Bankruptcy and Intellectual Property: Trademark Licenses, Chapter 15, and Pending Legislation

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Introduction

- Recent cases have addressed the interplay between intellectual property and bankruptcy, including trademark licenses and Section 365(n)’s application in Chapter 15 cases. Proposed legislation could change how trademarks and other intellectual property are treated in bankruptcy. This paper examines key cases and the proposed legislation pending in Congress.

Intellectual Property Licenses and Section 365(n)

- Prior to the enactment of Section 365(n) of the Bankruptcy Code, 11 U.S.C. § 365(n), licensees whose intellectual property licenses were rejected as executory contracts lost their rights under the license. In Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), the Fourth Circuit held that when Congress enacted Section 365(g) of the Bankruptcy Code, governing the effect of rejection of an executory contract, “the legislative history of § 365(g) makes clear that the purpose of the provision is to provide only a damages remedy for the non-bankrupt party,”1 and no specific performance remedy. As a result, when the debtor rejected the contract, Lubrizol, as patent licensee, lost its rights under the license.

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