Planning ahead: how to protect your business when you’ve licensed-in critical IP and the licensor is going under?
Friday, January 17, 2020
Starting November 1, 2019, important changes are coming into force to the Canadian Bankruptcy and Insolvency Act (BIA) and the Canadian Companies’ Creditors Arrangement Act (CCAA) that are directly related to intellectual property. These changes will better protect licensees of intellectual property when the licensor becomes insolvent by allowing a licensee in good standing to continue to use the licensed IP, despite licensor’s financial troubles.
In particular, the changes clarify that a licensee that “continues to perform its obligations under the agreement in relation to the use of the intellectual property” can continue to use the IP, including enforcement of the use exclusivity, during the term of the agreement, even if:
the IP is sold in a BIA restructuring
the IP is disclaimed or sold in a BIA liquidation
the IP is disclaimed or sold in a receivership
the IP is sold in a CCAA restructuring
As a licensee wishing to continue to take advantage of the licensed IP, it is critical that you continue to meet all obligations in the licensing agreement.
In order to properly plan ahead, it is our recommendation that a licensing agreement always include contingency arrangements in the event of the licensor’s insolvency. Always have the licensing agreement reviewed by an IP lawyer. These contingency arrangements should specify:
provisions detailing what licensee’s obligations are in the event that a licensor cannot meet their on-going obligations in the event of insolvency. For example, if a licensor receives payments for on-going support activities, the licensee should specify in the agreement that these payments will be payable only if licensor is able to complete these on-going support activities.
provisions detailing who will maintain the IP in good standing in the event that the licensor can no longer continue to financially support the IP.
Having appropriate contingency in place in the event of licensor insolvency will help better protect licensee’s business.