Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Fifth Circuit Holds Asset Purchaser Unable to Acquire Rejected License Agreement

By Michael L. Cook
December 01, 2018

A license agreement "deemed rejected by operation of law" could not be acquired under a court-approved asset purchase agreement, held the U.S. Court of Appeals for the Fifth Circuit on Oct. 29, 2018. In re Provider Meds, LLC, 2018 WL 5317445, 2 (5th Cir. Oct. 29, 2018). Although the acquirer claimed "that it purchased a patent license from [the] debtors in bankruptcy sales of their estates," the court explained that "a rejected executory contract … could not have been transferred by the bankruptcy sales in question …." Id., at 1. The court also declined to "approve of the use of a" bankruptcy court sale order "to avoid the requirement that an executory contract be assumed and assigned under" Bankruptcy Code (Code) §365. Id., at 9.

Relevance

The Fifth Circuit first resolved "whether the License Agreement was an executory contract" because the Code "does not define the term …." Id., at 3. Second, the court dealt with the novel issue of whether the Code imposed a notice requirement on a Chapter 7 bankruptcy trustee's time to assume or reject a contract. Finally, the court addressed the consequences of contract rejection, an issue about which the circuits are presently split in another context. In fact, to resolve a circuit split, the U.S. Supreme Court just granted a petition for certiorari to address the effect of rejection on a trademark license. In re Tempnology, LLC, 879 F.3d 389 (1st Cir. 2018) (2-1), cert. granted, _____ U.S. ____ (Oct. 26, 2018) (after licensor-debtor rejects agreement, non-debtor licensee "left with only a pre-petition damages claim …."); contra, Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372, 377 (7th Cir. 2012) (non-debtor's right to use debtor's trademark continues post-rejection). See, Michael L. Cook, "Split First Circuit Prevents Non-Debtor Licensee from Using Rejected Trademark License." Pratt's J. Bankr., L. 142 (April/May 2018).

Facts

Five corporate affiliates used remote pharmaceutical dispensing machines in violation of T's patent. T sued the entities for patent infringement in a Texas federal court, but the parties later settled, with the defendants gaining a "non-exclusive perpetual license" to use T's patent in exchange for "a one-time licensing fee of $4,000 for each … machine placed into operation after the execution of the agreement …." 2018 WL 5317445, at 1. The defendants also had "to provide [T with] quarterly reports reflecting all new machines placed in service. The parties exchanged releases "except for the obligations specifically called for under" their settlement agreement. Due to the settlement, the federal court dismissed T's patent infringement suit in 2010. Id.

The defendants filed separate Chapter 11 petitions in 2012 and 2013, but each case was later converted to a Chapter 7 liquidation. Five debtors were "parties" to the license agreement, but never "listed the License Agreement or [T] on their schedules" of assets and liabilities. Id.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It Image

Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?

Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

A Lawyer's System for Active Reading Image

Active reading comprises many daily tasks lawyers engage in, including highlighting, annotating, note taking, comparing and searching texts. It demands more than flipping or turning pages.

The DOJ's Corporate Enforcement Policy: One Year Later Image

The DOJ's Criminal Division issued three declinations since the issuance of the revised CEP a year ago. Review of these cases gives insight into DOJ's implementation of the new policy in practice.

Blockchain Domains: New Developments for Brand Owners Image

Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.