Filing for bankruptcy has significant effects on the filing party under ordinary circumstances; however, the consequences can be especially extensive when intellectual property rights are involved. For example, legal issues may arise for individuals licensed to sell a product (licensee) under another’s (licensor’s) trademark when the licensor has filed for bankruptcy.
Intellectual Property Defined Intellectual property rights generally include:
Federal law governs patent rights and copyright rights. Both federal law and state law govern trademarks. State law governs trade secrets.
Bankruptcy and Intellectual Property Under bankruptcy law, the debtor (the individual who files for bankruptcy) may generally reject an agreement in which the debtor was the licensor. Due to the severity of the effect on the licensee, Congress passed legislation to lessen the potential harm to the licensee.
The Intellectual Property Licensees in Bankruptcy ActPassed in 1988, the Intellectual Property Licensees in Bankruptcy Act (IPLB) protects licensees whose licensor has filed for bankruptcy. More specifically, the IPLB also allows licensees (whose licensor has filed for bankruptcy and rejected their previous agreement) to retain their rights in their intellectual property license agreement. – The IPLB covers copyrights, patents and trade secrets but not trademarks.