Intellectual Property during a Chapter 11 Bankruptcy

Many of you would recognize the name CBGB from t-shirts and slogans, all without knowing that the name originated from a legendary music venue in Manhattan. Even more interesting, the club has been closed since 2006. Yet, the investors who purchased it bought it for the naming rights, not the club. These rights, called intellectual property rights, are now in the midst of a Chapter 11 Bankruptcy filed on behalf of the investors. So the question is, what happens to those intellectual property rights during a Chapter 11 Bankruptcy?

In a typical Chapter 11 Bankruptcy, the case is administered in the following way: 1) rejection or assumption of executory contracts; (2) sale of assets; (3) claims adjudication; (4) litigation. For this article, we are only concerned with the first issue, the executory contract. A contract is considered to be executory if there is still an outstanding obligation by one or both parties to the contract, of which the terms were the consideration for entering into the contract. Bankruptcy Courts have found that non-exclusive licenses of intellectual property can not be assumed and assigned unless there is consent. Everett Systems, Inc. v. Cadtrack Corp, 89 F.3d (9th Cir. 1996).

Stepping back for a moment, let’s put ourselves in the shoes of the person who has licensed intellectual property from a licensor who subsequently becomes bankrupt. In this scenario, when the license is an exclusive one, then it is treated as an executory contract. The licensor cannot sell those rights to anyone else, no more than the licensee can stop paying royalties. See Encino Bus. Management, Inc. v. Prize Frize, Inc. In those cases where the license is non-exclusive, Section 365(n) of the Chapter 11 Bankruptcy Code states that if the trustee or the Chapter 11 Debtor rejects “an executory contract under which the debtor is a licensor of a right to intellectual property”, the licensee under the contract may:

1) treat the license as terminated and assert a claim for breach of contract; or

2) elect to retain its rights to the use of the intellectual property as such rights existed immediately before the commencement of the bankruptcy case, or the duration of the contract. 11 U.S.C. 365(n)(1)(B)

Thus, no matter what they choose the the licensee must be allowed to exercise either of its rights, and it must continue to make payments for the rights it is licensing for the duration of the contract.

It is important to note though that Section 365(n) does not apply to ALL contracts which contemplate or involve intellectual property. Rather, the contract must be one which the debtor is a “licensor of a right to intellectual property”.

By: Aaron Kellly

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Intellectual property (IP) is anything which has been created in the mind of an individual that is protected under IP law. Included in the list of what is protected are songs, written works, designs, inventions and symbols. The means by which people can protect themselves against others copying their intellectual creations come in a number of forms. The most common types are copyright, design rights, trademarks and patents.

IP is one aspect of commercial law that has a large relevance to a lot of companies. Without realising it many companies deal with intellectual property rights on a daily basis. In some cases the ignorance of the rights that others have over a particular design, piece of text or even symbol can cause very complicated and stressful legal issues.

IP law is a very complicate area of commercial law. The lines between copyright or design right infringement and the simple evolution of a design are very ill defined. In order to decide whether copyright has been infringed there often have to be a set number of differences in the design. The number and definition of these differences is something which very much depends on each individual case.

Disputes over whether copyright or a patent has been infringed can have huge implications for the companies involved. If a company is found guilty of infringement then the damages that are incurred can be very substantial. If you are having issues with IP law then by far the best way to address them is to find good intellectual property solicitors to offer advice and representation. Due to the distinctions between intellectual property right infringements being so ill defined, experience counts for everything. Often the only way to get any bearing on whether IP has been abused is to use cases that have gone before as a guide.

In situations like this the experience of specialist intellectual property solicitors will shine through. Using a non specialist solicitor, even if they have extensive experience in commercial or corporate law, will leave you at a distinct disadvantage, both in the lead up, and in the courtroom itself. Another reason to use specialist intellectual property solicitors is the level of service they will provide. Their particular understanding of IP law will mean that they are far better qualified to explain the situation to you. With this greater understanding of your situation you will be able to make better informed decisions, as well as feeling much more relaxed about the legal situation you are in. When the stakes are so high, using the most experienced and knowledgeable intellectual property solicitors possible will make the whole process far less stressful for you.

By: Tom Pearson

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A positive outlook and adaptability is key

In times such as these, companies need to do more with less and, therefore, it is essential for them to capitalise on all of their assets.

I am a firm believer that one of any company’s biggest assets is Intellectual Property (IP) – an asset that is often not very well utilised by companies, particularly small and medium-sized enterprises (SMEs).

Intellectual Property encompasses property and assets resulting from original creative thought such as patents, copyright material, designs and trade marks. Today, IP represents a staggering 90% of the total value of the world’s top 2000 companies. Be this as it may, less than 5% of innovations created in the United States are under licensing agreements, leaving billions of dollars worth of IP assets underutilised.

Globalisation and the growth of a knowledge economy have highlighted the importance of intellectual property rights, thereby putting the demand for effective IP management at the heart of all businesses.

Big multinationals regard IP as a strategic asset rather than merely a legal tool, and it follows that the most successful SMEs are also now seeing the need to manage, exploit and capitalise on their IP assets. This involves not merely protecting and administering the IP assets themselves, but also integrating IP into innovation, growth strategies and business models alike by using both the legal and economic functions of intellectual property.

IP management can be divided up into three task areas – innovation support, portfolio management and IP exploitation. Obviously, the exploitation of IP and related tasks has tax implications which must be addressed and optimised.

Tax implications

SMEs can use the same strategies that have already been employed for many years by multinational companies, which consist of localising their value-generating IP assets – such as brands, customer lists and patents – in low-tax jurisdictions.

If properly managed, locating or relocating assets offshore is a relatively simple process and can provide significant benefits.

Steps to take

When clients contact me regarding how best to adapt to the current economic climate, I look for ways for their companies to extract the maximum possible value from the business’s existing IP assets by leveraging those assets across their business models. We also work to identify opportunities for them to extract value from IP from outside their respective industry and support their efforts to find potential customers for their IP in unrelated business sectors.

The importance of protecting and registering trademarks, patents, designs and copyrights cannot be emphasised enough. Whether it be a trade mark registered with the Trade Marks and Designs Registration Office of the European Union (OHIM), with the Organisation Africaine de la Propri?t? Intellectuelle (OAPI) or with the US Department of Commerce, Patents and Trademark Office (USPTO), the protection and subsequent licensing of IP assets is key to any modern company’s survival and development.

I would encourage all of our clients and readers to analyse their own business to see if there are any undervalued existing IP assets that they could protect, sell and/or license from a tax-friendly jurisdiction. Jurisdictions such as Cyprus offer good solutions for precisely that purpose. No tax is withheld on royalties payable to a non-resident company when the right is granted to a Cyprus entity for use outside the Republic. Another solution would be to set up an appropriate Mauritius company.

Intellectual property rights play a crucial role in giving companies a lead in a market, and IP is definitely the business asset of the future.

Will companies be able to rise to challenge of turning knowledge into wealth? COBUS GROUP is here to ensure that you can!

I wish you all the best for a successful 2009.

PS: We shouldn’t forget that the hugely successful Microsoft was born during the recession of 1974; we saw the founding of Hewlett Packard during the Great Depression, and the genesis of the technology boom of the past decades began during the recession of the early 1980s – which just goes to show that every cloud has a silver lining and that business model restructuring during hard times really does pay off.

By: Felix Bagilishya

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For a service business it is particularly important to identify and manage Intellectual Property (IP). This article explains what IP is and how you can use it to benefit your business. Many people get confused about IP. In simple terms, Intellectual Property represents the property of your mind or intellect. In business terms, this also means your proprietary knowledge.

There are different types of IP, and a strategy should be developed to identify and protect relevant IP for your business.

The seven types of IP are:

1. Patents for new or improved products or processes.
2. Trade Marks for letters, words, phrases, sounds, smells, shapes, logos, pictures, aspects of packaging or a combination of these.
3. Designs for the shape or appearance of manufactured goods.
4. Copyright for original material in literary, artistic, dramatic or musical works, films, broadcasts, multimedia and computer programs.
5. Circuit layout rights for the three-dimensional configuration of electronic circuits in integrated circuit products or layout designs.
6. Plant breeder’s rights for new plant varieties.
7. Confidentiality/trade secrets including know-how and other confidential or proprietary information.

Copyright is Automatic

The only type of IP that applies automatically is Copyright. In Australia the Copyright Act provides rule on how Copyright applies. For example, with written works Copyright applies for 70 years from the year of the authors death.

Whilst in Australia you don’t need to include a copyright notice in your works, it can help to establish your rights in overseas countries and it may deter other people from using it incorrectly.

Trade Marks

A common IP issue for service businesses is the Trade Mark. The most obvious potential Trade Mark is the company name and logo.

For service businesses that rely on special services they have developed, or systems of delivering services (such as a proprietary training program or consultancy service), the name of the service may be suitable to be Trade Marked.

In this way the business can ensure the work they put into building a recognised name in their market does not get copied, abused, or stolen by another business.

Company and Business Names

Importantly it must be remembered that registering a company or business name does not give you ownership of the trade mark. The trade mark process is the source of IP ownership, not the business name registration process.

When you apply to register IP you will need to define exactly what it is you are protecting, select a class or multiple classes (categories) in which you want that protection to apply, and establish when you first starting using that IP.

This is where the services of an IP Laywer can be helpful. To ensure you get the protection you want from your IP it can be invaluable to engage an IP expert who knows the ‘inside’ of the IP approval process. There are often details that are easy to overlook that can have a dramatic impact on the protection you get from your IP.

Protecting your IP often comes down to having the correct procedures in place for sharing information. For example:

-Do you keep a register of your various types of IP?
-Do your employees have a non-disclosure clause as part of their employment contract?
-Do you have contractors sign confidentiality agreement when they are handling your sensitive information?
-Do you provide guidelines for how other parties can use your logo?
-Do you clearly mark your IP so others can recognise it.

Companies who develop something unique can benefit for many years if they can manage their IP correctly. Look at Coca Cola and KFC (Kentucky Fried Chicken), hiding their secret recipes for decades and maintaining their unique market position.

Microsoft and many other software companies have created various forms of IP such as copyright, trade marks, patented processes, and trade secrets. They often use licensing agreements to control how other parties use that IP.

Pay attention to identifying and protecting your IP to maximise your business success.

For further information on Intellectual Property in Australia visit the government website at IP Australia.

By: Stuart Ayling

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