What happens to IP on bankruptcy?
By Richard Stobbe
The government introduced changes to some of the rules governing what happens to intellectual property on bankruptcy. If it becomes law, Budget Bill C-86 would enact changes to the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act (CCAA) to clarify that intellectual property users can preserve their usage rights, even if:
- intellectual property rights are sold or disposed of in the course of a bankruptcy or insolvency proceeding, or
- if the trustee or receiver seeks to disclaim or cancel the license agreement relating to IP rights.
If the bankrupt company is an owner of IP, that owner has licensed the IP to a user or licensee, and the intellectual property is included in a sale or disposition by the trustee, the proposed changes in Bill C-86 make it clear that the sale or disposition does not affect the licensee’s right to continue to use the IP during the term of the agreement. This is conditional on the licensee continuing to perform its obligations under the agreement in relation to the use of the intellectual property.
The same applies if the trustee seeks to disclaim or resiliate the license agreement – such a step won’t impact the licensee’s right to use the IP during the term of the agreement as long as the licensee continues to perform its obligations under the agreement in relation to the use of the intellectual property.
These changes clarify and expand the 2009 rules in Section 65.11(7) of the BIA  and a similar provision in s. 32(6) of the CCAA. In particular, these amendments would extend the rules to cover sale, disposition, disclaimer or resiliation of an IP license agreement, whether by a trustee or a receiver.
This will solve the problem encountered in Golden Opportunities Fund Inc. v Phenomenome Discoveries Inc., 2016 SKQB 306 (CanLII), where the court noted that section 65.11(7) of the BIA was narrowly construed to only apply to trustees, and thus has no bearing on a court-appointed receivership.
Stay tuned for the progress of these proposed amendments.
Related Reading, if you’re into this sort of thing:
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[…] we wrote about a year ago (See: What happens to IP on bankruptcy? ), we have been anticipating amendments to the Bankruptcy and Insolvency Act (BIA) and […]