Master License - HD and NGNM
This should answer any thoughts about future bankruptcy.
ARTICLE 13 MISCELLANEOUS PROVISIONS
13.1 The parties agree that the Licensed Technology is “intellectual property” as defined in 11 U.S.C. §101(56) and that this Agreement is an executory contract that is governed by 11 U.S.C. §365(n) in the event that LICENSOR commences a case under the Bankruptcy Code. In any such case, the parties agree that LICENSEE will retain and may fully exercise all of its rights and elections under the Bankruptcy Code, and that LICENSEE will have the right to retain and enforce its rights under this Agreement.
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Bankruptcy law under 11 U.S.C 365
Options For The Licensee If The Licensor Becomes A Bankruptcy Debtor
If you are a licensee and your licensor enters bankruptcy, one of two things can happen if the license is executory – the debtor can either assume or reject the license.10 If it assumes the license, then the parties have, in many respects, the same relationship they had before bankruptcy. (To assume the license, however, the debtor must cure defaults and demonstrate to the court some assurance of performance). But if the debtor rejects the license agreement, you may treat the license as terminated, put in a claim for money damages, or, most importantly, choose to retain your rights under the license agreement with respect to the patent as it existed on the date of bankruptcy filing.
Section 365(n) of the Bankruptcy Code protects licensees if the debtor licensor rejects the license. The licensee may treat the contract as terminated and become an unsecured creditor for any monetary damages caused by the license termination under Sections 365(g) and 502(g) of the Bankruptcy Code.
The same Section 365(n) also allows the licensee (in the alternative) the option to retain its rights under the license agreement.11 In many respects, the license continues as if it never terminated. Therefore the non-debtor licensee must continue performance (for example, making royalty payments as due under the license). However, the licensor is not obligated to continue performance. The licensee is only entitled to retain its rights for the length of the license with any extensions that the license may allow.12 Another important protection of Section 365(n) is that the licensee is given the additional right to enforce any exclusivity portion of the license.13 This allows a licensee to prevent another party from infringing the licensed patent rights. Therefore, Section 365(n) protects the non-debtor licensee in three respects. First, the licensee can rely on using the license. Second, the licensee does not need to worry about having the trustee try to renegotiate the license agreement to less favorable terms. Lastly, Section 365(n) allows a licensee to enforce the exclusivity of the license against third parties.
One disadvantage of Section 365(n) is that any future patent rights secured by the licensee in the license agreement are lost. In effect, the license agreement is frozen in time, as of the date on which licensor enters bankruptcy. For example, if the license agreement provides that future improvements would be available to the licensee under the same terms of the license agreement, these future improvements would not be available to the licensee in the bankruptcy regime.
In conclusion, bankruptcy law provides some protections for a non-debtor party of license agreements. What protections are available to a non-debtor party largely depend upon whether the license is considered an executory contract. If deemed an executory contract, the protection provisions of Section 365 may allow a non-debtor party some relief from the otherwise harsh provisions of the Bankruptcy Code.
