The Intersection of Bankruptcy and... IP Law (Series: Bankruptcy Intersections 2020) the intersection of bankruptcy and ip 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 a special issues regarding assignment of licenses in bankruptcy proceedings.
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Meet the Faculty
Daniel Cohn - Murtha Cullina
Gary Marsh - Troutman Sanders LLP
Thomas Kiriakos - Mayer Brown
James Wilton - Ropes & Gray LLP
Elvir Causevic - Houlihan Lokey
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.
About This Series
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.
Episodes in this Series
#1: The Intersection of Bankruptcy and… Tax Law
Premiere date: 2/12/20
#2: The Intersection of Bankruptcy and… Labor/Employment Law
Premiere date: 3/11/20
#3: The Intersection of Bankruptcy and… IP Law
Premiere date: 4/8/20
#4: The Intersection of Bankruptcy and… Environmental Law
Premiere date: 5/13/20
The Intersection of Bankruptcy and… IP Law
What is Intellectual Property?
• Generally Intangible Assets:
• 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.
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
• Amended relatively recently to change the patent system from “First to Invent” to “First to
• 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
• To qualify for protection, the original work must display at least some creativity and be
fixed in a tangible medium of expression.
• Can be licensed as an exclusive license or non-exclusive license
• 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
• 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
• 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
• 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
The Bankruptcy Code’s Definition of Intellectual
• 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.
What is Missing from the Bankruptcy Code’s
Congress excluded trademarks from the definition due to policy
• Recent Trademark developments in Bankruptcy Law
Initial Considerations: Intellectual Property Issues in
• 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
Policy Differences Between IP Law & Bankruptcy
• Protection of the inventor
• Protection of the Debtor
• Who wins?
Bankruptcy Law Policy Considerations
• Prohibits creditors from taking actions against a debtor to provide the debtor with a fresh
• 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.
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
• IP laws may prevent a debtor from assuming or assigning the underlying license if a
debtor is the licensee.
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.”
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 . . .
11 U.S.C. § 365: Executory Contracts & IP Issues
• IP Licenses – Executory contracts or not?
• Can IP Licenses be Assigned or rejected?
• Different tests
• 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
• Determinative: whether the licensor has ongoing obligations
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
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.
11 U.S.C. § 365(n): Protection for Parties to IP
• 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.
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
2. The licensee can retain its right to use the IP as it existed as of the filing of the debtor’s
• 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
• 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.”
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
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
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.
Three Approaches to Assumption
1. The Hypothetical Test
2. The Actual Test
3. The Footstar Approach
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
• Pearlman v. Catapult Entertainment, Inc. (In re Catapult Entm’t, Inc.), 165 F.3d 747 (9th
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)
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)
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?
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
• 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.”
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?
Preserving and Maximizing Value of IP in
• 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
• Timing of Sales
Nortel bankruptcy case
Kodak bankruptcy case
Old Hostess Brands bankruptcy case
About The Faculty
Daniel Cohn - email@example.com
Dan Cohn devotes his practice at Murtha Cullina LLP to financially distressed businesses and
is recognized as one of New England’s best-known counsel to troubled companies. His
experience includes Chapter 11 reorganizations and sales, out of court debt restructurings,
troubled company acquisitions, trust mortgages and assignments for benefit of creditors, and
representation of directors and officers, equity sponsors, litigation defendants, trustees,
landlords, suppliers, tort claimants and creditors’ committees. Dan is a trained mediator and
frequent lecturer on bankruptcy law. He is a fellow of the American College of Bankruptcy and
currently the College’s regent for the First Circuit. Mr. Cohn is listed with a Tier One ranking in
America’s Leading Business Lawyers (Chambers & Partners USA).
For more, go to http://www.murthalaw.com/our_people/daniel-cohn
About The Faculty
Gary Marsh - firstname.lastname@example.org
Gary Marsh is a partner with Troutman Sanders LLP in Atlanta. A veteran restructuring
attorney focused on all aspects of bankruptcy, workouts, debtor and creditor law, Gary’s
practice also encompasses general commercial litigation. He represents debtors and creditors
in Chapter 11 cases, out-of-court restructurings and litigation. He also represents court
appointed receivers, examiners and trustees. Gary’s practice primarily involves representing
financial institutions and servicers in and out of court in enforcing their rights and remedies.
He also analyzes and defends against preference and fraudulent conveyance actions,
represents buyers of assets out of bankruptcy and represents landlords and other parties who
have leases or contracts with debtors. Gary has deep industry experience particularly with
healthcare, energy and real estate insolvencies.
About The Faculty
Thomas Kiriakos - TKiriakos@mayerbrown.com
Tom Kiriakos is a financial restructuring and bankruptcy lawyer and is the Office Practice Leader for
Restructuring in our Chicago office. He represents clients in bankruptcy cases involving debtors across
the business spectrum such as real estate, construction, retail, manufacturing (including auto and aircraft
parts), hotels, restaurants, equipment leasing, meat packing, life settlement, personal services
(consulting), distribution, transportation, for-profit education, oil field and agricultural chemicals, and oil
and gas drilling, production and refining. Among his representations, Tom was the lead bankruptcy
attorney for the successful senior lender in the landmark Supreme Court 203 North LaSalle Street
decision, 526 U.S. 434 (1999). Tom advises and represents clients in related litigation matters, including
fraudulent transfer and other avoidance claims, successor liability issues, lender-liability claims,
intercreditor disputes, and instances of possible borrower fraud. He represents potential acquirers of
distressed businesses, whether via bankruptcy sales, through foreclosure sales, or from assignees for
the benefit of creditors, and across a wide array of asset classes. He has represented official unsecured
creditors' committees including as co-counsel to the Official Committee of Unsecured Creditors of the
Holding Company Debtors in the Chapter 11 cases of Conseco, Inc. (et al.), the third-largest bankruptcy
cases in U.S. history at the time of filing.
About The Faculty
James Wilton - James.Wilton@ropesgray.com
With extensive experience in Chapter 11 and out-of-court restructurings, Jim Wilton has
represented debtors, creditors’ committees, corporate directors and officers, and acquirers of
distressed assets in major cases throughout the United States. Jim’s clients include major
pharmaceutical companies, biotech companies, strategic purchasers of assets, and boards of
directors of troubled companies. Jim represents Tempnology, a Chapter 11 debtor, in a case
currently before the U.S. Supreme Court involving the rights of trademark licensees under
contracts rejected in bankruptcy.
About The Faculty
Elvir Causevic - ECausevic@HL.com
Dr. Causevic is a Managing Director and Co-Head of Houlihan Lokey’s Tech+IP Advisory
practice. He was formerly the founder and CEO of Black Stone IP, a boutique investment
bank focused on valuing and trading Tech+IP assets, which was acquired by Houlihan Lokey
in 2017. Prior to Black Stone, he was instrumental in the MIPS semiconductors $350 million
patent transaction while he served as the Head of IP Strategy Practice at Ocean Tomo.
Before Ocean Tomo, Dr. Causevic founded several industrial, medical, and high-tech
businesses, raising over $50 million in premier venture capital, two of which were ultimately
acquired by Fortune 500 companies. He is a named inventor on more than 20 patents and
patent applications, and was a J.W. Gibbs Assistant Professor of Applied Mathematics at
Yale University. Dr. Causevic holds a B.S., an M.S., and a Doctor of Science in Electrical
Engineering from Washington University in St. Louis, and a J.D. from the University of
California, Hastings College of the Law.
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