Page 18 - US Bankruptcy Code Overview

Spansion Takeaway:
- Meaning of “license” broadly construed as “a mere waiver of the right to sue by the patentee” (De Forest
Radio Tel. & Tel. Co. v. United States, 273 U.S. 236, 242 (1927)). Termination of an IP License
- Issue of whether rejection of a license also automatically terminates the license?
- Most courts view rejection as a breach triggering termination. No further performance required and no further license rights.
- But see Sunbeam, 686 F.3d 372 (7th Cir. 2012):
- Failure of Congress in section 365 to equate rejection with termination suggests that counterparties to
contracts are entitled to retain their contract rights upon rejection.
- Thus, counterparty to the properly rejected patent and trademark license was entitled to continue manufacturing the licensed product of the debtor, despite the purchase of all assets of the debtor by a third party buyer.
- Supreme Court denied certiorari in Sunbeam, so no concrete answer as to whether rejection equals termination.
> PRACTICAL CONSIDERATIONS REGARDING EXECUTORY CONTRACTS
• If your counterparty files bankruptcy, pay attention to notices regarding assumption / rejection, and the stated cure amounts.
• Non-debtor counterparty will be given a chance to contest proposed cure as sufficient if the contract is assumed.
• Failure to object to a proposed cure, especially if the cure is zero, may be a res judicata bar not only that no cure was owed, but that there were no defaults. See, In re Arriva Pharmaceuticals, Inc., 456 B.R. 419 (Bankr. N.D. Cal. 2011).
• The Arriva case demonstrates that if the non-debtor counterparty is aware of facts that would give rise to a breach before the contract is assumed, a later suit based on those facts may be barred if the breach is not asserted in the bankruptcy.
• If the contract is rejected, a deadline will be set for the counterparty to file its rejection damages claim that is often different from the general claim deadline.
• Rejection gives the non-debtor counterparty a pre-petition claim entitling it to vote on a plan. The non- debtor counterparty may also have an administrative claim for any period after the petition date and before rejection.
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