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Application of Bankruptcy Law to Internet Assets

By Jonathan Bick

Internet assets generally, and Internet asset licenses in particular, are increasingly subject to bankruptcy proceedings. United States Bankruptcy Law, Title 11 U.S.C. §363(f), allows a debtor licensor to sell Internet property “free and clear” of any license under certain conditions. Typically, three types of licenses must be addressed by a debtor licensee when seeking to sell Internet assets in a Chapter 11 or Chapter 7 bankruptcy: a non-exclusive license; a sub-license; and an exclusive license (discussed further below).

A two-step analysis is required for the optimal disposition of Internet assets subject to a bankruptcy proceeding. The first step involves considering licensing laws that are external to bankruptcy. In particular, the three sets of laws which most often govern the transfer of Internet assets are related to non-exclusive licenses, sub-licenses and exclusive licenses. The second step involves the integration of said laws, which are external to bankruptcy, and bankruptcy law which permits the employment of an Internet asset license free and clear of third-party claims under §363(f).

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