Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Bankruptcy: What Happens to the Royalty Payments?

By Judith L. Grubner
August 01, 2003

In a decision interpreting for the first time certain provisions in the Bankruptcy Code, the Third Circuit Court of Appeals concluded that royalty payments belonged to the estate of the bankrupt debtor/licensor rather than to the new owner by assignment of the underlying intellectual property covered by the licenses. In re CellNet Data Systems, Inc., 327 F.3d 242 (3d Cir. 2003). The Third Circuit held that the debtor/licensor was permitted to sever the right to receive the remaining royalty payments due on the license from the transfer of the underlying intellectual property rights.

CellNet Data Systems and Bechtel Enterprises, Inc. formed a joint venture called BCN Data Systems LLC. CellNet granted BCN exclusive licenses to use CellNet's intellectual property outside the United States and promised technological support to BCN.

When CellNet later became insolvent, it entered into an asset purchase proposal with Schlumberger Resource Management Services, Inc., under which CellNet was to transfer all or substantially all of its assets and business operation to Schlumberger, including the intellectual property licensed to BCN. However, in the proposal Schlumberger reserved the right to exclude certain later-defined assets from the asset purchase agreement to be negotiated. That agreement was signed shortly after CellNet filed for bankruptcy. Schlumberger specifically excluded the BCN licenses from the assets purchased from CellNet. However, CellNet and Schlumberger disagreed about who would receive the royalties from the BCN licenses. They provided in their agreement that the Bankruptcy Court would resolve the dispute. CellNet agreed that it would reject the licenses in the bankruptcy as executory contracts that it could not fulfill, under '365(a) of the Bankruptcy Code.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Major Differences In UK, U.S. Copyright Laws Image

This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

The Article 8 Opt In Image

The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.

Removing Restrictive Covenants In New York Image

In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?

Fresh Filings Image

Notable recent court filings in entertainment law.