Bankruptcy’s Implications on Intellectual Property | Kelley Kaplan & Eller

When filing for bankruptcy, it is always important for the filer to consider how the decision will affect the various areas of his life. However, one aspect many people fail to take into account is the implications a bankruptcy filing may have on intellectual property, such as patents, trade secrets, and copyrights.

How to Protect Intellectual Property

A bankruptcy filing can present certain dangers in regards to intellectual property. In bankruptcy court, intellectual property is typically seen as an executory contract, unless dealing with a license or trademark. Licenses are protected under section 365(n) of the United States Bankruptcy Code, whereas trademarks are unprotected in bankruptcy court.

With executory contracts, protections are tied to performance. Licensors filing for bankruptcy can choose to assume the license or reject it. However, there are certain stipulations for assuming a license in bankruptcy. Defaulted debts must be repaid and a plan for satisfactory performance going forward needs to be agreed upon. In the event that the license is rejected, the licensee will not lose his rights to the property, though he will be required to pay royalties.

When the licensee is the one who files, he will have the opportunity to have it assumed by a third party. However, if someone else (including a non-filing party) has legal rights to the intellectual property and refuses the assignment, it cannot be completed. If the license is assumed, the same requirements will have to be met as when the licensor files.

Where intellectual property is concerned, bankruptcy law can be especially tricky. Given that, fact, it is advisable that filers with intellectual property at stake seek out the expertise of a West Palm Beach bankruptcy attorney. If this applies to you, call the team at Kelley Kaplan & Eller today for a consultation.