The Effects of Bankruptcy in Technology Licenses

by Emily on September 2, 2014

in Articles

As high-tech business continue to grow, more and more technology licenses are being granted and have become subjects of agreements between licensors and licensees. These agreements seek to protect the rights of both parties. Unknown to many however, bankruptcy of any of the parties involved may have effects on the rights for the use of the technology.


In determining possible effects, it would greatly help in clearing out questions to consult a professional legal expert. It would be wise to choose a lawyer operating within the area of jurisdiction wherein the technology license is governed. A [tp lang=”en” only=”y”]Los Angeles Chapter 7 Bankruptcy Lawyer[/tp][tp not_in=”en”]Los Angeles Chapter 7 Bankruptcy Lawyer[/tp]  for example is best consulted if the agreement is governed by the rules of the Los Angeles area.

Possible Effects:

When the licensee gets bankrupt, the licensed technology can still be retained by the licensee with the licensor only retaining a general unsecured claim.

A licensor’s prior investments may end up valueless if he is unable to pursue other options aside from waiting for the outcome of the bankruptcy proceedings.

A licensor may not be able to compel the licensee to return the technology rights if the latter succeeds in having the license constituted as executed.

It is likewise possible that the agreement can turn out executory and therefore provide the licensor which can force the bankrupt licensee to honor his remaining and future obligations.

There will be limitations set on both licensors and licensees since licenses are inherently non-assignable.

General Principles Governing Intellectual Property Licenses:

It bears noting that previously terminated licenses cannot be revived upon bankruptcy.

Bankruptcy will set deadlines on debtors to decide on how to proceed with the license,

Bankruptcy alone may not be sufficient ground to terminate a license agreement.

License cannot be terminated without bankruptcy court approval.

What Needs to Be Done When Entering a License Agreement

Parties to the agreement, whether as licensor or licensee should take extra care in drafting and accepting the terms of the agreement. The licensor will have had invested time, money, and effort to develop the technology but a licensee may be doing the same thing as well. Bankruptcy on the part of of any of the parties will have repercussions on the rights to the technology license. It is always best to know what they are so parties can decide accordingly, knowingly, and willfully. It always makes sense to be informed.

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