The plain meaning of section 365 (c): The tension between bankruptcyand patent law in patent licensing

University of Pennsylvania Law Review

Volumn 158, Issue 4, 2010, Pages 1225-1281

  Ying, Jennifer ^a  

^a UNIVERSITY OF PENNSYLVANIA LAW SCHOOL   (United States)

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EID: 77951872720     PISSN: 00419907     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Note

References (532)

1. The terms "patent owner" and "licensor" are used interchangeably throughout this Comment.
2. For the purposes of this Comment, the licensee will always be the debtor party filing for bankruptcy.
3. Chapter 11 filings are typically used by businesses seeking reorganization. See 11 U.S.C. § 1101 (2006);
4. WILLIAM D. WARREN & DANIELJ. BUSSEL, BANKRUPTCY 22 (8th ed. 2009) ("Chapter 11 may be used by both individuals and firms, but is designed primarily for business firms.").
5. Section 1107 of th Bankruptcy Code provides that a debtor-in-possession has the rights, powers, and fiduciary obligations of a standard Chapter 11 trustee. See 11 U.S.C. § 1107. For a definition of a Chapter 11 trustee, see infra note 42 and accompanying text.
6. In bankruptcy law, assumption and assignment of patent licenses are governed by 11 U.S.C. § 365 because patent licenses are considered "executory contracts." See infra Part I.
7. 35 U.S.C. § 154(a) (1) (2006);
8. DAVID A. BURGE, PATENT AND TRADEMARK: TACTICS AND PRACTICE § 11-17, at 124 (3d ed. 1999).
9. See 3 RESTATEMENT (SECOND) OF CONTRACTS § 317(2) (1981) (allowing for the assignment of contractual rights except in specific cases such as illegality or undue hardship);
10. see also Shaw Group, Inc. v. Bechtel Jacobs Co. (In re IT Group), 350 B.R. 166, 177 (Bankr. D. Del. 2006) ("The [Bankruptcy] Code generally favors free assignability as a means to maximize the value of the debtor's estate and, to that end, allows the [debtor] to assign notwithstanding a provision in the contract or lease, or applicable law, prohibiting, restricting, or conditioning assignment." (second alteration in original) (internal quotation marks omitted)
11. (quoting L.R.S.C Co. v. Rickel Home Ctrs., Inc. (In re Rickel Home Ctrs., Inc.), 209 F. 3d 291, 299 (3d Cir. 2000))).
12. See, e.g., United States v. Whiting Pools, Inc., 462 U.S. 198, 203 (1983) (discussing the principles behind the reorganization provisions of the Bankruptcy Code and how "Congress anticipated that the business would continue to provide jobs, to satisfy creditors' claims, and to produce a return for its owners").
13. 11 U.S.C. § 541 (a).
14. Id.
15. See Whiting Pools, 462 U.S. at 203 (viewing section 541(a)(1) as "a definition of what is included in the estate, rather than as a limitation").
16. See, e.g., Quarles House Apartments v. Plunkett (In re Plunkett), 23 B.R. 392, 394 (Bankr. E.D. Wis. 1982) (noting that courts have interpreted section 541 as "protect[ing] a debtor's contractual right as an asset of the estate").
17. 11 U.S.C. § 541(a).
18. An executory contract is "a contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other." Vern Countryman, Executory Contracts in Bankruptcy: Part I, 57 MINN. L. REV. 439, 460 (1973);
19. see also Sharon Steel Corp. v. Nat'l Fuel Gas Distribution Corp., 872 F.2d 36, 39 (3d Cr. 1989) (adopting Countryman's definition of "executory contract").
20. See Unsecured Creditor's Comm. of Robert L. Helms Constr. & Dev. Co. v. Southmark Corp. (In re Robert L. Helms Constr. Sc Dev. Co.), 139 F.3d 702, 705 (9th Qr. 1998) (defining an "executory contract" as one where both parties continue to have obligations under the contract such that failure to perform an obligation would be a material breach that would justify the other's nonperformance).
21. See, e.g., Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1045 (4th Cir. 1985) (holding that a nonexclusive patent license was an executory contract based on the "unperformed, continuing core obligations of notice and forbearance in licensing").
22. See David R. Kuney, Restructuring Dilemmas for the High Technology Licensee: Will "Plain Meaning" Bring Order to the Chaotic Bankruptcy Law for Assumption and Assignment of Technology Licenses?, 44 GONZ. L. REV. 123, 135 (2008) (noting that in bankruptcy, patent licenses "are almost uniformly regarded as executory contracts");
23. Ann Livingston & Leif M. Clark, Technology Transfers: What if the Other Party Files Bankruptcy?, 21 ST. MARY'S LJ. 173, 180-81 (1989) ("In the context of technology transfers, most agreements will include continuing rights and duties by both parties and will be considered executory.") ;
24. Robert L. Tamietti, Technology Licenses Under the Bankruptcy Code: A Licensee's Mine Field, 62 AM. BANKR. LJ. 295, 301 (1988) ("[A] [patent] license must be executory throughout its term. Each day the licensee uses the licensor's technology, the licensor forebears its right to sue the licensee for conduct that 'but for the license, would be an infringement'"
25. (quoting United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127 (D.C. Qr. 1981)));
26. see also infra Part II.
27. See 11 U.S.C. § 1123(b)(2) (declaring that a debtor's plan may, subject to section 365, "provide for the assumption, rejection, or assignment of any executory contract").
28. Section 365(g) of the Bankruptcy Code governs the rejection of an executory contract In order to reject an executory contract, the debtor must file a motion with the bankruptcy court. FED. R. BANKR. P. 9014(a);
29. see also 11 U.S.C. § 365(d) (listing the timing requirements for such a motion). The court will consider the debtor's motion for authority to reject an executory contract using the "business judgment rule," which focuses on whether rejection of the executory contract would benefit the general unsecured creditors of the debtor's estate.
30. See, e.g., Robertson v. Pierce (In re Chi-Feng Huang), 23 B.R. 798, 80(M)I (BAP. 9th Cir. 1982) ("We believe rejection of the burdensome test in favor of the 'business judgment' rule is dictated by logic as much as precedent-----The primary issue is whether rejection would benefit the general unsecured creditors."). Under the business judgment rule, the court will give great deference to the debtor's decision to reject the contract and will not interfere with the decision unless there is a showing of bad faith or abuse of discretion.
31. See Group of Institutional Investors v. Chi., Milwaukee, St Paul & Pac. R.R., 318 U.S. 523, 550-51 (1943) (holding that the Court will not upset business judgment "except on a clear showing that the limits of discretion have been exceeded").
32. The debtor-in-possession also has the ability to assume, reject, or assign an executory contract. See infra note 42 and accompanying text
33. 11 U.S.C. § 365(g).
34. Id.
35. see also Agarwal v. Pomona Valley Med. Group, Inc. (In re Pomona Valley Med. Group, Inc.), 476 F.3d 665, 671 (9th Cir. 2007) (holding that the debtor's rejection of the executory contract "constituted a breach of that contract effective immediately before [the debtor] filed for bankruptcy").
36. See In re EI Int'l, 123 B.R. 64, 66 (Bankr. D. Idaho 1991) ("The option consists of the licensee choosing either to terminate the agreement or to retain the rights to performance by the other party under the agreement").
37. Notably, Congress amended the Bankruptcy Code after the Fourth Circuit's decision in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043 (4di Cir. 1985).
38. In Lubrizol, the court recognized the difficulties that a licensee would face if the debtor-licensor rejected (and thus terminated) the patent license, noting that the possibility of rejection could have a "chilling effect" on intellectual property licensing by companies that did not have the strongest financial position. Id. at 1048.
39. Recognizing the importance of intellectual property licenses, Congress passed the Intellectual Property Bankruptcy Protection Act of 1988, which provides that licensees of "intellectual property" (as defined in the Code) have the option to retain certain rights under the license even in the face of the debtor-licensor's rejection. Pub. L. No.100-506, sec. 1(b), § 365(n)(l), 102 Stat 2538, 2538 (codified as amended at 11 U.S.C. § 365(n)).
40. For a discussion of section 365 (n) and the impact of a license rejection by a debtorlicensor, see SHARON K. SANDEEN, INTELLECTUAL PROPERTY DESKBOOK FOR THE BUSINESS LAWYER 179-181 (2d ed. 2009).
41. 11 U.S.C. § 365(g).
42. For a discussion of the choices a licensor and licensee have when a license is rejected, see Livingston &: Clark, supra note 17, at 191, 207.
43. See 11 U.S.C. § 365(f) (restricting the ability to modify any "contract, lease, right or obligation" due to its assumption or assignment).
44. See Peter S. Menell, Bankruptcy Treatment of Intellectual Property Assets: An Economic Analysis, 22 BERKELEY TECH. LJ. 733, 737 (2007) (noting how the bankruptcy system "seeks to maximize the value of me remaining assets and capacities of the troubled entity" by "afford [ing] trustees and debtors substantial leeway to rescind contracts and reorder the affairs of the entity");
45. Madlyn Gleich Primoff Sc Erica G. Weinberger, ECommerce and Dot-com Bankruptcies: Assumption, Assignment and Rejection of Executory Contracts, Including Intellectual Property Greements [sic], and Related Issues Under Sections 365(c), 365(e) and 365(n) of the Bankruptcy Code, 8 AM. BANKR. INST. L. REV. 307, 314 (2000) ("[T]he purpose of section 365 of the Bankruptcy Code is to permit the trustee to retain or assign valuable contracts and to abandon burdensome contracts ....").
46. Primoff& Weinberger, supra note 27, at 311;
47. see also 11 U.S.C. § 365(b) (identifying the requirements that must be satisfied at the time of assumption).
48. See S. REP. No.95-989, at 59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5845 ("If the trustee is to assume a contract..., the court will have to insure that the trustee's performance under the contract... gives thie other contracting party the full benefit of his bargain.")
49. United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127 (D.C. Cir. 1981);
50. see also Tamietti, supra note 17, at 301 (quoting Studiengesellschaft Kohle in explaining how a patent license constitutes an executory contract).
51. See Clinton H. Neagley, Patent Licensing for Small Agricultural Biotechnology Companies (discussing commercialization milestones in negotiating patent licenses), in 2 INTELLECTUAL PROPERTY MANAGEMENT IN HEALTH AND AGRICULTURAL INNOVATION 1213, 1213-19 (Krattiger et al. eds., 2007). If the licensed invention is not practiced (i.e., dirough commercialization), the invention would be considered wasted.
52. See Note, Rights of the Owner of an Idle Patent in Equity, 20 HARV. L. REV. 638, 638-639 (1907).
53. See Tex. N. W. Ry. Co. v. Atchison, Topeka & Santa Fe Ry. Co. (In re Chi. Rock Island & Pac. R.R. Co.), 860 F.2d 267, 272 (7th Cir. 1988) (noting that a "trustee cannot accept the benefits of an executory contract witthout accepting the burdens as well"
54. (quoting Schokbeton Indus., Inc. v. Schokbeton Prods. Corp., 466 F.2d 171, 175 (5th Cir. 1972)));
55. Richmond Leasing Co. v. Capital Bank, NA, 762 F.2d 1303, 1311 (5th Cir. 1985) ("[T]he often-repeated statement mat the debtor must accept the contract as a whole means only that the debtor cannot choose to accept the benefits of the contract and reject its burdens to the detriment of the other party of the agreement");
56. Rockland Ctr. Asocs. v. TSW Stores of Nanuet, Inc. (In re TSW Stores of Nanuet, Inc.), 34 B.R. 299, 304 (Bankr. S.D.N.Y. 1983) (holding that executory contracts cannot be accepted or rejected in part).
57. See In re Storage Tech. Corp., 53 B.R. 471, 475-476 (Bankr. D. Colo. 1985) ("[T]he Bankruptcy Code requires assumption of an entire agreement. Additionally, a debtor cannot avoid the effect of this rule by construing various parts of a transaction as separate agreements when they are clearly interdependent" (citation omitted)).
58. See 11 U.S.C. § 365(b) (2006).
59. In a bankruptcy proceeding, creditors are repaid based upon the priority of their claims. Thus, the nondebtor party's elevation in priority status is a significant byproduct of the debtor's assumption of the executory contract See Michael T. Andrew, Executory Contracts in Bankruptcy: Understanding "Rejection,"59 U. COLO. L. REV. 845, 890 (1988) (stating that when a debtor assumes a contract, "the non-debtor party departs the ranks of ordinary creditors and becomes a priority claimant bom for past-due and later-accruing amounts").
60. Section 363 of the Bankruptcy Code states that "[t]he trustee, after notice and hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b). Normally, when a nondebtor has an interest in the same property, section 363(e) permits the trustee to sell, lease, or use the property after notice and hearing, provided that the nondebtor's interest is adequately protected. Id. § 363(e);
61. see also id. § 361 (defining what constitutes "adequate protection" of an interest).
62. Seeid. 365(c), (f).
63. 390 B.R. 762, 765 (Bankr. D. Conn. 2008).
64. Id. at 765-769
65. Id. at 772.
66. This "free assignability" principle is set forth in section 365(f) of the Bankruptcy Code, which states, "Except as provided in subsections (b) and (c) of this section, not- withstanding a provision in an executory contract ... of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract..., the trustee may assign such contract . . . under paragraph (2) of this subsection." 11 U.S.C. § 365(f).
67. A trustee is an impartial person assigned by the court to oversee and administer the debtor's bankruptcy process. See id. §§ 701, 704 (describing the role of a trustee in Chapter 7 bankruptcy filings). Most Chapter 11 bankruptcy cases, however, do not require appointment of a trustee. Instead, the business becomes a debtor-inpossession and continues to manage itself withiout an appointed trustee. See id. § 1107 (describing the rights and powers of a debtor-in-possession). In this Comment, I will use the terms "trustee" and "debtor-in-possession" interchangeably, unless otherwise explicidy noted.
68. Asignments are governed by section 365(f) of the Bankruptcy Code. See id. § 365(f). Subsection (f)(1) "partially invalidates restrictions on assignment of contracts or leases by die trustee to a third party." H.R. REP. NO.95-595, at 349 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6305;
69. S. REP. NO. 95-989, at 59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5845.
70. Subsection (f) (3) "invalidates contractual provisions that permit termination or modification in the event of an assignment, as contrary to the policy of this subsection." H.R. REP. No. 95-595, at 349, reprinted in 1978 U.S.C.C.A.N. 5963, 6305;
71. S. REP. NO. 95-989, at 59, reprinted in 1978 U.S.C.CAN. 5787, 5845;
72. see also 11 U.S.C. § 541(c) (codifying that despite a restriction on transfer or an ipso facto clause, "an interest of the debtor in property becomes property of the [debtor's] estate").
73. 19 B.R. 537, 539 (Bankr. S.D.N.Y. 1982).
74. Id.
75. Id. at 544-545
76. This view is applied in what is known as the "hypothetical test" See infra subsection III.B.l.
77. The Supreme Court has suggested that a debtor and its successor debtor-inpossession should be treated as the same entity for purposes of applying the Bankruptcy Code. SeeNLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984) ("[I]t is sensible to view the debtor-in-possession as the same 'entity' which existed before the filing of the bankruptcy petition, but empowered by virtue of the Bankruptcy Code to deal with its contracts and property in a manner it could not have employed absent me bankruptcy filing."). Some courts, however, have read the Supreme Court's comment as being "necessary only for the purposes of that case," and have held that it "does not support in all cases the proposition that no assignment or transfer occurs as a matter of law between prepetition debtor and debtor in possession."
78. Bonneville Power Admin, v. Mirant Corp. (In re Mirant), 440 F.3d 238, 254 n.21 (5di Cir. 2006). Unfortunately, "neither the Supreme Court nor this Circuit has resolved the argument... that rights obtained in bankruptcy require that a debtor in possession be treated as a distinct legal entity from a prepetition debtor." Id.; see also infra notes 211-13 and accompanying text
79. U.S. CONST, art. I, § 8, cl. 8.
80. The Patent Clause has been implemented through a series of acts that set out the conditions for obtaining a patent; these are now codified in Title 35 of the U.S. Code. See Patent Act of 1952, ch. 950, 66 Stat. 792; Patent Act of 1922, ch. 58, 42 Stat. 389; Patent Act of 1836, ch. 357, 5 Stat 117; Patent Act of 1793, ch. 11, 1 Stat 318; Patent Act of 1790, ch. 7, 1 Stat 109. In particular, 35 U.S.C. § 154(a) (2006) describes a patentee's exclusive rights to her invention.
81. The word "patent" originates from the Latin patere, which means "to lay open" (for public inspection), and the term "letters patent," which originally denoted royal decrees granting exclusive rights to certain individuals or businesses. See Application of Bo Thuresson Af Ekenstam, 256 F.2d 321, 323 (CCPA 1958) (discussing the origin of the word "patent").
82. Pub. L. No.98417, 98 Stat 1585.
83. See 130 CONG. REC. 23, 764-765 (1984) (statement of Sen. Hatch).
84. See Drug Price Competition and Patent Term Restoration Act of 1984, tit. I, 98 Stat, at 1585-1597 (codified as amended at 21 U.S.C. § 355 (2006)) (discussing abbreviated new drug applications).
85. See id. at tit. II, 98 Stat, at 1598-1603 (codified as amended in scattered sections of 35 U.S.C).
86. See id.
87. See, e.g., Herman v. Youngstown Car Mfg. Co., 191 F. 579, 584-585 (6th Cir. 1911) ("A patent is not the grant of a right to make or use or sell. It does not, direcdy or indirecdy, imply any such right. It grants only the right to exclude others.").
88. See Petra Moser, How Do Patent Laws Influence Innovation? Evidence from NineteenthCentury World's Fairs, 95 AM. ECON. REV. 1214, 1214-15 (2005) (arguing that innovation must respond to profit incentives in order for patent laws to influence innovation and referencing empirical studies that establish innovation's responsiveness to incentives);
89. Joseph A DiMasi & Henry G. Grabowski, Patents and R&D Incentives: Comments on the Hubbard and Love Trade Framework for Financing Pharmaceutical R&D 2 (June 25, 2004), http://www.who.int/intellectualproperty/news/en/ Submission3.pdf (questioning the ability of alternatives to patent protection to provide sufficient coverage of research and development costs and thus the incentive to innovate).
90. See, e.g., Howard T. Markey, Special Problems in Patent Cases, 66 F.R.D. 529, 532 (1975) (noting that patents provide both "the incentive to risk the investment of the large sums and long years of effort required to bring the invention into the market- place at a reasonable price" and "the only deterrent to secrecy and the only marketplace for ideas we have").
91. Although most small or solo inventors qualify for "small- entity" status, and therefore are entitled to pay reduced patent fees, other types of nonprofit organizations also fall under this umbrella, including universities. See 35 U.S.C. § 41(h)(1) (2006) (reducing fees by fifty percent for small businesses, independent inventors, and nonprofits); 13 CF.R. § 121.802(a) (2009) (providing that organizations with fewer than five hundred employees qualify for reduced patent fees). Note that small-entity status is lost when the patent is licensed, exclusively or nonexclusively, or assigned to an organization that would not qualify for small-entity status. 37 C.F.R. § 1.27(a) (2) (i) (2009).
92. See RICHARD STIM, PROFIT FROM YOUR IDEA: HOW TO MAKE SMART LICENSING DECISIONS 4/104/12 (5m ed. 2006) (discussing "angel investors" who acquire equity in businesses rather than giving loans).
93. A a matter of legal terminology, the term "assignment" has special meaning within both patent and bankruptcy law. For purposes of this Comment, an "assignment" is a bankruptcy assignment under section 365 of the Bankruptcy Code, and not a patent assignment of ownership of property. See infra note 66 for an explanation of patent assignments.
94. One can also take an interest in a patent in the form of a lien. This occurs when the lienholder takes a security interest in the patent See U.C.C. § 9-102(42) (2005) (defining "general intangibles" to include intellectual property by including personal property and software in the definition);
95. see also Scott J. Lebson, Security Interests in Intellectual Property in the United States, at pt VIII (2006), http://www. ladas.com/IPProperty/ipprop- securityinterests.html (discussing how, historically, liens on patents have been perfected via U.S. Patent and Trademark Office filings).
96. See Waterman v. Mackenzie, 138 U.S. 252, 256 (1891) ("Whether a transfer of a particular right or interest under a patent is an assignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions.").
97. See35 U.S.C. § 261 (defining patent ownership and assignment).
98. 38 U.S. at 255. The term "assignment" has a particular meaning in patent law, implying formal transfer of tide. For example, if Inventor A assigns full rights of the patent to Company X, then Company X is the owner of the patent and has full rights, including the rights to enforce and license the patent.
99. See 35 U.S.C. § 261;
100. Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.PA, 944 F.2d 870, 875 (Fed. Cir. 1991) (holding that in patent law, an assignment constitutes "a formal transfer of title").
101. Waterman, 138 U.S. at 255.
102. See Spindelfabrik Suessen-Schurr Stahlecker & Grill GmbH v. Schubert fe Salzer Maschinenfabrik Aktiengesellschaft, 829 F.2d 1075, 1081 (Fed. Cir. 1987) ("[A] patent license agreement is in essence noming more man a promise by the licensor not to sue the licensee ... [e]ven if [the promise is] couched in terms of '[licensee is given the right to make, use, or sell X......'" (italics added) (citation omitted) (fourth alteration in original));
103. W. Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 118 (2d Cir. 1930) ("In its simplest form, a license means only leave to do a thing which the licensor would otherwise have a right to prevent Such a license grants to the licensee merely a privilege that protects him from a claim of infringement by the owner of the patent monopoly.").
104. Patents are treated as personal property. See 35 U.S.C. § 261 ("Subject to the provisions of this tide, patents shall have the attributes of personal property.").
105. See Waterman, 138 U.S. at 255 (noting the differences between a patent assignment and a patent license);
106. Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 679-80 (9th Cir. 1996) (concluding that nonexclusive patent licenses are considered to be personal rights that do not include any rights to assign or to sublicense unless expressly given by the licensor).
107. SeeTamietti, supra note 17, at 301 ("A license simply insulates those who pay for use of proprietary technology from the costs of infringement litigation, and does not transfer rights of ownership in the subject technology." (footnote omitted)).
108. See, e.g., Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288, 290-292 (6th Cir. 1896) (discussing the extent of a patent licensee's interests and limitations).
109. See 35 U.S.C. § 271 (a) ("[W]hoever without audiority makes, uses, offers to sell, or sells any patented invention ... infringes the patent").
110. See, e.g., MICHAELA. EPSTEIN, EPSTEIN ON INTELLECTUAL PROPERTY § 18.02[B] (5di ed. Supp. 2009) (discussing limitations mat may be placed on grants of intellectual property licenses).
111. See Int'l Gamco, Inc. v. Multimedia Games, Inc., 504 F.3d 1273, 1276-1279 (Fed. Cir. 2007) (describing various types of exclusive patent licenses).
112. See, e.g., Abbott Labs. v. Diamedix Corp., 47 F.3d 1128, 1131 (Fed. Cir. 1995) ("A licensee may obtain sufficient rights in the patent to be entitled to seek relief from infringement, but to do so, it ordinarily must join the patent owner.").
113. Prima Tek II, L.L.C v. A-Roo Co., 222 F.3d 1372, 1377 (Fed. Cir. 2000).
114. Int'l Gamco, 504 F.3d at 1277-1278
115. See Enzo APA & Son, Inc., v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998) ("[I]n certain limited circumstances, where all substantial rights under the patent have been transferred in the form of an exclusive license, . . . the licensee [is] the virtual assignee.").
116. Courts have held that "an assignee is the patentee and has standing to bring suit for infringement in its own name." Id.;
117. see also 35 U.S.C. § 100(d) (2006) (defining the term "patentee" as including "not only the patentee to whom the patent was issued but also the successors in title to the patentee");
118. 35 U.S.C. § 281 (providing that a "patentee" has a "remedy by civil action" for patent infringement);
119. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578-1579 (Fed. Cir. 1991) (interpreting §§ 281 and 100(d) to require that a party holding legal title to the patent bring an infringement suit to vindicate its rights).
120. HAROLD EINHORN & THOMAS J. PARKER, l PATENT LICENSING TRANSACTIONS § 1.01 [2][C] (2007).
121. W. Elec. Co. v. Pacent Reproducer Corp., 42 F.2d 116, 118 (2d Cir. 1930);
122. see also id. at 118-119 (discussing the lack of a contract preventing others from practicing the invention).
123. See id. at 118-119
124. Id at 118.
125. See id. ("[A] bare license to practice a patented invention gives the licensee no right to join as plaintiff in a suit against an infringer.").
126. For a discussion of the United States' shift from an industrial-based economy to a knowledge-based economy and the use of intellectual property as a global currency, see Colleen Spring Zimmerman, Overview: Intellectual Property-the New Global Currency, in 1 INTELLECTUAL PROPERTY IN THE GLOBAL MARKETPLACE 0.1-0.40 (Melvin Simensky etal. eds., 2d ed. 1999).
127. See JOHN BRAITHWAITE & PETER DRAHOS, GLOBAL BUSINESS REGULATION 56-57, 61-65 (2000) (tracing the evolution of international protections for intellectual property and examining how the United States made maximizing intellectual property privileges the number-one priority of trade policy);
128. William Hennessey, Patent Protection and Its Role in Promoting Invention, Innovation, and Technological Development 34, 7-8 (June 1, 1999), http://www.piercelaw.edu/assets/pdf/hennessey-patentprotection-and-its-role-in- promoting.pdf (discussing the benefits of stronger patent-protection rights arising out of TRIPS).
129. See U.S. CONST, art. I, § 8, cl. 8. 88 See discussion supra Section H.A.
130. See Waterman v. Mackenzie, 138 U.S. 252, 255 (1891) (distinguishing between patent assignments and licenses).
131. See, e.g., Tulip Computers Int'l B.V. v. Dell Computer Corp., 262 F. Supp. 2d 358, 364-365 (D. Del. 2003) (holding that the language of the license agreement, which defined the scope of the license, could not be ignored).
132. See Gardner v. Nike, Inc., 279 F.3d 774, 780-81 (9th Cir. 2002) (explaining the "strong policy reasons [for placing] the burden on the licensee to get the licensor's explicit consent" before transferring a license to a third party);
133. Rhone-Poulenc Agro, S.A. v. DeKaIb Genetics Corp., 271 F.3d 1081, 1088 (Fed. Cir. 2001) (noting that "[a]llowing free assignability of patent licenses" would result in the patent holder losing "the very important ability to control the identity of the licensees"), vacated on other grounds en banc, 284 F.3d 1323 (Fed. Cir. 2002);
134. Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 679-680 (9th Cir. 1996) (relying on the policy concern that the patent holder have the ability to control the identity of licensees and holding that nonexclusive patent licenses are not assignable);
135. cf. Harris v. Emus Records Corp., 734 F.2d 1329, 1334 (9th Cir. 1984) (noting in the context of a copyright claim that the requirement that the licensee obtain explicit permission ensures that the licensor will be able to monitor the use of the property right).
136. See 11 U.S.C. § 541(a) (2006).
137. See also discussion supra note 48 (noting that the question of whether a legal transfer occurs between a debtor and its debtor-in-possession is still open).
138. 304 U.S. 64, 78 (1938).
139. Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 640 (1981) (internal quotation marks omitted)
140. (quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 426(1964)).
141. O'Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994)
142. (quoting Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966)).
143. See Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150-51 (1989) (acknowledging that, to the extent state intellectual property regulation conflicts with federal regulation, it is preempted because national uniformity in the balance struck by patent protection is of the utmost importance);
144. Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 271 F.3d 1081, 1088-89 (Fed. Cir. 2001) (explaining the development and rationale of the federal common law principle governing patent licensing),
145. vacated on other grounds en banc, 284 F.3d 1323 (Fed. Cir. 2002). Note, however, that scholars have debated whether a federal common law really exists.
146. See, e.g., Marie T. Reilly, The Federal Interest in the Transfer of Patent License Rights in Bankruptcy, 10 J. BANKR. L. & PRAC. 3, 15-23 (2001) (arguing that the "personal" nature of patent licensing amounts to a state law contract issue and, therefore, cannot amount to a federal common law with respect to patent-license transferability).
147. See Gilson v. Republic of Ireland, 787 F.2d 655, 658 (D.C Cir. 1986) ("It is well setded that a non-exclusive licensee of a patent has only a personal and not a property interest in the patent and that this personal right cannot be assigned unless the patent owner authorizes the assignment or the license itself permits assignment").
148. Other forms of intellectual property, such as copyright, also follow the same default rule. Under copyright law, "a non-exclusive licensee ... has only a personal and not a property interest in the [intellectual property]," which "cannot be assigned unless the [intellectual property] owner audiorizes the assignment" In re Patient Educ. Media, Inc., 210 B.R. 237, 24243 (Bankr. S.D.N.Y. 1997) (internal quotation marks omitted)
149. (quoting Gilson, 787 F.2d at 658);
150. see also 3 MELVIN B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT §10.02[A] (2009) (noting that the grant of a nonexclusive license is not a transfer of ownership).
151. PPG Indus., Inc. v. Guardian Indus. Corp., 597 F.2d 1090,1093 (6th Cir. 1979).
152. See, e.g, Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC, Inc.), 89 F.3d 673, 67980 (9th Cir. 1996) (holding that "[b]ecause federal law governs the assignability of nonexclusive patent licenses, and because federal law makes such licenses personal and assignable only with the consent of the licensor, [a] license is not assumable and assignable in bankruptcy under 11 U.S.C. § 365(c)").
153. 465 F.2d 1303, 1306 (7th Qr. 1972) (internal quotation marks omitted) (quoting Sola Elec. Co. v. Jefferson Co., 317 U.S. 173, 176 (1942)).
154. See In re CFLC, 89 F.3d at 679 (noting that permitting states to provide for free assignability of nonexclusive patent licenses "would undermine the reward that encourages invention because a party seeking to use the patented invention could either seek a license from the patent holder or seek an assignment of an existing patent license from a licensee" (emphasis omitted)).
155. See, e.g., Murray v. Franke-Misal Techs. Group, LLC (In re Supernatural Foods, LLC), 268 B.R. 759, 802 (Bankr. M.D. La. 2001) ("The rule, simply stated, is that while ownership of patent rights is assignable, the rights granted under a non-exclusive license cannot inure to a third party, unless the licensor consents to such assignment").
156. id.
157. See, e.g., In re CFLC, 89 F.3d at 680 (concluding that because the federal common law principle of nonassignability governs nonexclusive licenses, it is applicable under section 365 of the Bankruptcy Code);
158. In re Supernatural Foods, 268 B.R. at 796 (asserting that section 365(c) (1) of the Bankruptcy Code enforces the common law of nonassignability).
159. See 11 U.S.C. § 365(c) (2006) (proscribing assignment when "applicable law" prevents parties other than the debtor from accepting or rendering performance on a contract);
160. id. § 365(f) (allowing a trustee to assign a debtor's contracts except as provided in subsection (c)).
161. See, e.g., Superbrace, Inc. v. Tidwell, 21 Cal. Rptr. 3d 404, 414 (Ct App. 2004) ("[W]e choose to stand steadfasdy by our Supreme Court's 1957 ruling in Dopplmaier that state law, not federal common law, is to be applied when determining whether a patent license is assignable.").
162. 308 P.2d 732, 739 (CaI. 1957) (stating that there is "no policy underlying the federal patent statutes that requires a uniform federal rule of construction of license contracts to determine thier assignability").
163. Id. at 73840.
164. See, e.g., Carole A. Quinn & R. Scott Weide, Violation of the Erie Doctrine: Application of a Rule of Federal Common Law to Issues of Patent License Transferability, 32 CREIGHTON L. REV. 1121, 114345 (1999) (providing hypothetical situations to which application of federal law is unjustified).
165. Daniel A. Wilson, Patent License Assignment: Preemption, Gap Filling, and Default Rules, 77 B.U. L. REV. 895, 911 (1997).
166. Aaron Xavier Fellmeth, Control Without Interest: State Law of Assignment, Federal Preemption, and the Intellectual Property License, 6 VA. J.L. & TECH. 8, ¶ 81 (2001), http://vjolt.net/vol6/issuel/v6ila08-Fellmedi.html.
167. See, e.g., Wilson, supra note 111, at 910-911 (arguing against federal patent policy preemption of state laws permitting assignment because such preemption prevents the maximization of license values).
168. See id. (asserting that license assignment "allow[s] the parties to maximize the value of the licenses to themselves and to society").
169. See Concrete Washout Sys., Inc. v. Washout Sys., LLC, No.08-2214, 2008 WL 5411965, at *3 (E.D. Cal. Dec. 24, 2008) ("One of the fundamental and valuable aspects of a patent is the right to exclude others from using one's invention. In light of Plaintiffs likelihood of success on the merits, its inability to control the use of its invention will constitute irreparable injury." (citation omitted)).
170. See supra Sections II.B-D.
171. See 11 U.S.C. §365(c)(1) (2006) (prohibiting a trustee from assuming or assigning debtor contracts when applicable law excuses a party to the contract, other than the debtor, from accepting or rendering performance);
172. id. § 365(f) (allowing assignments except when prohibited by subsection (c)).
173. See In re Access Beyond Techs., Inc., 237 B.R. 32, 44 (Bankr. D. Del. 1999) ("Unless the [license] conveys some or all of the right to exclude others from practicing the invention, it will not convey an interest in the patent, but is a mere license."). An exclusive license will convey an interest in the patent, but a nonexclusive license is still a mere license and is treated as an executory contract subject to the rules of assumption and assignment.
174. See id. at 44-45 (holding that the license at issue was non-exclusive and was therefore an executory contract).
175. See Kuney, supra note 17, at 142 (defining this as the "critical issue" that emerges once a license is found to be an executory contract for purposes of section 365).
176. 71 B.R. 686, 690 (Bankr. W.D. Tenn. 1987) ("[Notwithstanding subsection 365(f), bom [federal common] law and equity pursuant to 11 U.S.C. § 365(c) 'excuse' the nondebtor party from accepting assignment. . . ."). Although the debtor in Alltech filed for Chapter 7, the court's rationale is relevant and applicable to both Chapter 7 and 11 cases.
177. Id. at 687.
178. Id.
179. Id.
180. Id. at 687-688
181. See id. at 689 (noting that "[t]he rights of the patent owner to license the use of his invention is a creature of federal common law as is the right of the licensee to have the license construed").
182. Id. 127 89 F.3d 673 (9th Cir. 1996).
183. Id. at 674-675
184. Id. at 675.
185. Id. at 678
186. (alteration in original) (quoting Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)).
187. See id. at 679 ("In essence, every licensee would become a potential competitor with the licensor-patent holder in the market for licenses under the patents.").
188. Id. at 679-680
189. See, e.g, RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 271 (4th Cir. 2004) ("Without [the patent holder's] consent, [the debtor] was precluded from assuming the agreement");
190. Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 750 (9th Cir. 1999) ("[W]e are bound by the plain terms of the statute and . . . adopt[] the 'hypothetical test'");
191. City of Jamestown, Tenn. v. James Cable Partners, L.P. (In re James Cable Partners, L.P.), 27 F.3d 534, 537 (11th Cir. 1994) ("The first condition [of 11 U.S.C. § 365(c)(1)] presents a hypothetical question . . . .");
192. In re W. Elees. Inc., 852 F.2d 79, 83 (3d Cir. 1988) (holding that the language of section 356(c)(1) supports the use of the hypothetical test).
193. See, e.g., United States v. TechDyn Sys. Corp. (In re TechDyn Sys. Corp.), 235 B.R. 857, 861 (Bankr. E.D. Va. 1999) (applying the hypothetical test but noting that "[the actual] test . . . has been adopted by a clear majority of the lower courts").
194. See Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489, 493 (1st Cir. 1997) (declining to follow the hypothetical test);
195. Summit Inv. & Dev. Corp. v. Leroux 69 F 3d 608, 612 (1st Cir. 1995) (same).
196. 852 F.2d at 83.
197. Id. at 80.
198. Id.
199. Id.
200. Id. at 80-81.
201. Id.
202. Id. at 81.
203. Id. at 82-83.
204. Id.
205. Id.
206. Id. at 83.
207. Id.
208. Id. The court also held that, based upon the literal meaning of the statute and Congress's intent, West as a debtor and West as a debtor-in-possession were "materially distinct entities."
209. Id.
210. City of Jamestown, Tenn. v. James Cable Partners, L.P. (In re James Cable Partners, L.P.), 27 F.3d 534, 537 & n.6 (11th Cir. 1994).
211. Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 750 (9th Cir. 1999).
212. Id. at 748.
213. Id.
214. Id. at 74849.
215. Id. at 749.
216. Id.
217. Id.
218. Id. at 748.
219. See id. at 754-755 (holding that "where applicable nonbankruptcy law makes an executory contract nonassignable because the identity of the nondebtor party is material, a debtor in possession may not assume the contract absent consent of the nondebtor party").
220. Id. at 749. Although Perlman also contended that section 365(c)(1) prohibited the assignment of its licenses to the third parties involved in the reverse triangular merger, the court did not reach the issue of assignment because it barred Catapult from even assuming the Perlman licenses.
221. Id. at 749 n.1.
222. Id. at 750.
223. Id. at 750-751 (italics omitted).
224. See id.
225. 361 F.3d 257 (4th Cir. 2004).
226. Id. at 260. Although In re Sunterra dealt with software licensing rather than patent licensing, the same federal principle of common law patent
227. See Menell, supra note 27, at 800-02 (discussing bankruptcy's treatment of copyright licenses and the relationship between copyright and patent law);
228. supra note 98 and accompanying text.
229. In re Sunterra Corp., 361 F.3d at 261.
230. Id.
231. The bankruptcy court adopted the actual test, see infra subsection III.B.2, which reads the disjunctive "or" in section 365(c) as a conjunctive "and." Id. at 263.
232. Id. at 262-263
233. Id. at 263.
234. Id.
235. Id. at 267.
236. Id.
237. See id. at 262 n.7, 271.
238. See Summit Inv. & Dev. Corp. v. Leroux, 69 F.Sd 608, 612-14 (1st Cir. 1995) (developing the actual test);
239. see also Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489, 493 (1st Cir. 1997) (applying the actual test);
240. cf. United States v. TechDyn Sys. Corp. (In re TechDyn Sys. Corp), 235 B.R. 857, 860-861 (Bankr. E.D. Va. 1999) (adopting the hypothetical test but noting that "[the actual] test . . . has been adopted by a clear majority of lower courts").
241. Leroux, 69 F.3d at 612.
242. Id.
243. See id.
244. See id. at 612-614
245. Id. at 612-613
246. Id. at 613 (citing H.R. REP. No. 96-1195, at 12 (1980)).
247. Id.
248. Id. (alteration in original).
249. 104 F.3d 489 (1st Cir. 1997).
250. Id. at 490.
251. Id.
252. Id.
253. Id. at 490-491
254. Id. at 491.
255. Id. at 493.
256. Id.
257. Id. (citing S. REP. NO. 95-989, at 59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5845).
258. Id. at 494-495
259. See id.
260. Id.
261. 440 F.3d 238 (5th Cir. 2006).
262. Id. at 241.
263. Id. at 242-43. Termination upon bankruptcy provisions are often known as ipso facto clauses (the Latin phrase meaning "by the fact itself") because the language provides that the fact of bankruptcy itself is enough to trigger the termination of the agreement. Generally, ipso facto clauses are unenforceable in bankruptcy under sections 541(c) and 365(e)(1).
264. See THOMAS H. JACKSON, THE LOGIC AND LIMITS OF BANKRUPTCY LAW 4043 (1986) (justifying bankruptcy law's disregard of ipso facto clauses);
265. Yeon-Koo Che & Alan Schwartz, Section 365, Mandatory Bankruptcy Rules and Inefficient Continuance, 15 J.L. ECON. & ORG. 441, 44146 (1999) (discussing ipso facto clauses under section 365(e)).
266. 440 F.3d at 245.
267. Id. at 24546.
268. Id. at 246.
269. Id. at 249-250 (emphasis added).
270. Id. at 250.
271. See id.
272. 323 B.R. 566 (Bankr. S.D.N.Y. 2005).
273. Id. at 568.
274. Id.
275. Id. at 569 n.1.
276. Id. at 567.
277. Id. at 570-571
278. Id at 570.
279. See id. at 570-71
280. ("To construe 'trustee' in Section 365(c)(1) to mean 'debtors' or 'debtors in possession' would defy the 'plain meaning' of the statute as written by Congress and could be characterized as the same sort of judicial legislation as Kmart condemns in the cases that apply the 'actual test' to construe 'or' as 'and.'").
281. Id at 571.
282. Id.
283. see also 11 U.S.C. §365(c)(1), (e)(1)-(2), (f) (2006) (identifying distinct roles for debtors and trustees).
284. See In re Footstar, 323 B.R. at 573-574 ("The basic objective of Section 365(c)(1) to protect the contract counterparty from unlawful assignment of the contract - simply is not implicated when a debtor in possession itself seeks to assume, but not assign, the contract").
285. Id at 573.
286. Id at 574.
287. See, e.g., In re Adelphia Commc'ns Corp., 359 B.R. 65, 72 (Bankr. S.D.N.Y. 2007) (distinguishing between the assumption of a contract and the assignment of a contract).
288. Id.
289. Id at 72 n.18.
290. In re Aerobox Composite Structures, LLC, 373 B.R. 135 (Bankr. D.N.M. 2007).
291. Id. at 137.
292. Id. at 138.
293. Id.
294. Id. at 142
295. (quoting In re Footstar, Inc., 323 B.R. 566, 573 (Bankr. S.D.N.Y. 2005)).
296. Id. at 141.
297. 104 F.3d 489 (1st Cir. 1997).
298. In re Aerobox, 373 B.R. at 141.
299. Id. at 142.
300. see also id at 137 n.1 (providing the relevant provision of the license agreement).
301. Id at 142.
302. No.05-0305, 2006 WL 3386625 (Bankr. W.D. Pa. Nov. 22, 2006).
303. 852 F.2d 79 (3d Cir. 1988).
304. Cont'l Cos., 2006 WL 3386625, at *15.
305. Id.
306. see also Biltmore Asoc, L.L.C. v. Twin City Fire Ins. Co., No.05-4220, 2006 U.S. Dist LEXIS 56034, at *13 n.4 (Bankr. D. Ariz. July 21, 2006) ("The distinction between a debtor and a debtor in possession is nuanced and unclear, and has yielded varying results in district courts, among the circuits, and within the Ninth Circuit"). But see 11 U.S.C. §541 (a) (2006) (recognizing that upon filing for bankruptcy, an estate is created with a different legal character than that of the prepetition debtor).
307. Caminetti v. United States, 242 U.S. 470, 485 (1917);
308. see also Hillman v. IRS, 263 F.3d 338, 342 (4th Cir. 2001) ("[U]nless there is some ambiguity in the language of a statute, a court's analysis must end with the statute's plain language ....").
309. 11 U.S.C. § 365(c) (emphasis added).
310. See RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 262 nn.8-9 (4th Cir. 2004) (explaining the difference between the hypothetical and actual tests).
311. See id. at 262 n.8 (stating that the test construes the "or" "to mean what it says");
312. City of Jamestown, Tenn. v. James Cable Partners, L. P. (In re James Cable Partners, L.P.), 27 F.3d 534, 537 (11th Cir. 1994) (interpreting the statute as requiring the court to answer a "hypothetical question");
313. In re W. Elees. Inc., 852 F.2d 79, 83 (3d Cir. 1988) ("11 U.S.C. § 361(c)(1) creates a hypothetical test - i.e., under the applicable law, could the government refuse performance from an entity other than the debtor or the debtor in possession.");
314. In re Access Beyond Techs., Inc., 237 B.R. 32, 4849 (Bankr. D. Del. 1999) (following the Third Circuit's adoption of the hypothetical test). Critics of the hypothetical test/literal-meaning reading concede that section 365(c) is written in the disjunctive and, therefore, by its plain language, would prohibit a debtor from "assuming or assigning."
315. In re Sunterra, 361 F.3d at 265. They contend, however, that the plain-meaning rule does not apply to section 365(c) because it would create inconsistencies within the Code. See discussion infra subsection IV.B.1.
316. A noted before, the term "trustee" as used in the statute includes a Chapter 11 debtor-in-possession. In re Sunterra, 361 F.3d at 261 n.5;
317. Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 750 (9th Cir. 1999);
318. see also discussion supra note 42 (discussing the powers and rights of a bankruptcy trustee and a debtorin-possession).
319. 11 U.S.C. § 365(c)(1). Although section 365(c) provides diree different conditions under which a trustee may not assume or assign an executory contract, this Comment is only concerned with the first condition, as it is the only condition relevant to patent licensing.
320. See id.
321. §365(c)(1)(A); 1 DAVID G. EPSTEIN ET AL., BANKRUPTCY §5-15, at 474 (1992) (noting that the plain language of section 365(c)(1) "link[s] nonassignability under 'applicable law' together with a prohibition on assumption in bankruptcy").
322. See 11 U.S.C. §365(c); In re Sunterra, 361 F.3d at 269 (holding that construing section 365(c) to mean "assumption and assignment" would intrude on legislative function).
323. Id § 365(c)(1)(A).
324. See Rhone-Poulenc Agro, S. A v. DeKalb Genetics Corp., 271 F.3d 1081, 1088-89 (Fed. Cir. 2001)
325. (discussing the principle of nontransferability of patents found in federal common law), vacated on other grounds en banc, 284 F.3d 1323 (Fed. Cir. 2002);
326. cf. In re W. Elees. Inc., 852 F.2d 79, 83 (3d Cir. 1988) (describing the nontransferability of government contracts).
327. See supra note 91 and accompanying text.
328. See Rhone-Poulenc Agro, 271 F.3d at 1088 (noting that allowing free assignability of patent licenses would result in the patent holder losing "the very important ability to control the identity of the licensees");
329. Everex Sys., Inc. v. Cadtrack Corp. (In re CFLC, Inc.), 89 F.3d 673, 679 (9th Cir. 1996) (relying on the federal patent policy concern that the patent holder have the ability to control the identity of licensees and holding that nonexclusive patent licenses are not assignable).
330. See Rhone-Poulenc Agro, 271 F.3d at 1088 (noting that permitting free assignability would mean "every licensee would become a potential competitor with the licensorpatent holder in the market for the invention; and even if the patentee could control the number of licenses, he would lose the very important ability to control the identity of the licensees").
331. See 35 U.S.C. §271 (a) (2006) (stating that a party that "makes, uses, offers to sell, or sells any patented invention" without authority infringes the patent).
332. See Rhone-Poulenc Agro, 271 F.3d at 1088 ("[P]atent licenses are... nontransferable in the absence of an agreement authorizing assignment");
333. In re CFLC, 89 F3d at 679 (stating that a nonexclusive patent license cannot be assigned without the authorization of the patent owner).
334. See supra Section I.A.
335. See Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 754-55 (9di Cir. 1999) (preventing the debtor from assuming the patent licenses);
336. In re W. Elec. Inc., 852 F.2d 79, 83 (3d Cir. 1988) ("[I]n the context of the assumption and assignment of executory contracts, a solvent contractor and an insolvent debtor in possession going dirough bankruptcy are materially distinct entities.").
337. But see Bonneville Power Admin, v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 248 (5th Cir. 2006) (citing cases in which courts have held that the solvent contractor and insolvent debtor-in-possession going through bankruptcy are not different entities for purposes of the antiassignment principle).
338. See, e.g., In re Catapult, 165 F.3d at 750 (noting that section 365(c)(1) "bars a. debtor in possession from assuming an executory contract without the nondebtor's consent where applicable law precludes assignment of the contract to a third party").
339. See 11 U.S.C. § 365(c)(1)(A) (2006).
340. See supra note 98 and accompanying text.
341. See RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 266 (4th Cir 2004) ("Subsection (c)(1) bars assumption (absent consent) when 'applicable law' would bar an assignment.");
342. In re Catapult, 165 F.3d at 750 ("[T]he statute by its terms bars a debtor in possession from assuming an executory contract without the nondebtor's consent....");
343. In re W. Elecs. Inc., 852 F.2d at 83 ("[T] he debtor in possession was not entitled to assume the contract without the [licensor's] consent-----").
344. See In re Sunterra, 361 F.3d at 262 n.8 (finding the intent of the debtor-inpossession to assign to a third party irrelevant if the statute is read literally).
345. See Bonneville Power Admin, v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 249 (5th Cir. 2006) (adopting the actual test);
346. In re Sunterra, 361 F.3d at 265-68 (detailing the argument that certain conflicts within the statute preclude a plainmeaning reading of the statute);
347. Summit Inv. & Dev. Corp. v. Leroux, 69 F.3d 608, 612-613 (1st Cir. 1995) (preferring the actual test).
348. See In re Catapult, 165 F.3d at 751 (detailing the debtor's arguments against the use of the plain-meaning rule);
349. see also Institut Pasteur v. Cambridge Biotech Corp 104 F.3d 489, 493 (1st Cir. 1997) (rejecting the hypothetical test in favor of a case-bycase approach);
350. Sullivan v. CIA, 992 F.2d 1249, 1252 (1st Cir. 1993) (noting that "literal" interpretations that lead to absurd results should be avoided).
351. But see Leroux, 69 F.3d at 610 ("Plain statutory language does not prompt recourse to countervailing legislative history.").
352. See In re Mirant, 440 F.3d at 248 (emphasizing the importance of whether a contract will actually be assigned or whether a nondebtor will actually be forced to accept performance from a third party);
353. Leroux, 69 F.3d at 612-613 (interpreting the legislative history to require "a case-by-case inquiry into the actual consequences ... of permitting these executory contracts to be performed by the debtor party").
354. See Sigmon Coal Co. v. Apfel, 226 F.3d 291, 304 (4th Cir. 2000) (noting that an exception to application of a statute's plain language exists when "a literal reading of a statute ... results in an outcome that can truly be characterized as absurd, i.e., that is 'so gross as to shock the general moral or common sense'" (citation omitted)
355. (quoting Md. State Dep't of Educ. v. U.S. Dep't of Veterans Affairs, 98 F.3d 165,169 (4th Cir. 1996)).
356. See 2A NORMAN J. SINGER & J.D. SHAMBIE SINGER, STATUTES AND STATUTORY CONSTRUCTION § 46:6 (7th ed. 2007) ("A statute should be construed so that effect is given to all its provisions, so that no part will be inoperative or superfluous, void or insignificant, and so that one section will not destroy another unless the provision is the result of obvious mistake or error." (footnotes omitted)).
357. See In re Sunterra, 361 F.3d at 265-66 (discussing the "seemingly warring provisions of §365(c)(1) and §365(f) (1)");
358. In re Catapult, 165 F.3d at 751 (noting that "a literal reading of subsection (c)(1) appears to render subsection (f) (1) superfluous");
359. see also Breeden v. Catron (In re Catron), 158 B.R. 629, 636-37 (E.D. Va. 1993) (exploring the apparent conflict between subsections (c)(1) and (f)(1)): In re Cardinal Indus., Inc., 116 B.R. 964, 976-977 (Bankr. S.D. Ohio 1990) (examining the trustee's argument that (c) (1) and (f) (1) conflict).
360. 11 U.S.C. § 365(f)(1) (2006).
361. Id. § 365(c)(1);
362. see also discussion supra Section IV.A.
363. 11 U.S.C § 365(f)(1).
364. See id. §365(f)(2)(A) (providing that the trustee may assign an executory contract if the trustee first assumes such a contract in accordance with the provisions of section 365).
365. See In re Catron, 158 B.R. at 636 (concluding that the "[c]onflict between subsections (c) and (f) of §365 is inescapable").
366. Rieser v. Dayton Country Club Co. (In re Magness), 972 F.2d 689 (6th Cir. 1992).
367. Id. at 695;
368. see also City of Jamestown, Tenn. v. James Cable Partners, L.P. (In re James Cable Partners, L.P.), 27 F.3d 534, 537-38 (11th Cir. 1994) (noting that subsections (c) and (f) refer to different applicable law);
369. In re Antonelli, 148 B.R. 443, 448 (D. Md. 1992) (stating that the distinction drawn in In re Magness is correct), affd, 4 F.3d 984 (4th Cir. 1993);
370. In re Lil" Things, Inc., 220 B.R. 583, 590-591 (Bankr. N.D. Tex. 1998) (agreeing that (f)(1) states the general rule and that (c)(1)(A) is an exception to it).
371. See In re Magness, 972 F.2d at 695 (acknowledging subsection (f) as the default);
372. see also In re James Cable, 27 F.3d at 538 (same).
373. See 11 U.S.C. § 365(f)(1) (applying the default rule "[e]xcept as provided in subsection[] ... (c) of this section").
374. In re James Cable, 27 F.3d at 538.
375. 11 U.S.C §365(c) (1) (A);
376. see also RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 266-67 (4th Cir. 2004) (noting that subsection (c) recognizes a specific exception to the broad rule pronounced in subsection (f));
377. In re James Cable, 27 F.3d at 538 (holding that the applicable law referred to in subsection (c) does not include general prohibitions on assignments);
378. In re Magness, 972 F.2d at 695 (asserting that subsection (c) refers to laws other than those generally prohibiting assignments).
379. In re James Cable, 27 F.3d at 538 (noting that subsection (c) permits diminishing the trustee's power to assume or assign that is otherwise honored by subsection (f))
380. In re Magness, 972 F.2d at 699 (Guy, J., concurring).
381. See Perlman v. Catapult Entm't Inc. (In re Catapult Entm't Inc.), 165 F.3d 747, 752 (9th Cir. 1999) ("[I]n determining whether an 'applicable law' stands or falls under § 365(f) (1), a court must ask why the 'applicable law' prohibits assignment");
382. In re Antonelli, 148 B.R. 443, 448 (Bankr. D. Md. 1992) (discussing why a provision in the Uniform Partnership Act prohibits assignment in order to determine which subsection to apply), affd, 4 F.3d 984 (4th Cir. 1993).
383. See In re Magness, 972 F.2d at 700 (Guy, J., concurring) (arguing that section 365(c) sought to preserve contracts in which the identity of the original contracting party was material and there was a right of refusal);
384. In re Antonelli, 148 B.R. at 448 (noting that section 365(c) applies "where contracts are held to be non-assignable because they impose upon the debtor duties which are said to be 'non-delegable'").
385. See supra Section IIIA (discussing the federal common law principle of patent nonassignability).
386. See supra note 91 and accompanying text (concluding that a patent owner s right to exclude includes the right to control its licensee's identity).
387. See RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 266-67 (4th Cir. 2004) (concluding that subsections (c) and (f) are not irreconcilable when applied to a software license agreement);
388. In re Catapult, 165 F.3d at 752 (concluding that section 365(c) is not at odds with section 365(f)).
389. See Summit Inv. & Dev. Corp. v. Leroux, 69 F.3d 608, 612 (1st Cir. 1995) (holding that "[a] proper construction of section 365(e) [] requires consideration of companion section 365(c)").
390. 11 U.S.C. §365(e)(1)(B) (2006).
391. Id § 365(e)(2)(A) (emphasis added).
392. Leroux, 69 F.3d at 612.
393. See id. (holding that the exception to the anti-ipso facto rule was only intended to prevent the nondebtor from being at the debtor's mercy "by what amounts to an actual 'assignment'").
394. See id. at 613 (noting that if section 365(e)(2)(A) automatically terminated a debtor's executory contract rights, the exception would conflict with subsection (c)(1));
395. see also Bonneville Power Admin, v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 24849 (5th Cir. 2006) (adopting the actual test because the alternative would create conflict with subsection (c)(1)).
396. 11 U.S.C. § 365(e)(2)(A)(i).
397. See In re Mirant Corp., 440 F.3d at 248-249
398. See supra note 91 and accompanying text (emphasizing that a patent owner's exclusive right to an invention necessarily provides control over the identity of the performing party of a license).
399. See discussion supra Section II.D (recognizing that a prebankruptcy petition debtor is a different legal entity than a postbankruptcy petition debtor by reference to section 541(a)).
400. See id. (describing the patent owner's exclusive right to determine who receives an assignment).
401. See supra note 91 (listing cases that recognize that licensees must get the licensor's consent before assigning a license).
402. See RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 271 (4th Cir. 2004) (holding that the license owner had not consented to assumption by a third party and that assumption was therefore invalid);
403. Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 750-51 (9th Cir. 1999) (emphasizing that without consent of the licensor, assignment to third party was invalid);
404. In re W. Elecs. Inc., 852 F.2d 79, 83 (3d Cir. 1988) (noting a debtor's inability to assign licenses to third parties unilaterally).
405. See 11 U.S.C. § 365(e)(2)(A) (2006).
406. See id. 365(e)(1).
407. Cf. In re Sunterra, 361 F.3d at 262-63 (explaining that under one test but not the other, the licensor, would be held excused from its agreement to protect it from nonconsensual assignment to a third party);
408. In re Catapult, 165 F.3d at 750 ("[T]he statute by its terms bars a debtor in possession from assuming an executory contract without the nondebtor's consent where applicable law precludes assignment of the contract to a third party.");
409. In re W Elees., 852 F.2d at 83 (same).
410. See Rieser v. Dayton Country Club Co. (In re Magness), 972 F.2d 689, 699-700 (6th Cir. 1992) (Guy, J., concurring) (finding that where the identity of the original contracting party was material, section 365(c) sought to preserve a right of refusal);
411. In re Antonelli, 148 B.R. 443, 448 (D. Md. 1992) (noting that section 365(c) applies where contracts are held to be nonassignable because they impose upon the debtor duties which are said to be "non-delegable"), aff'd, 4 F.3d 984 (4th Cir. 1993).
412. See In re Sunterra, 361 F.3d at 262;
413. In re Catapult, 165 F.3d at 750;
414. In re W. Elees., 852 F.2d at 83.
415. See, e.g., Toibb v. Radloff, 501 U.S. 157, 162 (1991) ("[T]his Court has repeated with some frequency: 'Where, as here, the resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear.'" (
416. quoting Blum v. Stenson, 465 U.S. 886, 896 (1984))).
417. Crooks v. Harrelson, 282 U.S. 55, 59-60 (1930);
418. see also United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989).
419. See Tenn. Valley Auth. v. Hill, 437 U.S. 153, 187 n.33 (1978) (explaining that courts should look beyond the text only in exceptional cases).
420. INS v. Cardoza-Fonseca, 480 U.S. 421, 432 n.12 (1987).
421. See, e.g., Bonneville Power Admin, v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 249-51 (5th Cir. 2006) (adopting the actual test based on an interpretation of Congress's intent and the legislative history of section 365(c)). Where a court has adopted the hypothetical test, litigants often advocate for adoption of the actual test following a similar line of reasoning as the Mirant court
422. See In re Sunterra, 361 F.3d at 269-70 (stating diat the proponent of the actual test argued that it was "'far more harmonious' with bankruptcy policy" and Congress's intent);
423. In re Catapult, 165 F.3d at 753 (recalling that the litigants argued that the "legislative history requires disregard of the plain language of §365 (c) (1) " and thus the court should adopt the actual test).
424. Pub. L. No.98-353,98 Stat. 333.
425. 305 458 U.S. 50 (1982).
426. 306 465 U.S. 513 (1984).
427. In re Cardinal Indus., Inc., 116 B.R. 964, 978-980 (Bankr. S.D. Ohio 1990) (recounting the legislative history of the 1984 Act).
428. Compare 11 U.S.C. § 365(c)(1)(A) (1982), with Pub. L. No.98-353, sec. 362(a), § 365(c) (1) (A), 98 Stat. at 362.
429. See RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 270 (4th Cir. 2004) (explaining that there is no legislative history relevant to the alterations made to section 365 in the 1984 Act).
430. 130 CONG. REC. 20, 206-34 (1984);
431. 130 CONG. REC. 20, 080-94 (1984),
432. reprinted in COLLIER ON BANKRUPTCY app. 4, pt xx (Lawrence P. King ed., 15th ed. 1996).
433. H.R. REP. No.96-1195, at 1 (1980).
434. EPSTEIN ET AL., supra note 241, § 5-15, at 475.
435. H.R. REP. No.96-1195, at 12.
436. See, e.g, Summit Inv. & Dev. Corp. v. Leroux, 69 F.3d 608, 613 (1st Cir. 1995).
437. Id. at 613
438. (quoting H.R. REP. NO. 96-1195, at 12).
439. In re Cardinal Indus., Inc., 116 B.R. 964, 979 (S.D. Ohio 1990).
440. Seell U.S.C. § 365(c)(1)(A) (2006).
441. See Leroux, 69 F.3d at 613.
442. See id.
443. See In re Cardinal, 116 B.R. at 979 (acknowledging that "[s]ection 365(c) continues to bar the trustee from assuming a contract in those cases where applicable law excuses the nondebtor from accepting performance from the trustee").
444. See, e.g., Davis v. Mich. Dep't of Treasury, 489 U.S. 803, 809 n.3 (1989) ("Legislative history is irrelevant to the interpretation of an unambiguous statute.").
445. See City of Auburn v. United States, 154 F.3d 1025, 1029 (9th Cir. 1998) (addressing the near-total exclusivity of unambiguous statutory language);
446. California v. Montrose Chem. Corp. of Cal., 104 F.3d 1507, 1515 (9th Cir. 1997) ("Because we conclude that the language of these sections is not ambiguous, we must follow the plain language of these sections unless the legislative history clearly indicates that Congress intended otherwise.");
447. cf. Rust v. Sullivan, 500 U.S. 173, 184 (1991) (holding that an administrative agency's construction of a statute "may not be disturbed as an abuse of discretion if it reflects a plausible construction of the plain language of the statute and does not otherwise conflict with Congress' expressed intent");
448. Edward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575 (1988) (concluding that "where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress").
449. RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 270 (4th Cir. 2004);
450. see also Sigmon Coal Co. v. Apfel, 226 F.3d 291, 306 (4th Cir. 2000) (declining to rely on legislative history to displace the plain meaning of a statute, particularly because such history consisted of only a statement made by a single member of Congress),
451. affd sub nom. Barnhart v. Sigmon Coal Co., 534 U.S. 438 (2002).
452. EPSTEIN ET AL., supra note 241, § 5-15, at 475.
453. See Garcia v. United States, 469 U.S. 70, 76-78 (1984) (declining to allow "snippet[s]" of legislative history to undermine the statute's plain language);
454. U.S. Dep't of State v. Wash. Post Co., 456 U.S. 595, 600 (1982) ("Passing references and isolated phrases are not controlling when analyzing a legislative history.").
455. See Russello v. United States, 464 U.S. 16, 23 (1983)
456. ("[W]here Congress includes particular language in one section of a statute but omits it in another ... it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." (alteration in original) (quoting United States v. Wong Kim Bo 472 F.2d 720, 722 (5th Qr. 1972))).
457. United States v. Morison, 844 F.2d 1057, 1064 (4th Cir. 1988)
458. (quoting INS v. Cardoza-Fonseca, 480 U.S. 421, 453 (1987) (Scalia.J., concurring)).
459. See, e.g., Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004)
460. ("[W]hen the statute's language is plain, the sole function of the courts - at least where the disposition required by the text is not absurd - is to enforce it according to its terms." (internal quotation marks omitted) (quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, NA., 530 U.S. 1, 6 (2000)));
461. Caminetti v. United States, 242 U.S. 470, 485 (1917) ("[T]he sole function of the courts is to enforce [the statute] according to its terms.").
462. Crooks v. Harrelson, 282 U.S. 55, 59-60 (1930);
463. see also United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989)
464. ("The plain meaning of legislation should be conclusive, except in the 'rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.'" (alteration in original) (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571 (1982))).
465. See RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra Corp.), 361 F.3d 257, 269-70 (4th Cir. 2004) (holding that the language of section 365(c) should be interpreted by literally reading its text because the legislative history does not conclusively indicate contrary intent).
466. 11 U.S.C. § 365(c)(1)(A) (2006).
467. See id. (preventing a trustee from assuming or assigning an executory contract if "applicable law excuses a party... from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession").
468. For a discussion of the rationale behind the bar on assigning patents, see supra note 91 and accompanying text.
469. S. REP. NO.95-989, at 59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5845.
470. See, e.g., In re Sunterra, 361 F.3d at 265 (acknowledging that both parties agreed that a literal reading of the statute prohibits "assuming or assigning" an agreement);
471. Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 751 (9th Cir. 1999) ("Catapult urges us to abandon the literal language of §365(c)(1) in favor of an alternative approach ....").
472. Crooks v. Harrelson, 282 U.S. 55, 59-60 (1930).
473. See In re Sunterra, 361 F.3d at 268 (noting that "[i]n assessing whether a plain reading of a statute implicates the absurdity exception, however, the issue is not whether the result would be 'unreasonable,' or even 'quite unreasonable,' but whether the result would be absurd").
474. Id. at 267-68;
475. see also In re Cardinal Indus., Inc., 116 B.R. 964, 976 (Bankr. S.D. Ohio 1990) ("The literal application of these provisions, argues the Trustee, makes no sense. Therefore, the [Trustee argues that the] Court must look to the legislative history and ascertain the intent of Congress.");
476. 3 COLLIER ON BANKRUPTCY ¶ 365.06[l][d][iii] (Aan N. Resnick & Henry J. Summer eds., 15th rev. ed. 2009) (arguing that sound bankruptcy policy supports the actual test).
477. In re Sunterra, 361 F.3d at 268;
478. see also supra notes 7-8 and accompanying text.
479. See, e.g., Institut Pasteur v. Cambridge Biotech Corp., 104 F.3d 489, 490-491 (1st Cir. 1997) (describing how the patent licenses in question were essential to the debtor's line of business).
480. See, e.g., Bonneville Power Admin, v. Mirant Corp. (In re Mirant Corp.), 440 F.3d 238, 254-55 (5th Cir. 2006) (upholding the bankruptcy court's application of the actual test);
481. In re Sunterra, 361 F.3d at 261-63 (noting that the bankruptcy court and district court chose to apply the actual test instead of the hypothetical test); In re Catapult, 165 F.3d at 755 (concluding that the bankruptcy court and district court erred in allowing the debtor-in-possession to assume the patent licenses in question);
482. Institut Pasteur, 104 F.3d at 495 (affirming the bankruptcy court's confirmation of a Chapter 11 reorganization plan which allowed the debtor-in-possession to assume the patent licenses in question).
483. Nelson v. George Wong Pension Trust (In re Nelson) 391 B.R. 437, 452 (B.A.P. 9th Cir. 2008).
484. See Lamie v. U.S. Tr., 540 U.S. 526, 542 (2004) ("If Congress enacted into law something different from what it intended, then it should amend the statute to conform it to its intent");
485. Hartford Underwriters Ins. Co. v. Union Planters Bank, NA, 530 U.S. 1, 13-14 (2000) ("Achieving a better policy outcome ... is a task for Congress, not the courts.").
486. See United States v. Noland, 517 U.S. 535, 542 n.3 (1996) ("[I]t is up to Congress, not this Court, to revise the [policy] if it so chooses.");
487. Union Bank v. Wolas, 502 U.S. 151, 162 (1991) ("Whether Congress has wisely balanced ... sometimes conflicting policies ... is not a question that we are authorized to decide.").
488. See In re Catapult, 165 F.3d at 754 (holding that the actual test "effectively engrafts a narrow exception onto §365(c)(1)"
489. and pointing out that it "reads the word 'assume' out of subsection (c) with respect to debtors in possession" (citing In re Fastrax, Inc., 129 B.R. 274, 277 (Bankr. M.D. FIa. 1991))).
490. Id.
491. Sigmon Coal Co. v. Apfel, 226 F.3d 291, 308 (4th Cir. 2000).
492. Id.
493. These rules are codified in Tide 11 of the United States Code. Congress passed the Bankruptcy Code under its Constitutional grant of authority to "establish ... uniform Laws on the subject of Bankruptcies throughout the United States." U.S. CONST, art. I, § 8, cl. 4.
494. For further discussion of these interests, see supra Section I.B.
495. For a discussion of the factors that led to the inclusion of the patent clause in the U.S. Constitution, see Craig Allen Nard & Andrew P. Morriss, Constitutionalizing Patents: From Venice to Philadelphia, 2 REV. L. & ECON. 223, 299-304 (2006), available at http://www.bepress.com/rle/vol2/iss2/art4.
496. See 11 U.S.C. § 365(c), (f) (2006).
497. See supra Section II. B (explaining that a patent license is merely a promise not to sue for infringement).
498. See Waterman v. Mackenzie, 138 U.S. 252, 255 (1891) ("In equity, as at law, when the transfer amounts to a license only, the title remains in the owner of the patent....").
499. For example, the creditor patent holder may wish to receive royalties or trade secrets based upon research, sale, or development of the patented invention.
500. Some critics argue that the literal reading of section 365(c) would provide a windfall for the nondebtor: if the debtor is outside of bankruptcy, then the nondebtor does not have the option to reject the license; if, however, the debtor files for bankruptcy, then the nondebtor can reclaim the license and potentially resell it at a higher market rate. See N.CP. Mktg. Group, Inc. v. BG Star Prods., Inc., 129 S. Ct 1577, 1578 (2009) (denying petition for certiorari) (statement of Kennedy, J.) (discussing this possible windfall, along with competing concerns about the actual test, but concluding that this "is not the most suitable case for [the Court's] resolution of the conflict").
501. See supra Part II.
502. For example, in Institut Pasteur v. Cambridge Biotech Corp., the circuit court allowed the sale of the debtor's stock to a competitor of the creditor but refused to allow the creditor-licensor to reject the patent license. 104 F.3d 489, 493-94 (1st Cir. 1997). Effectively, this enabled the competitor to gain use of the licensor's patented technology when the creditor would never have offered such a license in the first instance.
503. See id. at 493 (noting plaintiff's argument that "in substance" this was a cross-license to a "complete stranger").
504. Mach. Co. v. Murphy, 97 U.S. 120, 121 (1877) ("Rights secured to an inventor by letters-patent are property");
505. Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1470 (Fed. Cir. 1998) (Newman, J., dissenting) ("The law of patent ownership has its roots in the common law of property....").
506. 94 U.S. 92, 96 (1876).
507. See Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641, 648 (1915) (stating that "the exclusive right conferred by the patent [is] property and the infringement [is] a tortious taking of a part of that property").
508. A 'trespass' occurs when there is an actionable interference with possession of land." Phillips v. Rathbone, 93 P.3d 835, 839 (Or. Ct App. 2004)
509. (citing Smejkal v. Empire Lite-Rock, Inc., 547 P.2d 1363 (Or. 1976)).
510. See, e.g., Poff v. Hayes, 763 So. 2d 234, 240 (Ala. 2000)
511. (clarifying that trespass "is a wrong against the right of possession" (quoting Jefferies v. Bush, 608 So. 2d 361, 362 (Ala. 1992)));
512. Munsey v. Hanly, 67 A. 217, 217 (Me. 1907) ("The gist of the action of trespass ... is the disturbance of the possession.");
513. Lane v. Mims, 70 S.E.2d 244, 246 (S.C 1952) (noting that "the action of trespass ... is founded upon possession");
514. Austin v. Hallstrom, 86 A.2d 549, 549 (Vt 1952) ("The gist of the action of trespass upon the freehold is the injury to the possession.").
515. See, e.g., Simcox v. Hunt 874 So. 2d 1010, 1018-1019 (Miss. Ct App. 2004) (explaining that easements confer a right of use and trespass requires entrance without a right).
516. See, e.g., Tice v. Herring, 717 So. 2d 181, 182 (FIa. Dist Ct App. 1998)
517. Schadewald v. Brule, 570 N.W.2d 788, 795 (Mich. Ct App. 1997) (noting that a party cannot unilaterally increase the burden of an easement);
518. Reinbott v. Tidwell, 191 S.W.3d 102, 109 (Mo. Ct App. 2006)
519. (explaining that if an easement holder exceeds his right of use "he is guilty of trespass" (quoting Smith v. Woodard, 15 S.W.3d 768, 773 (Mo. Ct App. 2000))).
520. See, e.g., Apel v. Katz, 697 N.E.2d 600, 607 (Ohio 1998) (affirming a jury verdict that a person who had a roadway easement across adjacent property, but had used a portion of the property outside the easement, had trespassed).
521. See, e.g, Conner v. Lucas, 920 P.2d 171, 175 (Or. Ct App. 1996) (finding that planting trees on a roadway easement was a trespass because this use was inconsistent with the use of the property as a roadway).
522. See, e.g., Tusa v. Cablevision, 691 N.Y.S.2d 105, 106 (App. Div. 1999) (holding that where a utility easement was for the benefit of homeowners in a subdivision, the installation of a line for the benefit of an owner outside the subdivision was a trespass).
523. Cf. Conner, 920 P.2d at 175 (finding the defendant liable for misuse of an easement).
524. 547 U.S. 388 (2006).
525. See MercExchange, L.L.C. v. eBay, Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005) (noting the "general rule that courts will issue permanent injunctions against patent infringement absent exceptional circumstances"), vacated, 547 U.S. 388.
526. See eBay, 547 U.S. at 391 (detailing the four-factor test). A recent study published in IPToday.com & found that, post-eBay, district courts were still granting injunctive relief over seventy percent of the time.
527. See Ernest Grumbles, III, Rachel C Hughey & Susan Perera, The Three Year Anniversary of eBay v. MercExchange: A Statistical Analysis of Permanent Injunctions, INTELL. PROP. TODAY, Nov. 2009, available at http://www. iptoday.com/issues/2009/11/articles/three-year-anniversary-eBay-MercExchange. asp (finding that out of 67 district court injunction decisions, 48 (72%) granted relief while 19 (28%) denied relief).
528. See U.S. CONST, art. I, § 8, cl. 8;
529. supra Part II.
530. See N.C.P. Mktg. Group, Inc. v. BG Star Prods., Inc., 129 S. Ct 1577 (2009) (denying petition for certiorari) (statement of Kennedy, J.).
531. Justice Kennedy recognized the importance of finding a suitable case: The division in the courts over the meaning of [section] 365(c)(1) is an important one to resolve for Bankruptcy Courts and for businesses that seek reorganization. This petition for certiorari, however, is not the most suitable case for our resolution of the conflict... In a different case the Court should consider granting certiorari on this significant question. Id. at 1578.
532. See, e.g., Kuney, supra note 17, at 154 ("It may... strike the correct balance between the needs of owners and licensees.").