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Avoiding the Pitfalls of Bankruptcy for IP Licensees

This article discusses the interplay between bankruptcy law and intellectual property law and emphasizes the importance of planning when entering into IP license agreements and the need for monitoring if one party to an IP license agreement enters bankruptcy. These issues were at the center of a recent Eleventh Circuit decision in which a recording artist lost the copyrights to his songs and lost his right to collect royalties when the record company that distributed his records filed for bankruptcy. Because the artist transferred his copyrights rather than licensed them to the record company, the bankruptcy court had the authority to approve the sale of the copyrights to a third party, free and clear of any liens or encumbrances. The bankruptcy court also rejected the record contract between the recording artist and the record label which would have provided royalties to the artist. Because he failed to timely file a proof of claim for damages based on the contract rejection, his claim for damages at a later date was waived. He therefore could not recover ownership of his copyrights from the bankrupt record label and could not sue for royalties.

This article was first printed in the October 2007 edition of Morris-Anderson's Renaissance. Permission for article reprint has been granted.