3 (a). Does a license agreement remain valid during an insolvency proceeding
A license agreement remains valid and enforceable during an insolvency proceeding, up until the debtor rejects the agreement, if at all. As stated above, a license which has been rejected by a debtor-licensor may be treated by the licensee as a material breach that occurred before the bankruptcy case commenced or, alternatively, the licensee may continue to use the licensed intellectual property for the life of the agreement and any renewal terms should it elect to do so. Alternatively, the non-debtor licensee licensor may elect to treat the license as breached by the debtor and may assert a damage claim for that breach against the debtor. If the debtor assumes the license agreement, then the agreement will remain valid and enforceable as to both parties.
3 (b). Is the trustee or receiver obliged to perform the obligations under a license agreement?
A U.S. Bankruptcy debtor that is a licensor, or its trustee, is obligated to perform the debtor's obligations under the license agreement prior to assumption or rejection of the license agreement, and after assumption of the agreement. It is not required to perform after rejection of a license agreement.
A U.S. debtor that is a licensee, or its trustee, is required to perform all of its obligations under the license agreement, unless and until the license agreement is rejected by order of the bankruptcy court.
A trademark license agreement, although it may not be treated as "intellectual property" under the Bankruptcy Code, is still an executory contract subject to assumption or rejection under the Bankruptcy Code and rejection provides the licensee with a damage claim (although no right to elect to continue using the IP under the license agreement under section 365(n)). Pursuant to the U.S. Supreme Court case discussed below, the rejection is deemed a breach, entitling the licensee to file a damage claim against the licensor-debtor, but is not deemed to be a termination of the agreement.3 (c). What can a licensee do, if anything, to protect its right to use the licensed IPR?
If the license is assumed by the debtor-licensor, the licensee does not need to do anything to protect its rights. If on the other hand the license is rejected by the licensor-debtor, the licensee may elect to retain its rights to the licensed IPR post-rejection. If there is a period of negotiation prior to a formal bankruptcy filing, a licensee could attempt to negotiate some alternative structure, such as an assignment of the licensed property that provides it with a property right in the IPR greater than that possessed by a licensee, subject to the issues raised in Section 5 below.
3 (d). Can a licensor prevent a trustee or receiver from selling or transferring the insolvent licensee's rights under a license agreement?
Before a debtor-licensee can sell or transfer its rights under a license agreement, it must cure prior defaults (subject to limited exceptions) and provide adequate assurance of future performance, including future performance by any assignee. A non-debtor licensor has the right to object in an evidentiary hearing before the U.S. bankruptcy court. The debtor-licensee would have the burden of proof on those issues. As explained above, a court’s decision will depend on non-bankruptcy law in some circumstances, and, for example, whether the license to be assigned by the debtor licensee is exclusive or non-exclusive.