Jenner & Block

"Fourth Circuit Affirms Bankruptcy Court’s Conditional Recognition of Foreign Insolvency Proceeding to Protect Licensee Rights,"Jenner & Block Spotlight Newsletter

By: Andrew J. Olejnik and Abraham M. Salander

In Jaffé v. Samsung Electronics Co. (In re Qimonda AG), 737 F.3d 14 (4th Cir. 2013) (No. 12-1802), the Fourth Circuit affirmed a bankruptcy court’s ruling protecting licensees’ rights in connection with the recognition of a German insolvency proceeding.  In Jaffe, the foreign debtor’s administrator petitioned the U.S. bankruptcy court for powers under Chapter 15 of the U.S. Bankruptcy Code that would allow him to administer the debtor’s assets in the U.S., including about 4,000 U.S. patents.  The bankruptcy court granted the petition, but conditioned it on the application of § 365(n) of the U.S. Bankruptcy Code, which limits a debtor’s ability to unilaterally reject intellectual property licenses granted to other parties and permits licensees to elect to retain their rights under the licenses.  This protection for licensees is contrary to German insolvency law which permits a debtor to reject license agreements without affording licensees the opportunity to retain their rights absent a renegotiated agreement.  In balancing the rights of the debtor and its creditors (including the licensees), both the bankruptcy court and the Fourth Circuit found that maintaining the application of § 365(n) was appropriate in light of the licensees’ considerable sunk costs in reliance on the licenses and related U.S. public policy to promote technological innovation.