Problem 14: Protecting Licensees against Licensors' Bankruptcy
As a start-up company, Assist is not on a very firm financial
footing. Contair will be Assist's licensee for use of Assist's patent
in the unique computer processor that operates an automobile. The
President of Contair instructs you to draft a clause in the license to ensure
Contair access to the patent in the event Assist files a petition for bankruptcy
under Chapter 11 of the Bankruptcy Code. Specifically, he requests
that you treat any up-front royalty payments made by Contair to Assist as
a loan. Draft a memorandum to the President including the clause he requested
with an explanation regarding why Contair will or will not be protected
in the event Assist files a petition for bankruptcy. Discuss the President's
request of treating up-front royalty payments as a loan, whether it is possible
and whether there are alternatives.