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Assigning Intellectual Property in a Bankruptcy: Is the Licensor's Consent Necessary?

Bloomberg Bankruptcy Law Reports
January 12, 2012, Theresa V. Brown-Edwards, Ryan M. Murphy

When a party to an intellectual property license agreement files for bankruptcy protection, the implications can be daunting. The uncertainty and risk associated with the prospect of valuable intellectual property rights being freely assigned to a third party without consent is never more clear than when viewed through the eyes of a non-debtor licensor – despite the fact that the terms of the agreement expressly prohibit assignment. As with other areas of federal jurisprudence, the intersection of bankruptcy law and intellectual property law often boils down to an uneasy balancing of conflicting interests. The goal of bankruptcy reorganization is to rehabilitate debtors and maximize the value of the debtor’s assets for the benefit of interested parties. This aim requires vesting a debtor with broad flexibility to market and monetize its intellectual property assets. On the other hand, the objective of parties entering into intellectual property licenses is to provide protection against erosion of value that would result from an owner of intellectual property being forced into license agreements with undesirable business partners.

The discussion of the article focuses on the scenario in which a debtor-licensee intends to assume and assign an intellectual property license agreement. Although well-settled bankruptcy law permits a debtor to assume and assign an executory contract over the objection of the contract counterparty, intellectual property licenses may be subject to a distinct carve-out that limits the debtor’s authority to assign a license absent consent. As a general matter, courts have recognized a limitation on a debtor’s authority to assume and assign a non-exclusive patent license, copyright license, or a trademark license absent consent where the agreement expressly prohibits assignment or provides no express authorization for assignment. A more unsettled area concerns whether an exclusive patent license, copyright license, or trademark license may be assigned without consent when assignment is not otherwise provided for by the terms of the agreement. Given the ever-burgeoning presence of intellectual property in our technology-driven economy, coupled with the lagging economic recovery, it is imperative for companies across all sectors to understand how a debtor-licensee’s bankruptcy could cause significant reverberations to their bottom lines.

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