Intellectual Property Acquired Through Bankruptcy

• Author: Mark A. Salzberg and Grace E. King
• Pages: 579-604

579

I. Introduction

Imagine a chief in-house counsel for a company that licenses a

patent that is crucial to its business. Imagine further that one

day this in-house counsel receives in the mail a notice that the

owner of the patent has just led a bankruptcy petition. Our in-

house counsel has had little experience with bankruptcy. In fact,

counsel’s only involvement in a bankruptcy has been to prepare

and le a proof of claim for the company. What does counsel tell

the company regarding the potential impact that the bankruptcy

may have on the patent? Is the company’s business toast? Does

the company need to start looking for a new way to make money?

Or does the U.S. Bankruptcy Code give the company the ability to

protect itself and its rights in the patent?

This hypothetical scenario is not that uncommon. Corporate

bankruptcy cases are led every day, and many of these debtors

Chapter

Intellectual Property

Acquired Through

Bankruptcy

By Mark A. Salzberg and Grace E. King*

14

* Mark Salzberg would like to acknowledge his colleague Grace King, without

whose tireless efforts this chapter could not have been written.

Grace E. King: I would like to express special thankfulness to the most important

people in my life—Scott, Alice, Emily, and Roy—as well as my sincere appreciation to

my esteemed colleague Mark Salzberg of Squire Patton Boggs.

580 CHAPTER 14

own intellectual property (IP) that is being licensed to other com-

panies. Therefore, it is imperative for counsel to have at least a

basic understanding of how intellectual property is treated under

the Bankruptcy Code, and the rights and obligations of parties to

intellectual property licenses.

II. Background on Bankruptcy

Like intellectual property, bankruptcy is a niche area of law with

its own court system and its own set of laws and rules. The most

common types of bankruptcy cases are led under Chapter 7,

Chapter 11, or Chapter 13 of the Bankruptcy Code. Petitions to

recognize foreign insolvency proceedings—unique cases that are

becoming more prevalent—are led under Chapter 15 and are

discussed in subsection G.

The major concerns associated with intellectual property

occur in Chapter 11 cases in which the debtor is either a licen-

sor or licensee of intellectual property. Given the value of intel-

lectual property, especially when the company’s protability is

based upon the use or ownership of the intellectual property, it is

very important that in-house counsel have at least a basic under-

standing of how intellectual property is treated in bankruptcy

cases.

A. Intellectual Property under the Bankruptcy Code

Not all intellectual property is created equal in bankruptcy.

Although the Bankruptcy Code gives special rights to licensees of

“intellectual property,” the Bankruptcy Code’s denition of intel-

lectual property is actually limited to the following categories:

• A trade secret;

• An invention, process, design, or plant protected under

Title 35;

• A patent application;

• A plant variety;