Intellectual property generally includes patent rights, copyright rights, trademark and service mark rights, and trade secrets. The foundation of intellectual property law is the protection of exclusive rights afforded to original works and invention. These rights can be significantly impacted by bankruptcy proceedings. This webinar examines some of these key issues including the perfection of security interests in intellectual property, the protection of certain intellectual property licenses and lack of protection for other types of intellectual property, the relief available to licensors, as well as special issues regarding assignment of licenses in bankruptcy proceedings. Part of the webinar series: BANKRUPTCY INTERSECTIONS 2022 See more at https://www.financialpoise.com/webinars/

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4. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
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Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
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5. Meet the Faculty
MODERATOR:
Michael J. Kaczka - McDonald Hopkins LLC
PANELISTS:
Carollynn Callari - Callari Partners LLC
Jack O’Connor - Sugar Felsenthal Grais & Helsinger LLP
Christopher B. Wick - Hahn Loeser & Parks LLP
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6. About This Webinar
The Intersection of Bankruptcy and… Intellectual Property Law
Intellectual property generally includes patent rights, copyright rights, trademark and
servicemark rights, and trade secrets. The foundation of intellectual property law is the
protection of exclusive rights afforded to original works and invention. These rights can be
significantly impacted by bankruptcy proceedings. This webinar examines some of these key
issues including the perfection of security interests in intellectual property, the protection of
certain intellectual property licenses and lack of protection for other types of intellectual
property, the relief available to licensors, as well special issues regarding assignment of
licenses in bankruptcy proceedings.
6

7. About This Series
Bankruptcy Intersections
Bankruptcy law is generally a federal-based practice, and governed by title 11 of the United
States Code (the Bankruptcy Code). Bankruptcy law, however, is far from an insular practice;
there is substantial interplay between bankruptcy law and almost every other area of law due
to the myriad legal issues that arise during the course of a bankruptcy case. This webinar
series focuses on how issues involving intellectual property, employment and labor, tax law,
and environmental law are treated through the prism of bankruptcy.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: The Intersection of Bankruptcy and… Labor/Employment Law
Premiere date: 3/31/22
#2: The Intersection of Bankruptcy and… Intellectual Property Law
Premiere date: 4/28/22
#3: The Intersection of Bankruptcy and… Environmental Law
Premiere date: 5/26/22
#4: The Intersection of Bankruptcy and…the Uniform Commercial Code
Premiere date: 6/30/22
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9. Episode #2
The Intersection of Bankruptcy and… Intellectual
Property Law
9

10. What is Intellectual Property?
• Generally Intangible Assets:
✓ Patents
✓ Copyrights
✓ Trademarks
✓ Trade Secrets
✓ Domain Names
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11. Patents
• Exclusionary rights afforded to the holder of inventions or discoveries for a limited term.
• Patents and Patent Applications:
✓ Governed by the Patent Act, 35 U.S.C. §§ 101., et seq.
✓ Regulated by the United States Patent and Trademark Office.
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12. Three Types of Patents Under The Patent Act
• Utility Patents: Protect useful inventions that are novel and non-obvious, including
processes, methods, devises, software programs, and other compositions of matter.
• Plant Patents: Protect new and distinct varieties of plants.
• Design Patents: Protect any new, original, and ornamental design for an article of
manufacture and doses not need to meet the usefulness standard to qualify for a utility
patents.
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13. Patents
• Amended relatively recently to change the patent system from “First to Invent” to “First to
File” system.
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14. Copyrights
• A copyright is a form of protection provided by title 17 of the United States Code to
authors of “original works of authorship.” 17 U.S.C. §§ 102, et seq.
✓ Governed by the Copyright Act
✓ Regulated by the United States Copyright Office
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15. Copyrights
• To qualify for protection, the original work must display at least some creativity and be
fixed in a tangible medium of expression.
• Examples:
✓ Literary works
✓ Dramatic works
✓ Musical works
✓ Artistic works
• Can be licensed as an exclusive license or non-exclusive license
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16. Trademarks
• A trademark is “any work, name, symbol, or device, or any combination thereof . . . Used
by a person . . . To identify and distinguish his or her goods, including a unique product, from
those manufactured or sold by others and to indicate the source of the goods, even if that
source is unknown.”
✓ Trademarks and service marks are governed by the Lanham Act. 15 United States
Code §§ 1051, et seq.
✓ Trademarks are registered at the United States Patent and Trademark Office
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17. Trademarks
• Trademarks must be used in commerce.
• Federal registration is not required, but provides several advantages:
✓ Notice to the public of the registrant’s claim of ownership
✓ Legal presumption of ownership nationwide
✓ Exclusive right to use the mark
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18. Trade Secrets
• Formulas, practices, processes, designs, instruments, patterns, or compilations of
information that are not generally known or reasonably ascertainable and that provide a
business with an economic advantage.
✓ Governed by state law rather than federal law
✓ Most states have adopted the Uniform Trade Secrets Act
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19. Domain Names
• A domain name is a part of a larger internet address called a “URL”
• An identification string that defines the realm of administrative control on the internet
• Domain names are obtained by registering with the applicable domain authority
• Not licensed
• Often incorporates a trademark or trade name of the domain name registrant
19

20. The Bankruptcy Code’s Definition of Intellectual
Property
• Title 11 of the United States Code defines “intellectual property” as follows:
(A) Trade secret;
(B) Invention, process, design, or plant protected under title
35 (the Federal Patent Act);
(C) Patent application;
(D) Plant variety;
(E) Work of authorship protected under title 17 (the United
States Copyright Act); and
(F) Mask works protected under chapter 9 of the United
States Copyright Act.
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21. What is Missing from the Bankruptcy Code’s
Definition?
• Trademarks:
✓ Congress excluded trademarks from the definition due to policy
considerations.
• Recent Trademark developments in Bankruptcy Law
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22. Initial Considerations: Intellectual Property Issues in
Bankruptcy
• Policy clashes between Bankruptcy Law and IP Law
• Key forms of IP dealt with in Bankruptcy
✓ Patents, Copyrights, Trademarks, Trade Secrets, Domain names
• International Application: In re Qimonda
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23. Policy Differences Between IP Law & Bankruptcy
Law
• Protection of the inventor
• Protection of the Debtor
• Who wins?
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24. Bankruptcy Law Policy Considerations
• Prohibits creditors from taking actions against a debtor to provide the debtor with a fresh
start.
• Designed to maximize the value of a debtor’s assets.
• A debtor generally has unfettered discretion to sell its assets and to assume, assign, or
reject its executory contracts.
• A debtor is generally allowed to assume, assume and assign, or reject certain executory
contracts and leases without consent of non-debtor parties.
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25. Intellectual Property Law Policy Considerations
• Vigorously protects the IP holder against potential infringers.
• License agreements are treated like personal contracts.
• The rights of a licensee are preserved over the rights of a debtor if a debtor is the
licensor.
• IP laws may prevent a debtor from assuming or assigning the underlying license if a
debtor is the licensee.
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26. IP Licenses in Bankruptcy
• IP Licenses are generally considered to be executory contracts:
• See e.g., In re Kmart, 290 B.R. 614, 618 (Bankr. N.D. Ill. 2003)
• “Generally speaking, a license agreement is an executory contract as such is
contemplated in the Bankruptcy Code.”
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27. 11 U.S.C. § 365: Executory Contracts & IP Issues
• Defining Executory Contracts under the Bankruptcy Code-
✓ Countryman Definition: Executory contracts are those “under which the obligation of
both the bankrupt and other party to the contract are so far underperformed that the
failure of either to complete performance would constitute a material breach excusing the
performance of the other.” transactions in carrying on business connected with such
property . . .
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28. 11 U.S.C. § 365: Executory Contracts & IP Issues
• IP Licenses – Executory contracts or not?
• Can IP Licenses be Assigned or rejected?
• Different tests
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29. Executory Contract?
• Key issues regarding a contract’s executory status:
✓ Whether performance remains due on the party of both the licensee and the licensor
such that the failure to perform by either party constitutes a material breach
✓ Whether remaining obligations are sufficient to show that the license is an executory
contract
• Determinative: whether the licensor has ongoing obligations
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30. IP Licenses as Executory Contracts
• EXCLUSIVE LICENSES: May be deemed to be an assignment if one side has
completely performed its obligations.
• NON-EXCLUSIVE LICENSES: Do not convey any ownership interest in the IP – they
only grant permission to use the IP. Therefore, most non-exclusive licenses are considered
executory.
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31. The Debtor as the Licensor
• Section 365(n) of the Bankruptcy Code limits the debtor’s right to reject licenses because
the non-debtor may continue to use technology by paying royalties due under the license
agreement and waiving the right to setoff and any administrative claims against the estate
arising from the performance of the license.
• Section 365(n) does not apply to trademarks, foreign IP, or future IP.
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32. 11 U.S.C. § 365(n): Protection for Parties to IP
Licenses
• Specific protections set forth for parties to IP License agreements in the event of rejection
or inaction by a bankruptcy trustee or debtor in possession
• As a general rule, the “Business Judgment Test” applies to rejection of executory
contracts under section 365 of the Bankruptcy Code.
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33. Section 365(n): Two Options for the Licensee
1. Treat the debtor’s rejection as termination of the license and assert a claim for rejection
of damages.
2. The licensee can retain its right to use the IP as it existed as of the filing of the debtor’s
bankruptcy petition.
• Licensee does not retain all of its rights under the license. There are no continuing
obligations on the debtor to update or maintain the technology or defend the licensee against
infringement actions.
• The debtor may attempt to use section 363(f) of the Bankruptcy Code to sell the IP
technology “free and clear of any interest in such property.”
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34. Effect of Rejection
• Rejection is a breach of contract – not termination of the agreement
• Licensee can assert breach of contract damages as a general unsecured claim under
section 502(g) of the Bankruptcy Code
• Under the Supreme Court’s decision in Tempnology, rejection does not divest a non-
exclusive trademark licensee of the right to continue to use trademarks consistent with the
terms of the license and state law remedies for the debtor / licensor’s rejection and breach
of the license
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35. Assumption of IP Licenses
• Section 365(a) and (b) allow a debtor to assume or reject an executory contract. Section
365(f) authorizes the assignment of an executory contract to a third party.
• A debtor’s right to assume and assign an executory contract is restricted by section
365(c):
✓ If applicable non-bankruptcy law excuses the non-debtor from accepting or
rendering performance; and
✓ Such party does not consent.
• “Applicable law” does not include the enforceability of anti-assignment provisions in the
contract (ipso facto clauses).
• Extensive litigation has led to a jurisdictional split regarding assumption.
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36. Three Approaches to Assumption
1. The Hypothetical Test
2. The Actual Test
3. The Footstar Approach
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37. The Hypothetical Test
• Majority approach.
✓ Restricts assumption and assignment if applicable law excuses performance to or
from a party other than the debtor.
✓ Determinative issue: Whether the debtor may assign the license to an unaffiliated
third party.
• Pearlman v. Catapult Entertainment, Inc. (In re Catapult Entm’t, Inc.), 165 F.3d 747 (9th
Cir. 1999)
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38. The Actual Test
• Focuses on the actual intentions of the debtor-licensee seeking to assume an IP license
because, unless the license will actually be assigned, the non-debtor licensor will not be
required to accept or render service “to an entity other than the debtor….”
• Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997)
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39. The Footstar Approach
• 365(c)(1) bars only the trustee and not a debtor-in-possession from assuming an IP
license if applicable law would excuse the non-debtor counterparty from being bound by an
assignment of the license.
• The court reasoned that the word “trustee” does not include a debtor-in-possession.
Therefore, the right of a non-debtor to object to an assignment does not affect the right of the
debtor to assume an executory contract.
• In re Footstar, Inc., 323 B.R. 566 (Bankr. S.D.N.Y. 2005)
39

40. Section 363 Sales & IP Issues
• Valuation of IP rights at sale?
• Common risks to IP rights during sale process / Non Disclosure Agreements
✓ Risks to confidentiality?
✓ How can confidentiality be protected?
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41. Confidentiality Issues in the Sale Process
• Licenses may contain confidential provisions that may affect ability to market the assets
• Parties should use non disclosure agreements as part of due diligence to address
confidentiality issues
• MBNA Am. Bank, N.A. v. TWA (In re TWA), 275 B.R. 712 (Bankr. D. Del. 2002): The
court held that bid procedures and the sale order did not protect a debtor from liability for
breaching the confidentiality provisions of an agreement.
• Qualcomm Inc. v. Texas Instruments, Inc., 875 A.2d 626 (Del. 2005): The court held that
the disclosure of the terms of a cross-licensing agreement did NOT constitute a material
breach of the contract because a breach must concern the “essence of the contract.”
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42. Lender Issues & Liens Against IP
• How will a lender’s rights in IP be effected post-petition?
• How can a lender or creditor obtain a lien against IP?
• How can liens against IP be enforced post-petition?
42

43. Preserving and Maximizing Value of IP in
Bankruptcy Sales
• Patents should be analyzed separately from operating businesses.
• Maximizing the value of patents is easier when there is so-called “evidence of use” of the
patented invention, i.e. market size, market share.
• Understanding market share allows the parties to better understand the range of a
“reasonable royalty” that the patent should command. Licensing can generate more revenue
than a sale.
• Standard manner of demonstrating “evidence of use” is through a claim chart.
✓ Claim charts are tables that outline a patent’s claims, element by
element, and compares those claims to the claims of an allegedly
infringing patent.
43

44. Maximizing Value
• Timing of Sales
✓ Nortel bankruptcy case
✓ Kodak bankruptcy case
✓ Old Hostess Brands bankruptcy case
44

45. About the Faculty
45

46. About The Faculty
Michael J. Kaczka - mkaczka@mcdonaldhopkins.com
Michael is a member in Business Restructuring Services Department of McDonald Hopkins
and resides in the Cleveland office. With engagements throughout the United States, Michael
focuses primarily on representing clients regarding strategic alternatives, including: out-of-
court and in court restructurings, workouts, bankruptcies, and receiverships; mergers and
acquisitions; refinancings; and sale transactions (both in- and out-of-court). He also advises
clients on fiduciary duties and other governance matters. Michael has experience advising
clients in a variety of industries, including manufacturing & industrial, retail, franchises,
plastics, real estate, food & restaurants, healthcare, automotive, and chemical & metallurgical.
Michael earned a Juris Doctor from Case Western Reserve University School of Law and a
Bachelor of Arts, cum laude, from Washington and Lee University.
46

47. About The Faculty
Carollynn Callari- ccallari@callaripartners.com
Carollynn H.G. Callari has twenty years of corporate and bankruptcy law experience. She was
formerly with AmLaw 100 law firms Willkie Farr & Gallagher LLP and Venable LLP.
She is a general corporate advisor to her clients, providing counsel on day-to-day legal issues,
acquisitions and commercial agreements. She serves as outside general counsel to portfolio
companies and helps clients implement growth and turnaround strategies. Ms. Callari also has
extensive experience in sophisticated business reorganization and restructuring matters, working
across the full spectrum of Chapter 11 cases as well as counseling parties in workouts and
restructuring matters conducted outside of judicial settings, and general commercial transactions.
To read more about Carollynn, please visit https://www.financialpoise.com/financial-poise-
faculty/carollynn-callari/
47

48. About The Faculty
Jack O’Connor- joconnor@sfgh.com
Jack O’Connor is a partner in Sugar Felsenthal Grais & Helsinger’s Chicago office. Jack represents business
clients in both healthy and distressed situations, and concentrates his practice in the areas of corporate
restructuring and insolvency. Jack also maintains a practice working with businesses in heavily regulated
consumer products industries.
Jack is widely recognized for his excellent work as a restructuring attorney. Jack represents clients across the
country in distressed situations and complex chapter 11 engagements, including business debtors in and out of
court, unsecured creditors’ and equity committees, distressed asset purchasers, chapter 11 liquidating trusts,
and alternative lenders.
SuperLawyers Magazine, Leading Lawyers Magazine, and the Turnaround Management Association are just a
handful of organizations that have recognized Jack for his strategic thinking and tactical expertise as a
restructuring attorney.
To read more about Jack, please visit https://www.financialpoise.com/financial-poise-faculty/jack-oconnor/
48

49. About The Faculty
Christopher B. Wick- cwick@hahnlaw.com
Christopher B. Wick is a corporate restructuring and bankruptcy partner with Hahn Loeser and Parks LLP. Mr.
Wick focuses his practice on corporate reorganizations, workouts, debtors’ and creditors’ rights, and corporate
transactions across the United States. He has represented parties in the restructuring, reorganization or sale of
complex business in an array of industries, including energy, automotive, agriculture, telecommunications,
logistics, manufacturing, real estate, and steel. He also has a broad range of transactional experience and has
advised clients in connection with a variety of DIP financing facilities, recapitalization transactions, and asset
dispositions and acquisitions.
Mr. Wick has substantial experience representing and advising companies, buyers, and investors in all aspects
of distressed and insolvency situations. He counsels boards of directors, chief executive offices and other
members of senior management with respect to their duties and obligations to, and exposures in connection
with, financially challenged companies.
To read more about Christopher, please visit https://www.financialpoise.com/financial-poise-faculty/christopher-
wick/
49

50. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
50

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