Intellectual Property Acquired Through Bankruptcy

AuthorMark A. Salzberg and Grace E. King
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
Intellectual Property
Acquired Through
By Mark A. Salzberg and Grace E. King*
* 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
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;

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