Amendments to BIA, CCIA enhance rights of IP licensees

2010-01-01

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AMENDMENTSTOBIA,CCIAENHANCERIGHTSOFIPLICENS
EES

NADIAPERRI*
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L
AWYERS,PATENTANDTRADE-MARKSAGENTS

OnSeptember18th,2009,variousprovisionscontainedintheBankruptcyand
InsolvencyAct(the“BIA”)andCompanies’Creditors’ArrangementAct(the“CCAA”)
wereamendedinsuchawayastoenhancetherightsoflicenseeswhouse
intellectualpropertyunderlicenseagreements.
Amongstotherthings,theBIAandtheCCAAarefederalactswhichpermitdebtors
whoareintroublefinanciallytocontinueoperatinginthemarket(sometimesonly
temporarily)byrestructuringtheirfinancialaffairsandstrikingadealwiththeir
creditors.
Putsimply,boththeCCAAandtheBIArequiredebtorstoreorganizethemselves
andprepareaplan(referredtoasaProposalundertheBIAandaPlanof
ArrangementundertheCCAA)outliningthemannerinwhichthedebtorsintendon
payingofftheirdebts.Plansaresubjecttocreditorandcourtapproval.

ItisimportanttonotethattheCCAAisrestrictedtodebtorswhoowemorethanfive
(5)milliondollarstotheircreditors.Thoseowinglessthanfive(5)milliondollarsare
requiredtostriketheirdealsinaccordancewiththetermsandprovisionscontained
intheBIA.
Thepurposebehindthelegislative“dealmaking”istopermitdebtorstogetbackon
theirfeet,becomemorefinanciallyviableandavoidbankruptcy.Aspartofthe
reorganizingprocess,boththeBIAandtheCCAAallowdebtorstoterminate
agreements,includinglicenseagreements,towhichtheyareaparty.Terminations
arenothoweverautomatic.Rather,theyaresubjecttoahostofformalities
containedintheBIAandCCAA.
Beforetheamendmentspreviouslymentionedcameintoeffect,itwasacceptedthat
thedebtors/licensorsseekingtoreachanagreementwiththeircreditorshadthe
righttoterminatelicenseagreementsand,insodoing,compeltheirlicenseesto
stopusingtheintellectualpropertylicensedundertheterminatedlicenseagreement.

©CIPS,2010.*WithLEGERROBICRICHARD,LLPamultidisciplinaryfirmofLawyers,andPatentandTrade-mark
Agents.PublishedintheJanuary2010issueofWorldIntellectualPropertyReport(Vol.24,no.1,pp.21-22)
underthetitleAmendmentstoBIA,CCIAEnhanceRightsofIPLicensees.Publication142.232

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Licenseeswho,allofasudden,foundthemselvesinasituationwheretheycouldno
longerlegallymakeuseofthelicensedintellectualpropertywerewithoutoptions.In
fact,theonlyrecourseavailabletolicenseesundertheBIAandCCAAwasthefiling
ofaclaiminrespectofdamagessufferedasaresultoftheterminationofthelicense
agreements.
Thesituationfollowingtheenactmentoftheamendmentsisquitedifferent.While
theamendmentsdonot,inanyway,obliterateadebtor’s/licensor’srighttoterminate
licenseagreements,debtors/licensorsarenowrequiredtorespectafewmore
formalities.Moreimportantly,undertheamendments,debtors/licensorsareno
longerabletoforcelicenseestoceasealluseofthelicensedintellectualproperty.
Indeed,theBIAandCCAA,inasituationofrestructuring,allowthelicenseesto
continuetousethelicensedintellectualpropertyevenifthelicenseisdisclaimedby
thelicensorsandifthelicenseescontinuetorespecttheprovisionscontainedinthe
licenseagreementregardingtheuseofthelicensedintellectualproperty.

Essentially,licenseesarerequiredtoupholdtheprovisionscontainedinthelicense
agreementsiftheywanttocontinuetouselicensedintellectualpropertywhereas
debtors/licensorsarenot.Therefore,despitetheamendments,licenseesmayfind
themselvesinasituationwheretheycanusethelicensedintellectualpropertybut
candonothingtomakesurethatitsvalidityandvaluearemaintained.Ofcourse,it
alldependsonwhatisstipulatedinthelicenseagreements.

OtherprovisionsfoundintheBIAandCCAAgrantthecourtsjurisdictiontoallow
trusteesorreceiverstoselltheassets(includinglicensedintellectualproperty)of
insolventdebtors/licensors.Moreover,Canadianlawpermitsthesaleofsuchassets
tobemadefreeandclearofanysecurityorcontractualrestraint.Inotherwords,
notwithstandingtheamendmentsmadetocertainprovisionscontainedintheBIA
andCCAA,licenseesmayfindthemselvesinapositionwheretheyhavelost
(throughnofaultoftheirown)therighttousethelicensedintellectualproperty
followingitsacquisitionbyathirdparty.
Toconclude,accordingtotheamendmentsmadetotheCCAAandBIA,therights
oflicenseeswillonlybemaintainedinthosecaseswheredebtors/licensors
terminatethelicenseagreementswhileundergoingrestructuringinaccordancewith
theCCAAorBIA.Therefore,asitstandsnow,licenseeshaveno“legislative”rightto
continuetouselicensedintellectualpropertyfollowingtheterminationoflicense
agreementsbybankrupt
licensors.

ItwasinitiallybelievedthattheCCAAandtheBIAwouldbeamendedsothatthe
situationinCanadawithrespecttolicenseagreementsandbankruptlicensors
wouldparallelUSpractice,whichgrantslicenseestherighttodecidewhetherthey
wishtoseetheirrightsunderlicenseagreementsmaintainedfollowingtheactual
bankruptcyoflicensors.

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Thus,inorderforCanadaandtheUStobeonanequalfooting,theCCAAandBIA
wouldneedtobeamendedinsuchawayastoprotecttherightsoflicenseesinthe
eventofbankruptcyofthelicensorandnotonlyduringasituationofrestructuring.

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