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Concerns for Licensees of e-Commerce Software In Cross-Border Bankruptcies

By Edward A. Pisacreta and Arthur E. Rosenberg

Insolvency of a multinational corporation with U.S. and foreign assets brings the prospect of complex bankruptcy. A recent case illustrates some concerns a licensee of e-commerce-related software and other intellectual property could have when a foreign licensor files for bankruptcy outside the United States.

Chapter 15 of the U.S. Bankruptcy Code aims to provide a systematic, consistent resolution to cross-border insolvencies by charging federal bankruptcy courts to cooperate with foreign bankruptcy courts and, for the most part, defer to the insolvency laws of the country where the principal case was filed. Undoubtedly, conflicts exist between the U.S. Bankruptcy Code and insolvency codes of other nations. For instance, under '365(n) of the U.S. Bankruptcy Code (11 U.S.C. '365(n), while an intellectual-property licensor may reject an executory contract, such as a software license, that the bankruptcy estate deems burdensome, a licensee may elect to continue paying licensing fees and retain most of its rights under the license. Without licensee protections in '365(n), a bankrupt licensor could reject and terminate the license under '365(a) and auction the rights to another entity, leaving the licensees to either risk legal liability or re-bid for licenses for which they have already paid.

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