Insolvency And Licences


Licences - whether relating to technologies, trademarks, images, audiovisual materials or software - are increasingly important corporate assets. The insolvency of a licensor or licensee can have diverse implications for the fate of those assets, depending on factors such as place of jurisdiction, applicable law, the insolvency mechanisms available and their effect on such agreements.

What effect does a licensor filing for insolvency have on a licence?

The answer depends not only on the terms of the licence agreement and the law that governs that agreement, but also on the laws of the place where the insolvent party is located.

Under Swiss law, a contract will not automatically be terminated due to the opening of bankruptcy proceedings over a Swiss company. Whether a contract can be terminated on insolvency depends on the law and the agreement that governs the contractual relationship.

If there is no option for termination, the bankruptcy officer of an insolvent company may choose whether to enter into a contract. If the officer chooses not to do so, or does not make an express choice, the counterparty (the solvent party) is left with a claim that may be filed in the bankruptcy. The bankruptcy officer typically has an interest in winding down the company as quickly as possible, not in continuing it as a going concern, and so will often choose not to enter into long-term contracts.

As a licensee typically has an interest in continuing the licence agreement beyond insolvency, a long termination period may assist - not in prolonging the licence as such, which the bankruptcy officer may anyway choose not to keep on, but in providing a claim and a respective creditor position in the bankruptcy. This may also help in acquiring information on interested bidders for the intellectual property in question and giving the licensee the opportunity to make its own offer to buy out the licence if the bankruptcy officer decides to perform a private sale at the appropriate time.

What effect does a licensee filing for insolvency have on a licence?

The effect on the licence agreement is the same as described above. There is no automatic termination of the agreement. If there is an interest in terminating the licence as quickly as possible in a counterparty's insolvency (a typical licensor position), the licensor should have a corresponding termination right written into the agreement.

If there is no contractual option to terminate the licence agreement, the...

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