Intel Corp (INTC)

[Windsock]

The "termination upon filing bankruptcy" clause in the Cross License Agreement is almost certainly unenforceable. None the less, this type of bankruptcy clause is often included in Patent License Agreements under the no harm in trying rule even if the clause is probably just a waste of printer ink.

http://bankruptcy.cooley.com/2007/09/articles/business-bankruptcy-issues/are-termination-on-bankruptcy-contract-clauses-enforceable/

[T]he more financially stable party may insist on a one-sided provision allowing it to get out of the agreement upon the weaker party's insolvency or bankruptcy....

These termination provisions may be common, but are they enforceable? The short answer, which may be surprising to some, is generally "no."...

<quoting statute>

11 U.S.C. §541(c). Translated from bankruptcy-ese, this statute means that a clause that terminates a contract because of the "insolvency" or "financial condition" of the debtor, or due to the filing of a bankruptcy case, will be unenforceable once a bankruptcy case has been filed.

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For the curious:


Why Put Ipso Facto Clauses In Contracts In The First Place? If these termination provisions are generally unenforceable, why do parties seem to include them in almost every contract? There are three main reasons.

Force Of Habit. One reason is that under the old Bankruptcy Act of 1898, replaced by the Bankruptcy Code in 1979, these ipso facto clauses were enforceable. Over the years, lawyers and businesses got used to including them in their contract forms and they have continued to write them into many agreements. Since it's always possible that the Bankruptcy Code could be changed to reinstate the old rule, lawyers often see little reason to take them out.

It Takes An Actual Bankruptcy. Another and perhaps more important reason is that the rule applies only if a bankruptcy is actually filed. If an ipso facto provision provides that the agreement terminates upon a party's insolvency, and no bankruptcy case is ever filed, it's possible that the solvent party could terminate the agreement using the ipso facto provision. But be forewarned: if a bankruptcy case is later filed, an insolvency-based termination made before the bankruptcy filing may not be enforced in the bankruptcy case. This means that the debtor may still have a chance to retain the rights under the contract, including assuming or assigning an executory contract during the bankruptcy case.

A Limited Exception In Bankruptcy. A third reason is that an important, albeit limited, exception to the rule applies even after a bankruptcy is filed. The exception stems less from the ipso facto clause itself and more from the rules governing assumption of certain types of executory contracts, including intellectual property licenses (at least in some circuits).