assets Associated with Trademarks

Trademarks are also associated with tangible objects. A trademark is presented on
goods or on media such as tags and labels, signs, product brochures, and the like. More

importantly, a "trademark is a form of property which exists in connection with the

goodwill or tangible assets of a business."' ^^ A trademark may be transferred in
connection with the goodwill of a business without transferring the tangible assets of the

business. '^° Thus, a trademark and its associated tangible assets are independent from

each other. However, a trademark is not independent from the intangible asset of

goodwill because a trademark may not be transferred without the transfer of the business

156. 35U.S.C.§ 154(1988).

157. Id.

158. M § 171 (1988).
1 59. Adams Apple Distrib. Co. v. Papeleras Reuinidas, S.A., 773 F.2d 925, 93 1 (7th Cir. 1 985) (citations

omitted). For purposes of this Note, goodwill is an intangible asset representing the value of the business in

excess of the value of the business's assets. Goodwill is reflected in factors such as the business's location,

reputation and employees. Black's Law Dictionary 694-95 (6th ed. 1990).

160. Adams Apple Distrib. Co., 773 F.2d at 93 1 (citing Money Store v. Harriscorp Fin., Inc., 689 F.2d

666, 676 (7th Cir. 1982)).



774 INDIANA LAW REVIEW [Vol. 28:755

or goodwill'^' Therefore, although a trademark may be sold by an involuntary judicial
sale,'^^ it cannot be sold without the accompanying sale of the goodwill.

'^^

D. Are the Inconsistencies Justifiable?

Because tangible assets associated with intellectual property rights are independent

from the intellectual property, those tangible assets may be sold pursuant to a writ of
execution. However, the value of those tangible assets may be insignificant in many
instances. The law regarding the sale of the tangible assets associated with intellectual

property inconsistently values the tangible objects associated with patent rights. Thus, the

likelihood of deriving financial benefit fi-om the sale of these tangible objects depends on

the type of intellectual property owned by the judgment debtor. It also depends on the

status of the judgment debtor's business. If, for example, the judgment debtor owns a

patent for machines and has several of those machines in its inventory, the judgment

creditor will be permitted to expediently satisfy a portion of its judgment upon the judicial

sale of the machines following a writ of execution. If the judgment debtor has no such

machines, the judgment creditor's only recourse is a procedural alternative to the writ of

execution for the subsequent judicial sale of the patent. Similarly, satisfaction of a

judgment from a software company possessing as its primary assets the copyright in its

software products must be attained through alternative procedures. Finally, because a

trademark cannot be conveyed with the judicial sale of the business, a purchaser must be

found to buy both the business and the trademarks.

These differences may impact a business's contractual decisions. A savvy business
person may be more inclined to enter into business arrangements with a patent owner
engaged in making and selling its patented machine or composition than with a software

company because the business person has a greater likelihood of obtaining money

damages from the patent owner. Further, the savvy business person would consider how
legal remedies are affected by the type of intellectual property assets owned by the

potential opposing party.

IV. Equitable Measures TO Protect The Judgment Creditor's Interest

Sir Edward Coke (1552-1634) said, "Reason is the life of the law, nay the common
law itself is nothing else but reason .... The law, which is perfection of reason."'^'* The

immunity of intellectual property and other intangible assets from levy by a writ of

execution seems to be without reason or, at the very least, founded on imperfect

reasoning. Accepting Sir Edward Coke's view of the law, the law relating to the judicial

sale of intangible assets is similarly unreasonable.

This Note has discussed practical matters for consideration by the litigator prior to

the filing of a cause of action against an entity possessing intangible assets to be used to

161. M ; Jacobs, Bell & Baumol v. Curtis, 556 A.2d 8 1 7, 8 1 8 (N.J. 1 989).
1 62. Adams Apple Distrib. Co. , 773 F.2d at 93 1

.

1 63

.

Jacobs, Bell & Baumol, 556 A.2d at 8 1 8.
164. The Oxford Dictionary of Quotations 148 (2d ed. 1955) (quoting from Institutes:

Commentary upon Littleton, First Institute, § 138).



1 995] DEBT SATISFACTION WITH INTANGIBLES 775

satisfy a judgment. The litigator should be aware ofjurisdictional differences, including

property classified as an intangible asset; the procedures used to reach intangible assets;

and, the time at which a lien attaches to the intangible assets. Also, the ability to reach

the tangible assets associated with intellectual properties should be considered. This

section of the Note focuses on what, if any, interim equitable relief may be available to
protect the judgment creditor's interest in the judgment debtor's intangible assets until

they are seized.

A . General Equity Principles

Initially, a law/equity distinction served as the basis for the immunity of intangible

assets from levy via a writ of execution. '^^ Now, the law permits the use of procedures
at law, such as a writ offierifacias. However, the judgment creditor must still wait before

the intangible assets can be seized. Thus, an inequity between tangible and intangible

remains. Because equity is "[jjustice administered according to fairness . . . [and] denotes

the spirit and habit of fairness, justness and right dealing,"' ^^ litigators may consider
equitable measures to protect the judgment creditor's interest in the judgment debtor's

intangible assets during the time delay.

Equity is not without bounds, however. For example, "[ijnadequate damage and

irreparable injury are not synonymous."'^^ Nonetheless, we are not concerned with the
inadequacy of a remedy for a particular cause of action; rather, the focus is on providing

the judgment creditor with protection when using the alternative procedures.

Equity also does not, absent a statute to the contrary, '^^ authorize a court "to seize,

or otherwise provisionally impound, assets for application upon a money demand that is

not secured by a lien on such assets and has not been reduced to judgment."' ^^ Thus,

equitable measures prior to judgment are generally impermissible;'^^ this rule of law

applies to both tangible and intangible assets.

Although no action may be taken prior to a judgment, common law has provided for
an actionable wrong if a judgment debtor fraudulently transfers its assets to avoid

satisfaction of the judgment. '^' However, if a debtor disposes of its assets, the judgment

creditor may be without recourse in satisfying the judgment even though the wrong is

165. See supra svAyp&ril.B.

1 66. Black's Law Dictionary 540 (6th ed. 1990).

1 67. Jador Serv. Co. v. Werbel, 53 A.2d 1 82, 1 86 (N.J. 1 947).

168. i^ee /«/ra subpart IV.B.

169. W.W. Allen, Jurisdiction of Equity to Sequester, Seize, Enjoin Transfer of or Otherwise

Provisionally Secure AssetsforApplication Upon a Money Demand Which Has Not Been Reduced to Judgment,

116 A.L.R. 270, 271 (1938). See also Alder v. Fenton, 65 U.S. (24 How.) 407, 411 (1860) (defendants

permitted to dispose of their property after commencement of suit against them because plaintiff had no legal

right to such property).

1 70. The lower Pennsylvania courts in the 1 890s recognized "cautionary judgments." Allen, supra note

169, at 296. If plaintiff suspected that the defendant might take action that would diminish plaintiffs ability

to recover money damages, plaintiff could seek a pre-judgment cautionary judgment, which usually required

defendant to pay money to the plaintiff Id. at 296-97. Pennsylvania courts later dispensed with the cautionary

judgment and adopted the law of other jurisdictions. Id. at 297.

171. Kane v. Sesac, 54 F. Supp 853, 862 (S.D.N.Y. 1 943).



776 INDIANA LAW REVIEW [Vol. 28:755

actionable. Nevertheless, the belief that such disposition is "wrong" may justify the use
of equitable measures to protect the judgment creditor's interests.

Standing in opposition to the judgment creditor's desire to protect its interest in the

intangible assets of the judgment debtor is the right of the judgment debtor to

constitutional procedural due process. '^^ The constitutionality of a prejudgment

garnishment proceeding was challenged in Sniadach v. Family Finance Corp. ofBay
View}''^ The procedure was instituted at the request of an attorney '^"^ prior to obtaining

a judgment against the debtor. '^^ The Wisconsin procedure was found unconstitutional

because no notice nor opportunity to be heard was provided to the wage earner prior to
the garnishment of her wages. '

^^

In another case, the Supreme Court upheld the constitutionality of a writ of

sequestration available to a holder of a mortgage or lien.'^^ As in Sniadach, the procedure
at issue was in a prejudgment exparte seizure, but differed from the Sniadach procedure

in many respects, including the nature of the interest at stake with greater due process
concern given to the wage earner of Sniadach. ^^^ Thus, prejudgment procedures may or
may not satisfy procedural due process requirements depending upon the particular
procedure implemented.

Many of the due process concerns may be dissipated by actions employed after
judgments. However, property is an interest protected by the Due Process Clause;
therefore, any equitable measures employed to protect creditor's intangible assets must

comply with the requirements of the Due Process Clause. '^^

Generally, a court exercising its equitable powers is afforded discretion. Although

the complaint itself may identify specific relief, if the specific relief is unavailable, a court
of equity may grant other relief as appropriate.'^^ A court of equity may even grant
monetary relief if the remedy at law is uncertain, incomplete, or insufficient.'^'

It is under these general guidelines that equitable measures utilized in conjunction

with alternative procedures to a writ of execution are explored. No exparte prejudgment
proceeding is proposed in light of the rules presented above. Rather, the equitable powers

of a court using recognized procedures are explored.

B. Equitable Remediesfor Certain Causes ofAction

For some causes of action, specific equitable remedies have been defined by statute.

Other causes, such as infringement, are predicated on the violation of the rights associated

1 72. U.S. Const, amend. V (This amendment applies to the states by U.S. Const, amend. XIV, § 1 .).
173. 395 U.S. 337(1969).

174. A/, at 338.

175. /rf. at340.

176. Mat 341-42.
1 77. Mitchell v. W.T. Grant Co., 4 1 6 U.S. 600, 6 1 9-20 ( 1 974); see supra text accompanying notes 1 73-

176.

1 78. Mitchell, 4 1 6 U.S. at 6 1 4- 1 9.

1 79. See infra text accompanying note 240.

180. Filson v. Fountain, 171 F.2d 999, 1002 (D.C.Cir. 1948), rev'd on other grounds, 336 U.S. 681

(1949).

181. M at 1003.



1 995] DEBT SATISFACTION WITH INTANGIBLES 777

with intangible assets. Courts address intangible assets in these cases in a well-defined

manner. A survey of the manner in which the courts deal with the intangible assets in
these cases will allow later consideration of those mechanisms for use in other causes of

action.

For infringement of federally granted intellectual property rights, the remedies

available to the owner of those rights are defined by statute. Specifically, remedies for

infringement ofa patent right include injunctions,'^^ monetary damages,'*^ and attorney's

fees.'^"* For trademark infringement, remedies include injunctions,'^^ monetary damages,

costs and attorney's fees,'^^ and destruction of infringing articles. '^^ Remedies for

copyright infringement include injunction,'^* impoundment and disposition of

infringement articles,'*^ damages and profits or statutory damages, '^° and costs and

attorney's fees.'^' Special remedies for particular types of copyrighted materials are also

set forth in 17 U.S.C. § 5 10 (alteration ofprogramming by cable systems), '^^ for example,

and remedies for infringement of mask works are disclosed in 17 U.S.C. § 91 1.'^^

Injunctions are a common equitable device utilized in infringement actions to ensure
that no further infringement occurs.'^'* Of course, the intellectual property rights of the
plaintiff are at issue in infringement actions. A breach of contract action, where the
contract is a license granting rights associated with intellectual property, is another cause

of action in which the court is likely to impose equitable relief at judgment. In PRC
Realty Systems, Inc. v. National Ass'n ofRealtors, Inc.,^^^ for example, the licensee was

found to have breached its agreement with the licensor. The equitable relief granted to

the licensor placed restrictions on the licensee with regard to the sublicenses it had

granted.
'^^

When an intangible asset is not at issue in the case but is to be used to satisfy a
monetary judgment, few statutory provisions exist to override the immunity of those

assets from a writ of execution. As previously discussed, bankruptcy is one such cause

of action.
'^^

182. 35 U.S.C. § 283 (1993).

183. W. §284.

184. M§285.

185. 15 U.S.C. §1116(1993).

186. Id. § nil.

187. M§1118.

188. 17 U.S.C. §502(1993).

189. M§503.

190. Id. § 504.

191. M§505.

192. M§510.

193. M§911.

194. See. e.g.. Intel Corp. v. ULSI System Tech, Inc., 995 F.2d 1 566 (Fed. Cir. 1993), cert, denied, 1 14

S.Ct. 923 (1994).

195. 766 F. Supp. 453 (E.D. Va. 1991), afTd in part, rev'd in part, 972 F.2d 341 (4th Cir. 1992).

196. /</. at 462-63.

197. See supra note 71

.



778 INDIANA LAW REVIEW [Vol. 28:755

C Equitable Measures

With the intent of protecting the judgment creditor's interest in the judgment debtor's

intellectual property assets to satisfy a judgment, four equitable measures are considered

in this Note as potential candidates for use with alternative procedures to a writ of

execution. Considered are: (1) a preliminary injunction or temporary restraining order;

(2) issuance of a freeze order; (3) imposition of an equitable lien; and, (4) an injunction

at the conclusion of the civil suit.

Two equitable measures commonly used in infringement actions are the preliminary
injunction'^^ and the temporary restraining order. '^^ An ex parte temporary restraining
order is granted at the commencement of trial without providing notice to the defendant.^^

Temporary restraining orders are justified because "[i]mmediate action is vital when
imminent destruction of the disputed property, its removal beyond the confines of the

state, or its sale to an innocent third party is threatened."^^'

The key to the use ofboth of these measures is that either the conduct or the property

restrained is at issue in the case. Thus, when the issue is the infringement of intellectual

property rights, restrictions may be placed on the defendant from taking further action that
constitutes additional infringement^^^ or from dispensing with tangible objects associated

with the right allegedly infringed.^^^

For a civil action in which the intangible assets of the defendant are not the subject

of the suit but are expected to be reached in satisfaction of the ultimate judgment,^^'* the

general rule is that judgment must first be rendered prior to exercising equitable action to

secure the possible interest of the judgment debtor in those assets. However, there is

some contrary movement in the courts in limited circumstances.^^^

Although a preliminary injunction is generally "not permissible to secure post-

judgment legal relief in the form of damages,"^^^ an equitable remedy may be secured
with a preliminary injunction.^^^ Courts have frozen a defendant's assets to secure

198. A preliminary injunction is one "granted at the institution of a suit, to restrain the defendant from

doing or continuing some act, the right to which is in dispute." BLACK'S LAW Dictionary 784-85 (6th ed.

1990). .

199. A temporary restraining order is "[a]n emergency remedy of brief duration which may issue only
in exceptional circumstances and only until the trial court can hear arguments or evidence." Id. at 1464.

200. In re Vuitton et Fils S.A., 606 F.2d 1 , 3-4 (2d Cir. 1 979).

201. Mat 4.
202. See. e.g., Payless Shoesource, Inc. v. Reebok Int'l. Ltd., 998 F.2d 985, 987, 991 (Fed. Cir. 1993).

203. See, e.g., In re Vuitton et Fils S.A., 606 F.2d 1. In this case the defendant was a member of a

network of individuals who infringed the plaintiffs trademark rights. Id. at 2. When one of the infringers was

sued, it would transfer its counterfeit merchandise to another member ofthe network, resulting in a "shell game"

that made the plaintiffs rights difficult to enforce. Id. Because the plaintiff made a sufficient showing of this

network, the Second Circuit ordered the district court to grant an ex parte temporary restraining order. Id. at

3,5.

204. See supra notes 182-91 and accompanying text.

205. See FSLIC v. Dixon, 835 F.2d 554, 560 n. 1 (5th Cir. 1 987).

206. Id at 560.

207. Id



1995] DEBT SATISFACTION WITH INTANGIBLES 779

equitable relief for the plaintiff by imposing a preliminary injunction in a trademark

infringement action where the plaintiff prayed for equitable relief in the form of an

accounting of assets,^^^ by granting restitution in an action against banking officers

allegedly engaged in illegal lending practices,^^^ by imposing a constructive trust on

property in a case involving alleged Racketeer Influenced and Corrupt Organizations Act

(RICO) violations,^'^ and by ordering rescission in a Federal Trade Commission (FTC)

case wherein the defendants allegedly violated the FTC's Franchise Rule.^'' These cases

also illustrate that, although not all the assets of the defendant may be necessary in view
of the equitable relief sought, essentially all the defendant's assets may be frozen by a
preliminary injunction.^

'^

In view ofthese cases, the nature ofthe cause of action and the type of relief prayed

for apparently dictate whether the court may grant a preliminary injunction to freeze the
defendant's assets, including the intangible assets. As stated in Reebok International, Ltd.

V. Marnatech Enterprises, Inc., "[t]he authority to freeze assets by a preliminary

injunction must rest upon the authority to give a form of final relief to which the asset

freeze is an appropriate provisional remedy."^'^ An asset freeze is not appropriate merely
to preserve assets for application to monetary damages that may be awarded.^"*
Therefore, in general, a preliminary injunction will not be granted to restrict the actions

of the defendant in disposing of or diminishing the value of its intangible assets.

The third equitable measure that could possibly be imposed is an equitable lien on the

intangible assets ofthe defendant. The lien could be either: (1) statutory; or (2) equitable.

As discussed previously, jurisdictions vary on the point at which a lien is levied on

intangible assets when enforcement proceedings alternative to a writ of execution are

utilized to reach the judgment debtor's intangible assets. Therefore, the imposition of a

lien by the court prior to or at the time of judgment may be desirable to secure the
judgment creditor's interest in those assets.

As discussed by Mr. WiUiam J. Woodward, Jr., the legislatures ofsome jurisdictions

have passed statutes permitting the imposition of a lien on intangible assets.^'^ The

judgment creditor is permitted to place a lien on the personal property, including

intangible property, of the judgment debtor with relative ease.^'^ Although such liens

have been criticized for the problems they create in bankruptcy cases and cases involving

secured lending under Article 9 ofthe Uniform Commercial Code,^'^ such statutes benefit

208. Reebok Int'l, Ltd. v. Marnatech Enter., Inc., 970 F.2d 552, 562-63 (9th Cir. 1 992).

209. Dixon, 835 F.2d at 562-63.

210. Republic of the Phil. v. Marcos, 862 F.2d 1355, 1364 (9th Cir. 1988), cert, denied, 490 U.S. 1035

(1989).

211. FTC V. H.N. Singer, Inc., 668 F.2d 1 107, 1 1 13 (9th Cir. 1982).

212. See Dixon, 835 F.2d at 565 (leaving defendants an allowance to pay attorneys' fees) and Marcos,

862 F.2d at 1358 (leaving defendants an amount sufficient for attorneys' fees and normal living expenses).

213. Reebok Int'l, Ltd. v. Marnatech Enter., Inc., 970 F.2d 552, 560 (9th Cir. 1992) (quoting Singer, 668

F.2datlll3).

214. Id. at 560 (citing DeBeers Consol. Mines, Ltd. v. United States, 325 U.S. 212, 220 (1945)).

215. Woodward, supra note 6.

216. Woodward, .sM/pa note 6.

217. Woodward, 5«rpa note 6.



780 INDIANA LAW REVIEW [Vol. 28:755

the judgment creditor who has secured judgment in a civil suit. Although only available
in some jurisdictions, the statutory lien provides a useful tool for protecting the judgment

creditor's interest in the intangible assets of the judgment debtor.

In some actions, courts may be granted the equitable authority by statute to impose
a judicial lien on the property of the defendant. Consider, for example, United States v.

Ross^^^ wherein the court appointed a receiver for the assets of the defendant to oversee

the payment of income taxes.^'^ The court had the authority to grant a preliminary

injunction including the receivership by Section 7403 of the Internal Revenue Code to

enforce a lien on the property.^^^ In considering whether to require the defendant to

deliver its property to the receiver, the court stated that it had "no doubt of [its] power to

do so. There is a perfect analogy between an action such as this and the familiarjudgment

creditor's action to reach assets which are not subject to levy of execution."^^' This, then,

raises the question of whether a court may impose, absent a statute to the contrary, an
equitable lien on the judgment debtor's intangible assets prior to the commencement of

the alternative proceedings to secure the monetary damages awarded.

An equitable lien has been imposed on a business's trademark in both lUinois^^^ and
New Jersey.^^^ Both jurisdictions considered the equitable lien an appropriate equitable
remedy for securing the judgment creditor's interest in the trademark(s) of the judgment

debtor.^^"^ Although the equitable lien does not "give the lienholder an in gross property

right to the trademark itself," it is "a charge on property for the purpose of security."^^^

Because the trademark may not be sold separately from the business or goodwill,^^^ the
equitable lien assists the judgment creditor in making its claim to the potential purchaser

known. It does not transfer ownership of the trademark to the judgment creditor.

From these cases, an equitable lien is apparently a viable equitable measure available

to the judgment creditor to secure the intangible assets of the judgment debtor to satisfy

the judgment. The point in the proceedings at which a court may grant an equitable lien
is uncertain;^^^ however, if the judgment creditor is permitted to present information at

trial regarding the assets of the judgment debtor, a court will possibly impose an equitable

lien at the time the judgment is issued. Upon grant of such a lien, the judgment creditor

should then record the lien in order to put others on notice of the lien. In the case of

patents and trademarks, for example, the lien should be recorded by the United States

218. 196 F. Supp 243 (S.D.N.Y. 1961), order modified, 302 F.2d 831 (2d Cir. 1962) (appointment of

receiver affirmed).

219. Mat 246.
220. Id at 245.

221. Id

111. Adams Apple Distrib. Co., v. Papeleras Revinidas, S.A., 773 F.2d 925, 931 (7th Cir. 1985).

223. Jacobs, Bell & Baumol v. Curtis, 556 A.2d 817, 818 (N.J. 1989).
224. Adams Apple Distrib. Co. , 773 F.2d at 93 1 ; Jacobs. Bell & Baumol, 556 A.2d at 8 1 8.

225

.

Adams Apple Distrib. Co. , 773 F.2d at 93 1

.

226. See supra notes 1 59-63 and accompanying text.

227. In Adams Apple Distrib. Co., the trial court granted the plaintiffs motion for an equitable lien after

the damages trial. 773 F.2d at 927-28. In Jacobs, Bell & Baumol, the equitable lien was imposed as a result of
the judgment creditor seeking to have the trademark sold at a judicial sale at the conclusion ofthe determination

of the amount of monetary damages due. 556 A.2d at 817.



1 995] DEBT SATISFACTION WITH INTANGIBLES 78

1

Patent and Trademark Office.^^* For copyrights, the lien should be recorded by the

Copyright Office.''^

In their willingness to impose an equitable lien, some courts demonstrate their
understanding ofthe frustrations experienced byjudgment creditors in trying to reach the

intangible assets ofjudgment debtors. In addition to an equitable lien, a judgment creditor

may wish to impose further restrictions on the judgment debtor's intangible assets. Such
restrictions may include, for example, a moratorium on the efforts by the judgment debtor
to devalue the intangible assets. The options available depend on the specific alternative

procedure(s) available in the jurisdiction.

In New York, there are two statutory provisions that allow the judgment creditor to
impose restrictions on the judgment debtor's property.^^^ The first of these provisions

permits restriction as soon as the case is decided and before judgment.^^' Under this

procedure, the future judgment creditor may begin to inquire about the future debtor's
assets.^^^ The second provision constitutes a restraining notice that is issued after

judgment.^^^ Therefore, in New York, the judgment creditor may have statutory recourse
to protect its interests while engaged in supplementary proceedings.

In Indiana, the creditor may not institute supplementary proceedings until after a writ
of execution has failed to satisfy the judgment.^^"* Also, the judgment debtor is granted

a hearing before a lien is placed on the property.^^^ Because a hearing is required before

the judgment debtor's property is levied, it is unlikely that the Indiana courts would be

willing to impose any restrictions on the disposition of the intangible assets of the

judgment debtors during the primary trial, i.e., the civil suit.

The supplementary proceedings of Illinois differ from those of Indiana. First, the

procedure "may be commenced at any time with respect to a judgment which is subject

to enforcement."^^^ The procedure is commenced by service of a citation by the clerk of

the court on the judgment debtor (or a third party who holds the judgment debtor's
assets).^^^ Through the citation, as well as by the court during the supplementary

proceedings, the judgment debtor may be prohibited from disposing of or devaluing the
property sought in satisfaction ofthe judgment.^^^ Thus, no hearing is first required before

the court imposes restrictions on the judgment debtor's assets. It is therefore possible in

Illinois that the judgment creditor may request that supplementary proceedings be
conmienced at the time judgment is issued in the civil suit and that the citation include

228. 35 U.S.C. § 261 (recording assignments for patents) and 15 U.S.C. § 1060 (recording assignments

for trademarks).

229. 17 U.S.C. § 205 (recording assignments for copyrights).

230. N.Y. Civ. Prac.L.&R. 5222, 5229 (McKinney 1993).

231. M§5229.

232. Id.

233. Id. § 5222.

234. IND. Code Ann. §§ 34-1-44-1, 2.

235. iND. Code Ann. §34-1-44-7.

236. III. Ann. Stat. S. Ct. R. 277(c) (Smith-Hurd 1 993).

237. III. Ann Stat. S. Ct. R. 277(b) (Smith-Hurd 1993); III. Ann. Stat. ch. 735, para. 5/2-1402

(Smith-Hurd Supp. 1994).

238. Ill Ann. Stat. ch. 735, para. 5/2-1402(d) (1), (2) (Smith-Hurd Supp. 1994).



782 INDIANA LAW REVIEW [Vol. 28:755

restrictions regarding the disposition or devaluation of the judgment debtor's intangible

assets.

If such restrictions are imposed at the time of judgment, a judgment debtor may
object on the basis of procedural due process. The debtor may assert that a hearing is
required prior to the imposition of the restrictions, as in Indiana. However, a hearing is

not always required prior to seizure of the property, much less prior to the imposition of
restrictions.^^^ Furthermore, the due process requirements for prejudgment seizure have

been summarized as follows:

( 1

)

the availability oiexparte prejudgment seizure must be limited to situations

where plaintiffhas established that the property to be seized is ofa type that

can be readily concealed, disposed of, or destroyed;

(2) the plaintiffmust allege specific facts based on actual knowledge supporting

the underlying action and the right of plaintiff to seize the property;

(3) the application for the order of seizure must be made to a judge rather than

a clerk;

(4) the defendant has a right to a prompt, post-seizure hearing to challenge the

seizure; and,

(5) the defendant must be able to recover damages from the plaintiff if the

taking was wrongful and to regain possession of the seized items by filing

a bond.'""

If the opportunity of the judgment debtor to be heard during supplementary proceedings

renders the restrictions on the judgment debtor's assets a "prejudgment seizure" {i.e., pre-

supplementary proceedings), the requirements ofprocedural due process appear to be met

by Illinois' supplementary proceedings statute and rules. They require that the judgment

creditor make the proper assertions, that the judge request the commencement of the

proceedings upon a sufficient showing by the judgment creditor, and that the defendant

is allowed to challenge the seizure at the supplementary proceedings.^"^' It is likely that

the judgment debtor may have a cause of action against the judgment debtor in the event
the restrictions were unduly imposed because the supplementary proceedings do not

"affect the rights of citation respondents [judgment debtors] in property prior to the

service of the citation upon them. . . ."^"^^ However, because the supplementary

proceeding does not violate the procedural due process rights of the judgment debtor,

commencement of the proceedings at the time ofjudgment is a viable equitable measure

for consideration by the litigator.

In conclusion, several equitable remedies may be utilized in conjunction with the
alternative proceedings used in lieu of a writ of execution for reaching the intangible

assets of the judgment debtor. First, a preliminary injunction may be used to secure post-
judgment equitable relief where the cause of action and post-judgment equitable relief

239. 5'eej'M/7ra text accompanying notes 177-81.

240. Paramount Pictures Corp. v. Doe, 82 1 F. Supp. 82, 87-88 (E.D.N.Y. 1 993) (citing Mitchell v. W.T.

Grant Co., 416 U.S. 600 (1974)).

241

.

III. Ann. Stat. S. Ct. R. 277 (Smith-Hurd 1993); III. Ann. Stat. ch. 735, para. 5/2-1402 (Smith-

HurdSupp. 1994).

242. III. Ann. Stat. ch. 735, para. 5/2-1402 (Smith-Hurd Supp. 1994).



1 995] DEBT SATISFACTION WITH INTANGIBLES 783

concerns the property. This preliminary injunction may include a freeze order as to the
disposition of essentially all of the defendant's assets. Second, an equitable lien may be
imposed against the intangible assets of the judgment debtor. Third, it may be possible
in some instances, consistent with the alternative proceeding(s) of the jurisdiction, to

initiate the alternative proceeding and to impose restrictions on the disposition of the

assets when a judgment is issued. Such a remedy acts as an injunction issued at time of
judgment. However, the equitable lien and the "injunction" issued at judgment may not
be viable in all jurisdictions. Further, a court may not exercise its equitable powers over
the owner of intellectual property rights when the court does not have jurisdiction over
the owner.^"*^

Conclusion

Numerous reasons justify a change in the law with regard to the immunity of

intangible assets from levy by a writ of execution. First, the law in this area should be

more consistent than it is today. For example, jurisdictional differences exist for the type

of property that constitutes an intangible asset, the particular procedural altemative(s)

available, and the point in time at which the judgment creditor is granted a lien on the

assets to secure its interest in the assets. When the intangible assets of the judgment
debtor are the federally-conferred rights in patents, trademarks, and copyrights which do

not differ among the states, the law from jurisdiction to jurisdiction is particularly

inconsistent.

Second, because tangible objects associated with the intellectual property rights are

considered independent from the rights, the ability to secure these tangible objects by a

writ of execution favors certain types ofjudgment debtors over others.

Third, the ability to reach the intangible assets is dependent upon the nature of the

cause of action because statutory provisions are necessary to override the immunity of

intangible assets from levy by a writ of execution.

Further, although it may be possible to ask a court to exercise its equitable powers to
protect the judgment creditor's interest in the judgment debtor's intangible assets, even

the imposition of equitable measures does not yield consistent protection to the judgment

creditor. Such measures are claim-dependent and vary among jurisdictions. It is also

possible that the judgment creditor has such recourse through statutory grant.

Other justifications for eliminating the immunity of intangible assets from a writ of

execution include judicial efficiency and resulting "chilling" effects. By requiring
intangible assets to be reached by supplementary proceedings, creditor's bills, and the

like, the courts are burdened with additional proceedings to enforce monetary judgments

awarded against entities having intangible assets as their primary or exclusive assets.

Although the judicial system would likely continue to evaluate the assets ofthe judgment

debtor to subject the judgment debtor's intangible assets to the writ of execution, the

enforcement proceedings require additional filings and may, in some instances, be

redundant with respect to information provided during the civil suit. The evolution ofthe

business world has led to an increase in the value of intangible assets and, in particular,

intellectual property. Also, technology has spurred an increase in the number of entities

243 . See supra text accompanying notes 127-31.



784 INDIANA LAW REVIEW [Vol. 28:755

whose sole assets are its intellectual property rights. Therefore, the judicial system would

benefit from being able to reach intangible assets by a writ of execution.

Two types of "chilling" may result from the immunity of intangible assets to a writ
of execution. First, suits may be not filed against wrongdoers if the plaintiff is not able
to sustain the additional costs associated with enforcing a judgment in its favor or if the

wrongdoer's costs associated with enforcement of the judgment have a significant adverse

impact on the amount of assets available to satisfy the judgment. Second, businesses, if

aware ofthe difficulty in reaching intangible assets, may refrain from doing business with
entities having primarily or exclusively intangible assets.

These problems could perpetuate indefinitely. Immunity is the rule, not the

exception; and, the states have not generally promulgated legislation to overrule that

immunity. Rather, alternative equitable proceedings, which vary from state to state, have

been the only means by which intangible assets may be seized for an involuntary judicial
sale. The United States has particular interest in the removal or transfer of intellectual

property assets as the rights are primarily federally-conferred. The justifications for a

change in the law may, therefore, call for a federal statute providing guidance or standards

for the use of such assets to satisfy a judgment. Alternatively, a model civil procedure

code for adoption by the states could be usefial, but would not be as effective as a federal

statute since each state would have to adopt it. However, this alternative may be more
appropriate for intangibles other than federally-conferred intellectual property rights. In

the interim, the litigator should be aware of the problems he or she may face in satisfying
a judgment from an entity whose primary assets are intangible.