Rights of an IP Licensee Following the Insolvency of a Licensor


As technology companies continue to try and navigate the coronavirus pandemic, there are a  number of questions that continue to arise related to performance under existing contracts.

One such question is what rights an intellectual property licensee may have in the event its licensor enters insolvency proceedings under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA“) or the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA“). Recent changes to both acts, which came into force November 1, 2019, address this issue.

When the BIA and CCAA  were previously amended in 2009, a right was introduced that permitted a debtor, in conjunction with a restructuring, to disclaim intellectual property license agreements under which it was the licensor. In such a circumstance, both the BIA and CCAA provided that the licensee still had the right to continue to use the intellectual property subject to the relevant agreement, provided that the licensee performed all other obligations which were required in connection with such use.

Following the 2009 amendments, it became apparent there were still certain gaps in the legislation. Specifically, the BIA and CCAA failed to address licensee rights in the event the intellectual property of a licensor was sold to a third party in insolvency proceedings, including in a receivership or bankruptcy In those situations, it was not clear whether the third party had an obligation to allow the licensee to continue to use the relevant intellectual property, or if the sale to the third party was free of any such claim.

In the case of Golden Opportunities Fund Inc. v Phenomenome Discoveries Inc., 2016 SKQB 306, a court-appointed receiver sought an order to sell the intellectual property of the insolvent licensor, free of all encumbrances, including certain license rights granted to a licensee. The licensee attempted to rely on Section 65.11(7) of the BIA, which provided for the right for a licensee to continue to use the intellectual property of a licensor, notwithstanding the licensor’s disclaimer of the relevant license agreement. However, the court held that Section 65.11(7) did not limit the right of the court-appointed receiver to dispose of the intellectual property without any rights attached. According to the court, Section 65.11(7) addressed the licensee’s rights in the event of a disclaimer by the insolvent debtor, but not in the context of sale of assets to a third party.

The November 1, 2019 amendments clarified that in the context of a bankruptcy or receivership under the BIA, or a restructuring under the CCAA, a sale or disposition of intellectual property does not affect the licensee’s rights to continue to use such intellectual property, assuming the licensee continues to perform all other obligations under the agreement. Furthermore, since the BIA had only previously provided that a disclaimer of an IP license agreement by a debtor who was the licensor did not affect the licensee’s rights in the context of a restructuring, provisions were added such that the same applied in a bankruptcy or receivership.

The recent amendments should therefore provide some certainty for intellectual property licensees. If your business relies on the use of certain intellectual property to which you have been granted a license and the licensor enters insolvency proceedings, you can continue to use the intellectual property, but it is imperative that you comply with all other provisions contained in the agreement.

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