Fourth Circuit Protects Patent Licensees from Termination of Licenses in a Foreign Bankruptcy

December 11, 2013

The U.S. Court of Appeals for the Fourth Circuit in Jaffé v. Samsung Electronics Co. (In re: Qimonda AG), No. 12-1802, 2013 WL 6388591 (4th Cir. Dec. 3, 2013) held that a German debtor could not use a chapter 15 proceeding to enforce the termination of the debtor’s licenses of U.S. patents under German insolvency law without providing the protections afforded to licensees under section 365(n) of the Bankruptcy Code. The Fourth Circuit affirmed a decision of the bankruptcy court that concluded that Bankruptcy Code section 1522—which requires interests of creditors be sufficiently protected to the extent a foreign representative is permitted to administer assets within the United States—would prevent the recognition of the termination of the licenses unless the licensees’ rights were preserved consistent with the Bankruptcy Code protections. While the decision turned on specific fact findings by the Bankruptcy Court that were affirmed as reasonable findings by the Fourth Circuit, this decision provides potential safeguards for the protection of intellectual property licenses in the Bankruptcy Code against the effect of foreign insolvency regimes.