On September 18, 2009, many long-awaited amendments to
Canada's Bankruptcy and Insolvency Act (BIA)
and Companies' Creditors Arrangement Act
(CCAA) came into force. One of these new provisions will
help protect intellectual property (IP) licensees in the event of
the bankruptcy of their licensors.
Under current Canadian common law, it is generally accepted that a
trustee in bankruptcy can disclaim some kinds of contracts entered
into by the bankrupt debtor, in order to promote the successful
restructuring of the debtor's business. It has been unclear,
however, whether or not IP license agreements are among such
contracts. The issue has been raised, but never settled, in a
number of Canadian cases. A discussion of these cases can be found
in Stikeman Elliott's
February 2009 Intellectual Property Update.
Significant amendments to the BIA and CCAA were
passed in 2005 and 2007, but-aside from a few provisions that
became effective in July 2008-the amendments sat dormant, awaiting
proclamation into force.
Pursuant to Order in Council P.C. 2009-1207, almost all of these
amendments have now been brought into force. In particular, section
65.11 of the BIA has been amended to include the following
provision governing disclaimers of IP licenses:
65.11(7) If the debtor has granted a right to use intellectual
property to a party to an agreement, the disclaimer or resiliation
does not affect the party's right to use the intellectual
property--including the party's right to enforce an exclusive
use--during the term of the agreement, including any period for
which the party extends the agreement as of right, as long as the
party continues to perform its obligations under the agreement in
relation to the use of the intellectual property.
In essence, the amendments provide protection similar to that found
in Section 365(n) of the U.S. Bankruptcy Code, which
provides that if a trustee in bankruptcy rejects an intellectual
property license, the licensee has the option of retaining its
rights under the license as they existed prior to the bankruptcy
for the rest of the term of the license, as well as for any periods
for which the licensee had the right to extend the license.
This new provision enhances commercial certainty for Canadian IP
licensing agreements. Although the term "intellectual
property" is not defined in the amendments, it is arguable
that it includes at least the traditional types of registrable IP:
copyrights, trademarks, patents, and industrial designs. The
implicit inclusion of trademarks is notable, because trademarks are
not covered by the equivalent provisions of section 365(n) of the
U.S. Bankruptcy Code.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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