November/December 2009 / Features
Protect Your IP Licensing Agreement
Bankruptcy can cause significant harm to companies whose business relies on licensed intellectual property. Unlike replaceable suppliers, intellectual property licensors provide a unique asset.
Intellectual property licensees are protected from licensor bankruptcy by the bankruptcy code, which allows licensees to continue to exploit the IP for the duration of the license and any extensions. Protections are not automatic. The licensee must act to retain its rights once the licensor has filed for bankruptcy protection. Trademarks are not included within the definition of intellectual property in the bankruptcy code, so trademark licensees are not protected.
Licensors do not benefit from the protections of the bankruptcy code. Bankruptcy procedures provide some relief, it may not come quickly enough for licensors caught in the process.
The authors list steps to make licensing agreements more secure in the event of bankruptcy. They suggest being wary of evergreen provisions. Although it is easier to have long-term agreements that renew automatically unless one party gives notice, in bankruptcy a notice of termination may not be effective. They suggest pre-bankruptcy triggers that allow modification or termination of the license, and that parties consider transferring the IP to a holding company remote from potential insolvency.
