Bankruptcy Code’s Patent Protection Extended to Licensees of Foreign Debtors in Chapter 15 Case

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In a case of first impression, In re Qimonda AG, the Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”) found that the protections of section 365(n) of the Bankruptcy Code are available to licensees of U.S. patents in a chapter 15 case even when these protections are not available under the foreign law applicable to the foreign debtor. The Bankruptcy Court found that a refusal to apply section 365(n) was “manifestly contrary to the public policy of the United States” and results in the licensees not being “sufficiently protected.”

Qimonda’s German Insolvency Proceeding

On January 23, 2009, Qimonda AG (“Qimonda”), a German manufacturer of semiconductor memory devices, filed an insolvency proceeding in Munich. Dr. Michael Jaffe, who was appointed as its insolvency administrator, decided that the compa-ny should be liquidated. After Jaffe concluded that a going-concern sale of Qimonda could not be achieved, he looked for ways to monetize the estate’s principal asset: its patent portfolio. Jaffe identified contracts known in the United States as executory contracts (mutual contracts with respect to which the obligations of both the debtor and the counter-party have not been completely per-formed), which are automatically unenforceable under section 103 of the German Insolvency Code unless the insolvency administrator elects to perform under the contract. Many of these contracts were cross-licenses pursuant to which no royalties are due. Jaffe elected to not perform under Qimonda’s patent cross-license agreements, through which Qimonda and various counterparties (including Samsung, IBM, and Intel) acquired rights to use each other’s patents, with the intent of re-licensing the patents to the counterparties in exchange for royalties.

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Published In: Bankruptcy Updates, Business Organization Updates, General Business Updates, Intellectual Property Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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