Are you an IP Licensee?

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What happens when your licensor files for bankruptcy?  Companies filing Chapter 11 always have had the right to accept or reject any contract that has yet to be performed fully.  This right become volatile in the new economy where so many businesses are reliant on software or other IP licenses to sustain their operations.  To protect licensees of intellectual property, Congress enacted an amendment to the Bankruptcy Code (section 365[n]) to compel the bankrupt, in many cases, to continue to provide the license.

But the definition of intellectual property does NOT include use of a trademark, service mark or trade name.  Are they covered?

Federal courts are divided as to whether these statutorily unmentioned categories of license are totally terminated on rejection of the contract even while other elements of intellectual property licenses (trade secrets, patents etc.) can be preserved by the customer under section 365[n].

Seems that if you are a SaaS licensee or a licensee of an embedded system you may not care about trade names; you may not even have rights to use those names.  But if you  present to your customers using trade or service designations of your IP licensor, you may be at the mercy of the bankrupt or its bankruptcy trustee.  And unless the Supreme Court acts, the answer to the question may depend on the court chosen by the bankrupt to make its filing.

Additionally, it is not clear if it possible to continue a license, by licensee action under section 365[n], if the bankruptcy filing is a chapter 7 liquidation as opposed to a chapter 11 proceeding (for technical reasons beyond the scope of this post).

For the Massachusetts folks please note: at this writing a bankruptcy filing in the Massachusetts federal court means the licensee of trade designations cannot salvage use of those designations if the debtor rejects the license agreement.


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