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In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010)
- Court held that a perpetual, royalty-free and exclusive license between two battery-industry companies
was not an executory contract.
• License was integrated with an asset sale and was held to be substantially performed.
• Anycomponentsoflicensestillrequiringsubstantialperformance(likequalitystandardsprovisions) would not result in material breach if not performed. Parties never discussed specific standards; provision not material “when the parties themselves act as if they did not know of its existence.”
• Thus, debtor-licensor could not reject the contract, since it was not executory.
• Used this to get around the exclusion of trademark rights from section 365(n), so trademark licensee was protected.
- See also Sunbeam, 686 F.3d 372 (7th Cir. 2012)
• Licensee was protected because “rejection” is not “termination” • Disapproves of use of section 365 as disguised avoidance power.
Exide Takeaways:
- When drafting license agreements, determine whether creation of an executory contract is desired.
• Do you want the other party to be obligated to act in bankruptcy?
• What the implications are if the contract could be deemed non-executory?
Assignment of IP Licenses
- Debtor-licensee’s right to assign certain IP licenses is not absolute: If a license cannot be assigned under applicable non-bankruptcy law, it may not be assigned by the bankruptcy trustee without permission of the other contracting party. 11 U.S.C. § 365(c).
- Express non-assignment or consent clauses are enforced for some types of licenses (In re Golden Books, 269 B.R. 300 (D. Del. 2001)).
- Under federal copyright and patent law, absent express permission in the license, debtor licensee cannot assign certain copyright and non-exclusive patent licenses without the non-debtor counterparty’s consent.
• In re Golden Books Family Entm’t, Inc., 269 B.R. 300 (D. Del. 2001): Non-exclusive copyright licenses, as opposed to exclusive licenses, “are personal and do not convey an ownership interest to the licensee that allows that licensee to freely transfer its rights,” so cannot be freely assumed and assigned.
• See also Gardner v. Nike , 279 F.3d 774 (9th Cir. 2002) (exclusive copyright license not assignable without consent); Everex Sys., Inc. v. Cadtrak Corp. , 89 F.3d 673 (9th Cir. 1996) (non-exclusive patent license requires consent).
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