Some Provisions of U.S. Bankruptcy Code Affecting IP Licenses
11 U.S.C. § 365. Executory contracts and unexpired leases
(a) Except as provided in sections 765 and 766(1)
of this title and in subsections (b), (c), and (d)(2)
of this section, the trustee, subject to the court's approval, may assume
or reject any executory contract or unexpired lease of the debtor.
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(n)
(1) If the trustee rejects an executory contract under which the
debtor is a licensor of a right to intellectual property, the licensee
under such contract may elect—
(A) to treat such contract as terminated by such rejection if
such rejection by the trustee amounts to such a breach as would entitle
the licensee to treat such contract as terminated by virtue of its own
terms, applicable nonbankruptcy law, or an agreement made by the licensee
with another entity; or
(B) to retain its rights (including a right to enforce any exclusivity
provision of such contract, but excluding any other right under applicable
nonbankruptcy law to specific performance of such contract) under such
contract and under any agreement supplementary to such contract, to
such intellectual property (including any embodiment of such intellectual
property to the extent protected by applicable nonbankruptcy law), as
such rights existed immediately before the case commenced, for—
(i) the duration of such contract; and
(ii) any period for which such contract may be extended by the
licensee as of right under applicable nonbankruptcy law.
(2) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, under such contract—
(A) the trustee shall allow the licensee to exercise such rights;
(B) the licensee shall make all royalty payments due under such
contract for the duration of such contract and for any period described
in paragraph (1)(B) of this subsection for which the licensee extends
such contract; and
(C) the licensee shall be deemed to waive—
(i) any right of setoff it may have with respect to such contract
under this title or applicable nonbankruptcy law; and
(ii) any claim allowable under section 503(b)(3)
of this title arising from the performance of such contract.
(3) If the licensee elects to retain its rights, as described in
paragraph (1)(B) of this subsection, then on the written request of the
licensee the trustee shall—
(A) to the extent provided in such contract, or any agreement
supplementary to such contract, provide to the licensee any intellectual
property (including such embodiment) held by the trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such contract, to
such intellectual property (including such embodiment) including any
right to obtain such intellectual property (or such embodiment) from
another entity.
(4) Unless and until the trustee rejects such contract, on the written
request of the licensee the trustee shall—
(A) to the extent provided in such contract or any agreement supplementary
to such contract—
(i) perform such contract; or
(ii) provide to the licensee such intellectual property (including
any embodiment of such intellectual property to the extent protected
by applicable nonbankruptcy law) held by the trustee; and
(B) not interfere with the rights of the licensee as provided
in such contract, or any agreement supplementary to such contract, or
any agreement supplementary to such contract, to such intellectual property
(including such embodiment), including any right to obtain such intellectual
property (or such embodiment) from another entity.
11 U.S.C. § 101 (Definitions)
(35A) "intellectual property" means—
(B) invention, process, design, or plant protected under title 35;
(E) work of authorship protected under title 17; or
(F) mask work protected under chapter 9 of title 17;
to the extent protected by applicable nonbankruptcy law[.]
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Footnotes
1. [Professor's note] Sections 765
and 766 relate to commodity contracts and do not appear generally relevant
to intellectual property licensing.
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2. [Professor's note] Subsections
(b) through (d) may be relevant to licensing transactions. Subsection
(b) requires the trustee to cure any default or provide adequate assurances
of a prompt cure before assuming the contract. Subsection (c)
precludes the trustee from assuming or assigning, without authorization,
an executory contract which applicable nonbankruptcy law makes nonassignable. Subsection
(d) provides time limits for assumption or rejection of executory contracts
in various types of bankruptcy proceedings.
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3. [Professor's note] Section 503(b)
relates to administrative expenses in bankruptcy, which enjoy special
priority.
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