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Opinion Casts Doubt on Licensees' Ability to Protect Licenses
Ever since '365(n) was added to the U.S. Bankruptcy Code in 1988, a party with a license to use intellectual property ' defined to include patents and copyrights but not trademarks ' could rest assured that a bankruptcy filing by the licensor would not divest them of their right to use the property. Section 365(n) expressly provides that the rejection of an intellectual property license allows the licensee to retain its rights under the license, including the right to enforce any exclusivity provision. But a 2003 decision by the Seventh U.S. Circuit Court of Appeals, Precision Industries Inc. v. Qualitech Steel SBQ, LLC, casts serious doubt on the ability of licensees to protect their licenses under '365(n).
Section 365(n) was Congress' response to an earlier decision, Lubrizol Enterprises Inc. v. Richmond Metal Finishers Inc. (In re Richmond Metal Finishers Inc.), decided by the Fourth U.S. Circuit Court of Appeals in 1985. In Lubrizol, the Fourth Circuit allowed a debtor to reject a metal coating technology license as an executory contract that was burdensome to the estate.
The motivation for the debtor's rejection of the license agreement was to 'facilitate sale or licensing of the technology unhindered by restrictive covenants in the ' agreement,' according to the court's opinion in Lubrizol. Congress responded with the Intellectual Property Bankruptcy Protection Act of 1988. Through the enactment of '365(n), Congress intended 'to make clear that the rights of an intellectual-property licensee to use licensed property cannot be unilaterally cut off as a result of the rejection of the license pursuant to '365 in the event of the licensor's bankruptcy.'
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The Article 8 Opt In
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Strategy vs. Tactics: Two Sides of a Difficult Coin
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The Anti-Assignment Override Provisions
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