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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Using Section 365(n) to Minimize Loss of Use of IP In Licensor Bankruptcy

By By Richard Assmus, Matthew Wargin, Monique Mulcare and Danielle Corn
January 01, 2022

This article provides an overview of Section 365 of the Bankruptcy Code, a key provision within the Code that allows a debtor to assume, assume and assign, or reject certain executory contracts and unexpired leases. Section 365(n) is a carve-out to the debtor's broad 365 power that allows a non-debtor counterparty the right to either accept the rejection of a contract/license or continue performing under the contract. This article seeks to explain the scope of Section 365(n) and then touch upon the steps that licensees can take to minimize the loss of the use of their intellectual property licenses in the event a licensor files for bankruptcy.

A Key Carve-out to the Powers Accorded By Section 365 to the Debtor

The Bankruptcy Code, which provides the substantive rules that govern the course of a bankruptcy filing, balances two primary (and occasionally competing) policy objectives: 1) allowing a debtor the "breathing room" to reorganize its affairs (or, in certain cases, to smoothly exit its business by efficiently liquidating its assets); and 2) maximizing the debtor's estate to allow creditors the best recovery possible.

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