Treatment Of License Agreements Under Israeli Insolvency Law

Israel recently enacted a new Insolvency Law, which came into effect in September 2019. The statute substantially revises procedures and substantive rights in connection with corporate insolvency and bankruptcy. The law may allow debtor licensors more flexibility to terminate intellectual property license agreements.

Background and Analysis

Many Israeli companies, including financially vulnerable start-ups, commercialize their technology and intellectual property by providing licenses to domestic and foreign entities. Licensees often invest substantial resources in reliance on such license agreements. Given the commercial importance of such license agreements to their business, licensees may have concerns regarding the continued effectiveness of such agreements if the licensor enters insolvency proceedings.

Prior to the enactment of the new Israeli Insolvency Law, Israeli courts generally did not allow debtor licensors to terminate license agreements simply because a receiver believed that it could receive a better return within an alternative commercial framework. While the prior statutory framework permitted courts in insolvency proceedings to terminate "burdensome" or "unprofitable" executory contracts, courts generally did not allow licensors to terminate license agreements that were moderately profitable.

Section 70(d) of the new Insolvency Law provides that a court may allow for the cancellation of all or part of an executory contract if the court determines that such cancellation is either "required for the economic rehabilitation" of the...