The Delaware Court of Chancery (the “Court”) rang in the new year with a decision in which it broadly interpreted a contract provision commonly included in license agreements to address royalty monetization arrangements, determining that such provision also applied to a secured financing. While reaction to this decision has been mixed among practitioners, the Court's ruling raises several practice points for attorneys handling any licensing transaction, secured financing, or other commercial contract.
First, the specifics of the case. The Court decided a number of claims in a summary judgment motion in a dispute over rights under an exclusive license between Zevra Therapeutics, Inc. (the “licensor”) and Commave Therapeutics SA (the “licensee”).[1] Of primary importance to the present discussion was the applicability of certain restrictions on the licensor’s right to sell or transfer to a third party its right to receive payments under the license agreement without first offering the licensee a right to match any third-party offer for such rights. Citing Black’s Law Dictionary, the Court concluded that the security interest in the license granted by the licensor as part of a loan transaction qualified as either an “assignment” or “transfer” subject to the license restrictions. Relying on the maxim “expressio unus est exclusio alterius” (the express mention of one matter implies the exclusion of others), the Court further noted that the parties had expressly carved out an existing collateral loan from the provision, implying that all other loans would be included within the restriction. The ruling also provided that the anti-assignment provisions of the Uniform Commercial Code and an “Excluded Assets” provision (a concept explained in more detail below) in the financing documentation did not apply.
It remains to be seen whether the Court’s decision will be upheld if there is an appeal, and it is unclear if the parties had intended for the restrictions on assigning or transferring payment rights to capture ordinary course secured loans, rather than the more bespoke royalty monetization transactions usually targeted by these provisions. With the court adopting a broad interpretation of the provision, we highlight a handful of practice points of which to be mindful in drafting such provisions going forward.
- Drafting Anti-Assignment Provisions – The Court’s decision underscores the importance of considering the kinds of scenarios to which an anti-assignment provision should apply, and drafting accordingly. If the intent of the parties in the anti-assignment provision at issue had been to give the licensee an option to participate in a royalty monetization transaction, but not a secured financing transaction, then they would have been well served to tailor the provision to match their intent. Sophisticated transaction counsel will be familiar with a variety of options to protect a party against, or allow a party to participate in (e.g., through a right of first refusal), the different kinds of transactions in which its counterparty may engage. A well-tailored anti-assignment provision will address those specific transactions of concern while granting the counterparty the appropriate degree of flexibility to engage in financings or other transactions in which the other party does not have an interest.
- Including Specific Exclusions – While it is not unusual to include certain exceptions “for the avoidance of doubt,” parties should carefully consider the merits of including specific exceptions where the exception could have the unintended consequence of creating a more expansive reading of the language to which the exception was applied, prohibiting all future transactions or events similar to (but not captured by) such exception. In many cases, parties will be better off remaining silent rather than including exceptions that are not necessary, and if a specific exception is warranted, to consider whether the exception should apply to other similar transactions or events (where that is the intent).
- Contract Diligence – There has been an ongoing debate over whether anti-assignment provisions in licenses, JV agreements and other commercial contracts apply to the grant of a security interest in connection with a financing, absent an express prohibition on security interests; however, most practitioners agree that the foreclosure of a security interest by a lender likely would trigger such anti-assignment provisions. The Court here was definitive in stating that the use of “other transfer” included the grant of a security interest. In light of that broad interpretation, it may be prudent to take a conservative view and similarly interpret the use of “transfer” broadly to apply to the initial grant of a security interest in practice, both when conducting contract diligence in determining whether the rights of those contracts can be pledged as collateral in a secured financing and in assessing whether security interests may have already been granted with respect to contracts being reviewed.
- Collateral and “Excluded Assets” Carveouts – While ideal, it is not realistic to thoroughly review all commercial agreements as part of a lender’s diligence process. This is why most asset-secured financings rely on the practical solution of including a savings clause often referred to as an “Excluded Assets” or “Excluded Property” exception. This exception excludes from the collateral any license or contract that prohibits or would require counterparty consent to the grant of a security interest in such license or contract. However, in this instance, the Court concluded that the “Excluded Property” exception in the licensor’s financing documents only applied to contracts where transfer was prohibited, and did not apply here where those rights were not prohibited but subject to a right of first negotiation. In light of this interpretation, counsel for lenders should consider expanding the “Excluded Asset” or “Excluded Property” provisions beyond prohibitions on assignments and transfers to encompass any restriction or other requirement that has the effect of limiting, restricting, delaying, or prohibiting the present grant of a security interest in a license or contract (e.g., rights of first negotiation, options or other procedural hurdles).
[1] Commave Therapeutics SA v. Zevra Therapeutics, Inc., No. 2024-0920-LWW, 2025 WL 3778938 (Del. Ch. Dec. 31, 2025).
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