Guides & Studies

Intellectual Property Intel: Understanding the Impact of Bankruptcy on a Business’s Most Valuable Assets

Learn how distressed companies and non-debtors may benefit from understanding the protections these clauses provide, saving all parties time, money, and effort during critical times. Our findings include:

  • The importance of ‘rights upon bankruptcy’ clauses
  • The prevalence of Section 365(n) provisions in Intellectual Property Agreements

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While COVID-19 has wreaked havoc on the global economic marketplace, not all concerns are immediately tangible. There is a piece of the puzzle that lies in intangible assets amidst the assets at play. A business’s intellectual property is one of its most important and most valuable assets.

Every region around the world is seeing a drastic increase in bankruptcy filings and the list of companies filing for bankruptcy only continues to grow. As part of the bankruptcy and insolvency process, all assets become part of the bankruptcy estate, including a company’s intellectual property. As part of a reorganization, a debtor may assume or reject its executory contracts. In spite of this, some intellectual property agreements include provisions stating that the intellectual property is subject to bankruptcy codes that provide that a licensee retains its rights to the intellectual property even if the intellectual property agreement itself is rejected.

As a result, companies that can quickly and accurately identify these clauses in their contracts will be able to make earlier, and better-informed, decisions on whether to assume or reject certain executory contracts as insolvency proceedings begin. On the other hand, companies dealing with licensors that may potentially file for bankruptcy will be able to ascertain what rights and protections they may be entitled to in the event of its licensor’s bankruptcy.

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