In addition, although Section 365 (n) and related case law provide protection to IP takers, where the right of non-competition requires and the underwriter has not, section 544 of the Bankruptcy Act may allow the agent or debtor to circumvent the licence notwithstanding Section 365 (n). The Bankruptcy Court found and the District Court confirmed that under the licensing agreement, the licensee was constantly required not to sue his counterparties for patent infringement for machines commissioned after the agreement was executed. It also found that the licensees had common material obligations because they were required to submit quarterly reports on the new machines, pay a one-time fee of US$4,000 to the licensee for each new machine, and not make public statements on an attached action. While section 365 (n) may prevent many licences from being refused by other means by a debtor or agent, Section 365 (n) does not appear to protect the intellectual property right of a licensee created after the debtor`s bankruptcy application is filed. This restriction can cause serious problems for an IP taker who is being created when the bankruptcy application is filed by the licensee. When copyrighted computer software is updated after the debtor files an insolvency claim, Section 365 (n) cannot grant the Licensee the right to use the Software in the updated manner. Section 365 (n) may also terminate the licensee`s obligations to maintain the license or the underlying intellectual property. Under an antitrust case, Interstate Brands Corporation (“Interstate Brands”), a subsidiary of Interstate Bakeries Corp. (“IBC”), entered into an agreement to sell certain bread and asset activities to Lewis Brothers Bakeries, Inc.
(“Lewis Brothers”). To obtain the transfer, Interstate Brands and Lewis Brothers entered into two contracts: an Asset Purchase Agreement (“APA”) and a licensing agreement. The APA provided for the sale of tangible assets to Lewis Brothers and “the exclusive indeterminate, free, transferable and transferable licence for the use of trademarks to Lewis Brothers . . . . . .
under the terms of the licence agreement. Of the $20 million purchase price, the parties agreed to allocate US$8.12 million to intangible assets, including the 13 trademarks covered by the licensing agreement. (i) to treat the licence as having been terminated and to assert the right to the infringement; or Kagan J.A. stated that Section 365 (g) provides for the refusal to be a “violation,” but the Bankruptcy Act does not define the term. “Violation” therefore means in the bankruptcy law “what it means in contract law outside of bankruptcy”. According to the majority, this means that if a trademark licensing agreement is refused, the licensee can no longer fulfill the remaining obligations of the contract, but “the debtor cannot revoke the license already passed on,” which means that “the licensee can continue to do what the license authorizes.” In a dissenting statement, Judge Juan R. Torruella contradicted the majority of the “light line” that the omission of section 365 (n) trademarks leaves an unconcused party without residual rights for the use of a debtor`s mark and logo.” Torruella J.A. stated that he would instead follow Sunbeam if he found that a licensee`s rights for the use of the licensed trademark “do not evaporate” because of the refusal of the agreement. The rejection of Lubrizol by the Patent Congress shows no intention of ratifying the approach of this decision for almost all [other INTELLECTUAL property agreements]. This means that there are no negative results. Congress has done nothing to add section 365 (n) to change the natural reading of section 365 (g) – this rejection and violation have the same results.
This article describes the impact of a bankruptcy on the intellectual property granted and describes the steps that the takers can take to protect