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> CROSS-BORDER TREATMENT OF IP CONTRACTS In re Qimonda AG, 433 B.R. 547 (E.D. Va. 2010), aff’d, 737 F.3d 14 (4th Cir. 2013)
- Qimonda AG commenced insolvency proceedings in Germany.
- Thereafter, its German administrator sought and obtained recognition of the German proceeding as a foreign main proceeding under chapter 15 of the Bankruptcy Code.
- The German administrator sought to terminate several of Qimonda’s patent cross-licensing agreements under section 103 of Germany’s Insolvency Code in order to re-license the patents for a gain of $47 million.
- The licensees invoked section 365(n) of the Bankruptcy Code in the chapter 15 case to retain their rights under the applicable licenses.
- In response, the administrator obtained a decision that the licensees were not entitled to section 365(n) rights where the licenses were terminated under German law.
- Bankruptcy Court refused to limit section 365(n) protection, holding that the “failure to apply § 365(n) under the circumstances of this case and this industry would ‘severely impinge’ an important statutory protection accorded licensees of U.S. patents and thereby undermine a fundamental U.S. public policy promoting technological innovation.”
- Overrides strong policy of comity under Chapter 15 (11 U.S.C. § 1506).
- Affirmed on appeal at Jaffe v. Samsung Elecs. Co., 737 F.3d 14 (4th Cir. 2013). Qimonda Lessons:
- Licensees of U.S. intellectual property should consider including contractual provision that, in the event of a bankruptcy, U.S. bankruptcy law and section 365(n) protections will apply.
- May not be binding upon a court’s decision, but manifests intent of parties at the time of entry into licensing agreement and may protect rights of licensee.
- Where many patents in multiple countries are at issue, potential avenues to lessen risk:
• move technology out of one entity and into a joint venture company (with rights of first refusal). • escrow the technology or know-how.
• transfer the intellectual property to a U.S. entity/SPV subject only to U.S. bankruptcy law.
• create a security interest in intellectual property.
- Presumes that property can be described easily and is readily transferable into U.S. - Also must consider consequences of creating joint ventures (tax and otherwise).
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