Public licenses

     For general public welfare, government controls and licenses a variety of rights, such as broadcast rights, transportation rights, and the right to sell liquor.  These rights, both scarce and in demand, can be an extremely valuable asset and account for a significant component of the value purchased in the sale of a business that holds the license (whether the business be NBC or the corner liquor store).  One would therefore expect that such rights might also serve as valuable intangible collateral that the licensee might offer to a lender as security for a loan.  But are the licensee's rights the kind of "rights in collateral" required for the creation of an enforceable security interest?   Article 9 does not answer this question.  See Official Comment 3 to U.C.C. 9-408. 

     Interpreting the statutory and regulatory schemes for licensing of public rights, the cases have taken the position that the license itself may not serve as collateral because rights of the license may only be exercised by the licensee and the transfer of a license to another is subject to approval of the licensing governmental entity.  To put the matter bluntly, we might not want Howard Stern to be able to purchase a radio station, including its broadcast rights, at an Article 9 foreclosure sale.  However, if a licensing entity approves transfer of a license to a prospective purchaser of the business that holds the license, the transferor will receive significant proceeds attributable to the license.  Creditors have therefore argued, with mixed success, that a debtor holding such a license has sufficient rights in the prospective proceeds of the sale of the license, if not in the license itself, to support the granting of a security interest.  One creditor lost its claim to the proceeds of the sale of a liquor license in In re Main Steet Beverage Corporation, 232 B.R. 303 (D.N.J. 1998) based on the court's interpretation of a New Jersey statute providing, in part:  "Under no circumstances . . . shall a [liquor] license, or rights thereunder, be deemed property, subject to  . . . lien . . .(emphasis added)."  An earlier decision in the Third Circuit to the same effect, 21 West Lancaster Corp. v. Main Line Restaurant, Inc., 790 F.2d 354 (3rd Cir. 1986), prompted the Pennsylvania legislature to amend its statute defining the nature of a liquor license to permit the creation of a security interest in the proceeds of the sale of a liquor license.  Another creditor was more successful in its claim to the proceeds of the sale of a broadcast license.  See MLQ Investors, L.P. v. Pacific Quadracasting, Inc.