Most Read Contributor in South Africa, November 2016
A lot is written about structuring robust intellectual property
licensing programs, whether from the perspective of licensors or
licensees of intellectual property rights. This requires a careful
consideration of legal, tax and regulatory issues that impact on
the licensing arrangement.
The legal risks can't always be managed adequately through
the careful negotiation and drafting of a licence agreement. Some
of these risks need to be managed independently of the drafting of
One example of this is the risk to the licensee of the licensor
(owner of the intellectual property rights) becoming insolvent.
This is an issue that has become particularly relevant in recent
years with an increase in insolvencies.
In some countries, such as the United States there is limited
bankruptcy protection for licensees of intellectual property -
so-called Section 365(n) protection under the Bankruptcy Code. Care
needs to be exercised in relying on this, even in the United
States, as the definition of "intellectual property"
under the Code refers to trade secrets, U.S. patents and patent
applications, copyrights and mask works. It does not include trade
marks and certain other categories of intellectual property.
How best to manage this issue
The licensee should firstly consider the principles that govern
the validity of licensing arrangements after insolvency/bankruptcy
in the jurisdictions in which the licensor and the licensee are
based. If the licensee is concerned about the survival of the
licence, beyond the insolvency of the licensor, then consideration
can be given to including provisions in the licence agreement to
secure survival of the licence beyond insolvency. It is not always
possible to draft enforceable provisions dealing with these issues.
As a result many licensees resort to requiring that the licensor
deposit the intellectual property into an insolvency remote Special
Purpose Vehicle ("SPV"). This is a model that is becoming
increasingly popular amongst leading brand and technology
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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Intellectual property (IP) is an umbrella term for various legal entitlements which attach to certain names, written and recorded media and inventions. The word IP refers to creation of the mind and expression: inventions, literary and artistic works, symbols, names and images used in commerce.
Intellectual Property is a vibrant and fascinating area of Law. It concerns the ideas of property, "The right to possess, use and enjoy a determinate thing."
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