Identifying intellectual properties in bankruptcy – What is in store?

The most daunting situation for any business is going bankrupt. Bankruptcy can leave a business weak, and as a result the business may lose almost all of its marketability. Unlike personal bankruptcy, in case of business bankruptcy, it is not only the tangible assets which may be liquidated. There are some intangible assets too, which are to be considered, if you are planning to file business bankruptcy. The concept of the intellectual property or the IP is so very ambiguous, and mostly like a mirage, that it becomes tough to identify your intellectual property or assets, in case of a corporate or business bankruptcy. Though, it may be possible to save any tangible property (in relation to your business) through a refinance procedure, the procedure may not be that simple with regards to the intellectual property. 

What happens to intellectual property in bankruptcy?

In general, if you file Chapter 11 Bankruptcy, the cause of the intellectual property with regards to your corporation or business is administered different. There are four main steps to that and these are the:

  • Rejection and may be the assumption of the executory contracts
  • Sale off, of the intellectual properties or the assets
  • The claims adjudication
  • The last is the litigation

 Rejection of the executory contracts

If the first point is considered, the executory contracts are the ones, in which the intellectual property gets licensed. So, if you are the licensor, and if you have filed bankruptcy, there is no way you can go on with the contract. As a result, the license would be considered canceled for the licensee. The licensee can claim a breach of contract in this.

Evaluating and disposing the intellectual property

There are four different ways or options through which you may be able to identify, evaluate and dispose off, the intellectual properties along with the tangible assets, at the same time. These are:

  1. The first step is to audit and identify. During this process all of the intellectual properties or the ITs, and all of your salable intangibles assets get identified.
  2. The second most step, is attachment of the market values on intangible assets.
  3. The third step is development of the plan which helps in monetizing the intellectual assets.
  4. The fourth step includes the securitization, and the sell off and the disposal of the assets.

These four steps completes the identification and the valuation and the disposal of the intellectual assts, with regards to your business.

Another thing that you will have to keep in mind is that 365 (n). Under the Section 365(n) with regards to Chapter 11 bankruptcy, if the debtor or the bankruptcy trustee rejects any license, a licensee will have the option to elect and thus retain the rights to the intellectual property which was licensed, including all kinds of rights which may help in the enforcement of the exclusive provision of the intellectual property.

So, this is in general what can happen to the intellectual property in case you are going to file Chapter 11 bankruptcy. There are various other things too, which are to be considered. So, it is better to consult a corporate bankruptcy attorney, who may help you in determining such complex situations.

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Tags: audit, bankruptcy, intangibles, intellectual property

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Comment by George Alford on September 13, 2012 at 5:47am

Yes

Comment by Mikk Putk on September 12, 2012 at 8:13am

This is according to US law, right?

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