On July 9, 2012, the United States Court of Appeals for the Seventh Circuit significantly strengthened the potential ability of licensees to trademarks, international intellectual property, and other rights to continue to enjoy the benefits of their licenses despite a licensor’s bankruptcy.
In the last two weeks, the 6th Circuit and 7th Circuit Court of Appeals each issued decisions on important intellectual property issues in bankruptcy.
USDC S.D. California, February 10, 2012
Theresa V. Brown-Edwards, Ryan M. Murphy
Last week, the United States Court of Appeals for the Sixth Circuit issued a decision in the case of Cyber Solutions International LLC v. Pro Marketing Sales, Inc. Although the decision blazes no new legal territory, the facts of the case and rulings offer important lessons for both lenders and licensees.
Most companies do not own all of the intellectual property (IP) rights that their businesses rely on. It is not uncommon for some portion of a company’s IP rights to be in-licensed from other persons or entities under a license agreement. In such cases, the licensee has contractual rights to use the IP that is the subject of an in-license but not full ownership of such IP. In the day-to-day operations of a company, the distinction between owned IP rights and in-licensed IP rights can easily get lost.
A decision last month by the U.S. Bankruptcy Court for the District of New Hampshire serves as a good reminder that, although helpful, Bankruptcy Code Section 365(n)’s protection for intellectual property licenseesdefinitely has its limits.
Technology companies can preserve both significant sums of money and valuable intellectual property rights if they take action when a customer or business partner files for bankruptcy protection. Far less effort is usually required to preserve these rights than what may be involved in a major piece of litigation; but, in almost every case, the company must take timely steps to ensure that its interests are protected.
In October 2014, GT Advanced Technologies (GT), a Delaware corporation with a principal place of business in New Hampshire, filed a petition for relief under Chapter 11 of the Bankruptcy Code (Code) in the District of New Hampshire. The locus of the filing was somewhat of a surprise to many, given the steady migration of large Chapter 11 cases to the so-called “magnet” bankruptcy venues of Delaware and the Southern District of New York.
In a case of apparent first impression, U.S. District Court Judge Alan S. Gold recently held in In re Wellington Vision, Inc., No. 06-80446, __ B.R. ___, 2007 WL 762398 (S.D. Fla. Feb. 20, 2007), that a franchisee in chapter 11 cannot assume (i.e., retain) a franchise agreement that grants a nonexclusive trademark license, leaving the franchisor free to terminate the agreement.