IP Licenses and Insolvency Guide

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3. What does this practically mean for licensors and licensees?
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3. What does this practically mean for licensors and licensees? Start Comparison
3 (a). Does a license agreement remain valid during an insolvency proceeding

Unless the parties have agreed in their contract that it shall be dissolved in the case of either party's insolvency, the license agreement remains valid following the opening of insolvency proceedings. During the course of insolvency proceedings, however, the bankruptcy administration has a right of choice: it can (i) fulfil the contract in real terms instead of the insolvent party, (ii) accept the conversion into a monetary claim or (iii) terminate the contract based on the provisions in the IP license agreement.

In practice, however, the bankruptcy administration often neither terminates the contract nor explicitly affirms it. In this case, license agreements remain valid. The solvent party may assert its claims as a normal bankruptcy claim, but only up to the next termination date. As a result, this means that in the event of the bankruptcy administration's failure to act, the same applies as if the license agreement had been (duly) terminated.

3 (b). Is the trustee or receiver obliged to perform the obligations under a license agreement?
No. However, the solvent party may withhold its performance until it is guaranteed consideration from the bankruptcy administration. If its request for security is not complied with within a reasonable period, it may withdraw from the contract.
3 (c). What can a licensee do, if anything, to protect its right to use the licensed IPR?
The licensee can act before insolvency proceedings formally begin. If the license is recorded in the relevant (trademark, patent or design) register at the time of the opening of insolvency proceedings, it is considered to outlast such proceedings. This means, for example, that if the trademark is sold, the license can be held against the acquirer, i.e., the acquirer must permit the use of the trademark in accordance with the license granted.
3 (d). Can a licensor prevent a trustee or receiver from selling or transferring the insolvent licensee's rights under a license agreement?
In the event of the licensee's bankruptcy, the license as a contractual right of use of the licensee only falls into the bankruptcy estate if it is transferable and thus seizable. Since most licenses are non-transferable, the bankruptcy administration cannot exploit them in this case.
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