In re Qimonda AG: Protections For Intellectual Property Licensees In Cross-Border Insolvencies

On October 28, 2011, the U.S. Bankruptcy Court for the Eastern District of Virginia (the "U.S. Bankruptcy Court") issued a decision important to the rights of intellectual property licensees, and creditors generally, in cross-border insolvency proceedings. On remand from the U.S. District Court for the Eastern District of Virginia (the "U.S. District Court"), the U.S. Bankruptcy Court held that the protections afforded to licensees of intellectual property under Section 365(n) of the U.S. Bankruptcy Code1 must apply to the administration of U.S. patent licenses by the foreign insolvency administrator in the Chapter 15 proceeding of Qimonda AG, a German company with its main insolvency proceeding pending in Germany. The U.S. Bankruptcy Court found that without the application of Section 365(n), the U.S. patent licensees' rights would not be "sufficiently protected" under Section 1522(a) of the U.S. Bankruptcy Code, and the administration of the licensed patents in the Chapter 15 case would be "manifestly contrary" to U.S. public policy.2

Background

Qimonda, a manufacturer of semiconductor memory devices with headquarters in Munich, Germany, commenced a German insolvency proceeding in January 2009. On the petition of the German court-appointed insolvency administrator, the U.S. Bankruptcy Court recognized the German proceeding as a "foreign main proceeding" pursuant to Chapter 15 of the U.S. Bankruptcy Code in July of the same year. Chapter 15 of the U.S. Bankruptcy Code allows a foreign debtor's representative to commence a proceeding in a United States bankruptcy court to administer U.S. assets of the debtor's estate. In connection with its recognition of the German proceeding, the U.S. Bankruptcy Court issued an order pursuant to Section 1521(a) of the U.S. Bankruptcy Code, making Section 365 applicable in the Chapter 15 proceeding.3

As part of the German administrator's plan to monetize Qimonda's valuable patents by re-licensing them to third parties (and potentially to the existing licensees) for new royalties, the administrator sent letters to licensees of Qimonda's U.S. patents in which he elected "non-performance" of the licenses, pursuant to German procedure. Certain of the U.S. patent licensees responded by asserting rights under Section 365(n) of the U.S. Bankruptcy Code—applicable in U.S. bankruptcy proceedings to the rejection of certain licenses—which they argued would allow them to retain their license rights, notwithstanding...