Basic principles of bankruptcy
- Automatic Stay 11 U.S.C. 362
- Chapter 11 v. Chapter 7
- Secured vs. Unsecured claims
- "Perfected Security Interests"
- "Executory Contracts"
Issues from the Licensee's Perspective
Enforceability of Licenses in Bankruptcy
Basic issue - Executory Contracts (example: Lubrizol v. Richmond, 756 F.2d 1043 (4th Cir. 1985), cert. denied, 475 U.S. 1057 (1985))
- excludes trademarks
- excludes materials in development
- can accommodate certain "related" agreements such as an escrow
- Problems with 365(n) and breach by licensor - In Re Prize Frize Inc., 27 U.S.P.Q.2d 1780 (9th Cir. 1994)
Example Escrow Clauses:
Issues from the Licensor's Perspective
Transfer of Rights in Bankruptcy
Assumption requires cure of default; if default cannot be cured, may not be assumed:
- In re Claremont Acquisition Corporation, Inc., 113 F.3d 1029 (9th Cir. 1997) (incurable breach)
- Note: from a recent case: "Congress legislatively overruled Claremont Acquisition in enacting the current version of the section: Section 365(b)(1)(A) now requires all monetary defaults to be cured prior to assumption of an executory contract, but excepts incurable nonmonetary defaults, such as breach of a continuous operation clause in a real property lease"
- See also Cal Worthington and His Dog Spot
- See also In re Pioneer Ford Sales, Inc., 729 F.2d 27 (1st Cir. 1984) (assignment subject to "reasonable consent" rejected reasonably)
- Is assumption by the bankruptcy estate permitted? (interpretation of 11 U.S.C. 365(c))
- Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1977) (Everex rule of non-assignability rejected) ("actual test" -- "no assignment" clause not a problem to retain rights when no assigment contemplated) (1st cir)
- Perlman v. Catapult Entertainment, Inc., 165 F.3d 747 (9th Cir. 1999) ("hypothetical test" -- "no assignment" clause prevents retaining rights even when no assigment contemplated) (9th, 3rd, 4th)
Security Interests in IP
Basic issue: where to file, with UCC-1 or with PTO or copyright office?
- In re Peregrine Entertainment, 116 B.R. 194 (C.D. Cal. 1990)
- Includes accounts receivable - In re Avalon Software, Inc., 209 B.R. 517 (Bankr. D. Ariz 1997)
- But see In re World Auxiliary Power, 303 F.3d 1120 (9th Cir. 2002)
- In re 199Z, Inc., 137 B.R. 778 (C.D. Ca. 1992)
- In re Cybernetic Services, Inc., 252 F.3d 1039 (9th Cir. 2001)