Intellectual Property in the Bankruptcy Protection Act

Large companies often license technology from small startups. Many of these small companies are financially insecure and at great risk of bankruptcy. Until 1988, a licensee could no longer use the license if the licensor went bankrupt.

Types

Since 1988, the bankruptcy code has protected certain types of intellectual property licenses when the licensor goes bankrupt. Types of property covered by this law include those for which patent applications have been or could be made, trade secrets, plants, copyrights, including for semiconductor chips.

Debtor Rejection

If the debtor rejects the license, the licensee can treat this as a termination of the license and sue for damages or retain his rights under the license.

Exclusivity

An exclusivity clause will be enforced by the bankruptcy court, but if the license requires actions by the licensor such as training, infringement protection, development and maintenance, these obligations will not be enforced by the court.

Royalties

If the licensee opts to keep the license, he must pay any royalties required by the license agreement.

References

• Findlaw: Bankruptcy Code Section 365 (n) Protects Licensees Right to Continued Use of Intellectual Property.

Resources

• J. of L. and Tech.; Legislation Protecting Licensees; Michael Shpizner; 1989.