In recent opinions, the U.S. Court of Appeals for the Seventh Circuit has interpreted the Bankruptcy Code ("the Code") in a manner that makes inaction or ignorance perilous for IP licensees whose licensor declares bankruptcy. Although Congress amended the Code to protect a licensee from losing technology rights in these situations, the Seventh Circuit has narrowly interpreted a strikingly similar bankruptcy provision involving real-estate leases and, in doing so, has cast doubt on the efficacy of the licensee protections found in section 365(n) of the Code. In addition, this circuit has broadly interpreted another Code section dealing with title-clearing sales of a debtor's property, giving wider effect to section 363(f) . Such a sale strips all existing interests and conveys a debtor's property "free and clear" at auction. Thus, by checking protective measures and amplifying economic risks, the federal judiciary has seriously threatened the survival of many companies. Unfortunately, this legal equivalent of a one-two punch can knock out even the heavyweights of the business community.
Jon Minear, Your Licensor Has a License to Kill, and It May be Yours: Why the Ninth Circuit Should Resist Bankruptcy Law that Threatens Intellectual Property Licensing Rights, 31 SEATTLE U. L. REV. 107 (2007).