Innovation Asset Blog

Legislators debate bankruptcy's effect on licensing agreements

Bankruptcy is an unfortunate possibility for businesses operating in a market-based economy, and its impact often extends far beyond the entity filing for the motion. These issues were recently underscored in a case that has inspired renewed debate on if and how licensing agreements should be honored when patent portfolio owners become insolvent.

The case in question concerns German semiconductor manufacturer Qimonda AG and seven licensees now impacted by its bankruptcy filing. There is currently no provision under German law that enables licensees to automatically retain their patent rights in the event of a licensor's insolvency, according to IP Watchdog's Gene Quinn. As a result, licensees may be forced to begin negotiations anew or face infringement litigation.

"Yes, they would be infringing if the license were revoked which is why they have been paying for the license in the first place," Quinn explained. "Thus, negotiating power would significantly shift to the acquirer of the patents who could demand unreasonable royalties, or simply choose to sue."

Although American law provides protection for the rights associated with Qimonda's U.S.-based patents, the Department of Justice has provided an additional layer of intrigue to the proceedings by ruling that Congressional code cannot be used to "constrain the operation" of German laws in this scenario. As a result, licensees are wondering if this misalignment of international patent systems could prove detrimental to business strategy.

Peter Ackerman

Peter Ackerman

Founder & CEO, Innovation Asset Group, Inc.