United States: Five Things You Should Know For 2017 About Cross-Border IP Licensing And Insolvency Law

Last Updated: December 8 2016
Article by Marshall J. Hogan, Beni Surpin and Victor A. Vilaplana

Brexit. Trump. The year 2016 can be characterized as one of unpredicted results and impending uncertainty. In June, the UK electorate voted to leave the European Union and in November, a tumultuous presidential campaign in the United States ended in a stunning win by Donald Trump. Businesses throughout the world sought not only to understand the possible implications of these and other major events, but also to take strategic advantage of them. As we move on to 2017, both domestic and internationally based companies are looking beyond their borders to protect against risks and capitalize on strategic opportunities across a changing international business landscape. As a result, many companies are re-evaluating their IP agreements and assessing the risks of cross-border licensing. International insolvency law can add another layer of complexity to such transactions. Here are five insolvency-related issues to keep in mind while transacting for and in connection with intellectual property across borders.

1. U.S. bankruptcy law is far more protective of the rights of IP licensees than other legal regimes.

Companies seeking to license intellectual property to or from entities in other countries should be aware that licensees are not likely to be given the same protections as they are afforded in the United States in the event their licensor enters insolvency proceedings. In the United States and in most countries around the world, the bankruptcy trustee or administrator has the right to reject certain pre-petition contracts of the debtor.

However, the United States Bankruptcy Code contains a special protection for licensees of intellectual property against such rejection powers in section 365(n), which provides:

(1) If the trustee rejects an executory contract under which the debtor is a licensor of a right to intellectual property, the licensee under such contract may elect...(B) to retain its rights (including a right to enforce any exclusivity provision of such contract, but excluding any other right under applicable nonbankruptcy law to specific performance of such contract) under such contract and under any agreement supplementary to such contract, to such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law), as such rights existed immediately before the case commenced, for (i) the duration of such contract, and (ii) any period for which such contract may be extended by the licensee as of right under applicable nonbankruptcy law.

These provisions protect licensees from being stripped of their rights under a license agreement and allow them to retain rights thereunder (subject to making all royalty payments due, pursuant to related subsection 365(n)(2)) , including rights to exclusivity. Other countries, such as Germany for example, do not afford special protections to intellectual property contracts and they are treated the same as other executory contracts, as discussed in greater detail below. See, e.g., Jaffe v. Samsung Elecs Co., Ltd., 737 F.3d 14 (4th Cir. 2013) ("Qimonda"). Companies within the United States should be mindful of this difference when contemplating entering into license agreements with entities outside of the United States. Companies outside of the United States may want to consider this benefit of licensing intellectual property from U.S.-based companies.

Companies should also be aware of the limits of section 365(n). While it clearly applies to patents and copyrights, its application to trademarks has been the subject of litigation. Some recent cases have afforded the protections of 365(n) to trademark licensees. See, e.g., In re Crumbs Bake Shop, Inc., 522 B.R. 766 (Bankr. D.N.J. 2014); Sunbeam Prods., Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012). In addition, there is some debate as to whether "intellectual property" includes foreign copyrights or trademarks, as the Bankruptcy Code defines the term to include patents and copyrights entitled to protection under the U.S. federal law.

2. A foreign debtor can obtain the protections of the United States Bankruptcy Code through Chapter 15 of the Bankruptcy Code.

U.S.-based companies transacting with foreign parties with regard to U.S.-based assets and intellectual property should also be aware of Chapter 15 of the Bankruptcy Code. By filing Chapter 15 bankruptcy proceedings in the United States and obtaining recognition of a foreign main proceeding, a foreign debtor (through its "foreign representative") can obtain the assistance of the United States Bankruptcy Courts in protecting U.S.-based assets of the foreign debtor.

For instance, after recognition of a foreign proceeding as a foreign main proceeding under Chapter 15, a foreign debtor immediately obtains the protection of the automatic stay, which is a very broad protection prohibiting any attempt by a creditor to enforce a pre-petition debt or foreclose on an interest in property. In addition, U.S. bankruptcy courts can bind creditors and other parties to rulings of the foreign debtor's foreign bankruptcy proceedings, even if such rulings are at odds with the United States Bankruptcy Code. For example, Section 365 and its subsection (n), discussed above, is not automatically applicable in a Chapter 15 bankruptcy case. However, bankruptcy courts are authorized to order that it is applicable, as the bankruptcy court did in Qimonda.

3. U.S. licensees of intellectual property may face challenges when seeking to benefit from the protections of section § 365(n) in cross-border insolvency proceedings.

When a foreign licensor of U.S. intellectual property goes bankrupt, will its U.S.-based licensees be entitled to the protections of section 365(n)? A recent case suggests that U.S. courts may be inclined to answer "yes."

In Qimonda, a foreign licensor of U.S. patents filed for bankruptcy protection in Germany. The bankruptcy administrator also petitioned the U.S. Bankruptcy Court in Virginia under Chapter 15 for recognition of the German bankruptcy proceeding as a foreign main proceeding. The U.S. Bankruptcy Court granted the petition and provided, on its own, that section 365 would apply (as mentioned above, it does not automatically apply in Chapter 15 cases).

As part of liquidating the foreign debtor's assets, the German bankruptcy administrator determined that several license agreements for U.S. patents were no longer favorable to the debtor. The German administrator rejected the licenses in the foreign proceeding and filed a motion with the U.S. Bankruptcy Court to determine (contrary to the court's earlier order) that section 365(n) would not apply. Over the opposition of many licensees, the U.S. Bankruptcy Court effectively granted the German administrator's motion, holding that 365(n) did not apply unless the German administrator was seeking to reject a contract pursuant specifically to section 365 (rather than pursuant to German law).

On appeal, the district court remanded and ordered that the Bankruptcy Court consider whether the interests of the creditors and other interested entities, including the debtor, were sufficiently protected pursuant to section 1522(a) of the Bankruptcy Code. Section 1522(a) states that the court may recognize a foreign proceeding "only if the interests of the creditors and other interested entities, including the debtor, are sufficiently protected." On remand, the Bankruptcy Court determined that, after balancing the interests of the creditors and the foreign debtor, 365(n) should apply. The Fourth Circuit affirmed this holding.

The Qimonda decision is an important tool for licensees of intellectual property owned by a foreign entity, but its holding appears somewhat limited to its facts. For instance, the Fourth Circuit declined to impose a broad, across-the-board prohibition on rejecting license agreements without applying section 365(n). As a result, some uncertainty remains as to whether U.S.-based licensees of a foreign debtor can count on obtaining the protections of section 365(n)'s protections in the context of a Chapter 15.

4. Various strategies can help licensees protect their IP rights against risks of insolvency of foreign debtors.

Licensees transacting with foreign licensors have a range of options for protecting against the risk that the license will be rejected in a foreign bankruptcy. These options include the following:

  • requiring that the licensor deposit the technology to a bankruptcy-remote special purpose entity (SPE) in the United States;
  • obtaining a lien on the intellectual property to secure performance on the license; and
  • including provisions in the license improving the licensees' position in litigation should they become embroiled in a Qimonda-type situation, including provisions expressly recognizing the section 365(n) protections, the materiality of the 365(n)-type obligation, and the importance of the license.

5. U.S. bankruptcy law can also more robustly protect the rights of IP licensors than foreign law.

Licensors' rights can also be put at risk by the bankruptcies of their license counterparties. Section 365(f)(1) of the Bankruptcy Code generally empowers a debtor or trustee in bankruptcy to assume and assign executory contract rights to third parties notwithstanding non-assignment provisions. However, section 365(c) of the Bankruptcy Code creates a narrow exception to this general rule, excusing the non-bankrupt party from accepting performance from a party other than the debtor. This exception is generally held to apply to non-exclusive licenses of U.S. patents and copyrights because applicable non-bankruptcy U.S. law favors the ability of owners of such intellectual property rights to control the identity of their licensees. However, where a license is governed by foreign law, the result may differ from U.S. law. As a result, in assessing risk, intellectual property licensors should be mindful of this potential difference when contracting for a license governed by non-U.S. law.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Stites & Harbison PLLC
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Stites & Harbison PLLC
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions