Record the license

For IP that is registered in the UK, a licensee can record their interest as licensee with the IP Office. A license that is registered in this way will be binding on any successor in title to the UK registered IP right. If the license is not registered at the IP Office, a license granted by the owner of a UK registered IP right will still bind any successor in title to the UK registered IP, except a purchaser of those rights who buys them for good value, in good faith and without notice of the license. This means that, if an insolvency office holder was to try to sell on the registered IP to another party as part of either a going concern sale of the business and assets or a break up sale, as long as (i) the license had not been disclaimed or terminated and (ii) either the new owner has actual notice of the license or the license is recorded on the public register, then the new owner of the UK registered IP right would be bound by the terms of the license. The position in relation to rights registered in other countries but which are licensed by an insolvent UK licensor would depend on the local rules around registration of licenses.

Contractual considerations

• Include clauses in the license which stipulate that any transfer of the rights by the licensor is subject to the license;
• Seek to limit any contractual rights of the licensor to terminate the license, including on insolvency of either party;
• Include in the license a pre-emption right or an option for the licensee to buy the IP, exercisable on certain pre-insolvency events such as failure to pay renewal fees for the IP; or
• Include clauses in the license such that if the licensor becomes insolvent, the license will become perpetual and royalty-free. This is suitable in instances where the license is of rights created specifically for a particular business (e.g., customized software).

Structural/pricing considerations

• The licensee could seek a parent company or directors' personal guarantee of the licensor's obligations under the license.
• Take the benefit of security over the IP. The registration of the security interest on the relevant IP register or at Companies House may have the effect of putting a new licensee or buyer on notice of the existing license, and dissuade them from engaging with the office holder in breach of the disclosed license.
• The license could be structured so that a bullet payment is made at the end of the license period. In practical terms, this may persuade an insolvency office holder to hold off terminating the license until the office holder is able to receive the payment for the benefit of the creditors.
• Using an escrow arrangement, the licensor would assign the licensed IP to an escrow agent, for the escrow agent to hold on trust. The escrow agent, via an escrow agreement between the escrow agent, licensee and licensor, would hold the IP on trust for the licensee and the licensor on the basis that, on the insolvency of the licensor, the escrow agent would transfer the IP to the licensee. Escrows are not commonly used other than in the context of software, where parties do sometimes put the source code into escrow for release on insolvency. Even in instances where parties set up an escrow arrangement, they rarely have the discipline to use it effectively as it requires regular updates to the source code being held.