The licensee’s position during bankruptcy

The creditors will usually not see their claim fully awarded, and naturally the bankrupt is not happy with the situation either. This raises the question of what happens to the position of a licensee.

A licensee (of a patent, for example) is not a creditor in the normal sense. He does not have a claim upon the bankrupt, but his licence is dependent on the bankrupt’s assets (in this case, the patent). This results in an uncertain position for the licensee, at least in the Netherlands. A July 2014 decision of the Dutch Supreme Court may have changed this.

In the Netherlands, before the recent decision, the licensee’s fate was determined by the outcome of the so-called Nebula decision. In the Nebula decision, given on November 3, 2006, the court was presented with a case where the economic owner of a property rented out this property after the legal owner went bankrupt. In Dutch bankruptcy law, the bankruptcy trustee has to abide by existing agreements. But, the Supreme Court considered, this does not mean that a creditor (in whatever form) can exercise his agreement as if no bankruptcy ever occurred.

The reasoning behind this was that if, for example, a tenant’s right to rent a property following from an agreement would have to be respected under all circumstances, the tenant would indirectly enjoy the full benefit of the assets, while the assets are reduced in value because of this. This would give a tenant (but also a licensee) a privileged position.

The bankruptcy trustee has to ensure he/she gets the most out of the assets to make sure the creditors receive as much of their claim as possible. So, the court considered, if a bankruptcy trustee can increase the value of a property (or patent) in the benefit of the assets by actively terminating an agreement, he/she is allowed to do so.

This decision created an uncertain situation for licensees in the Netherlands. Even while having an exclusive licence and all sorts of provisions about bankruptcy in an agreement, it appeared the bankruptcy trustee could ignore all of this.

The Supreme Court now seems to have (at least partially) changed its point of view. In the ABN/Berzona decision of July 11, 2014, the court had to decide if an already existing (rental) agreement could be terminated by the bankruptcy trustee, because the legal (and economic) owner of the property went bankrupt. This is not the case.

"It would still mean that the active termination of sub-licence agreements by the trustee interferes with existing agreements, as the licensor will cease to receive a sub-licensing fee."

In its considerations, the court split the bankruptcy trustee’s way of not honouring an agreement into two types: passively, for example by not paying a fee agreed in an agreement, and actively, by terminating an agreement.

A trustee is allowed to passively dishonour an agreement. He is not, however, allowed to terminate an agreement actively, as this would conflict with the rule laid down in Dutch bankruptcy law that a bankruptcy will not affect existing agreements.

This seems to be a positive turn of events for licensees. The court seems to have changed its mind on the Nebula decision, even though it states that this is not the case because the Nebula decision involved a different situation. The agreement in question there was signed after the bankruptcy, and the agreeing party was the economic owner, with the legal owner having gone bankrupt.

This slight difference between the situations in the two cases presents licensees with a degree of uncertainty. In the Nebula decision, the Supreme Court considered that the bankruptcy trustee is allowed to restrict the rights following from a user agreement between the legal and economic owner (for example, a licence agreement). This is contradictory to the court’s statement that the decisions do not conflict.

It has been suggested that the ‘right to restrict a user agreement’ of the trustee in combination with the recent ABN/Berzona decision should be understood in such a way that the trustee cannot act against an existing user agreement (licence agreement), but can act against agreements following from the user agreement (sub-licence agreements).

It remains to be seen if the above interpretation is correct. It would still mean that the active termination of sub-licence agreements by the trustee interferes with existing agreements, as the licensor will cease to receive a sub-licensing fee. For now it seems that a licensee’s position in the Netherlands during bankruptcy has improved. However, true certainty can only be given when new case law is provided.

Michiel Rijsdijk is a partner at Arnold + Siedsma. He can be contacted at: mrijsdijk@arnold-siedsma.com