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Help: My licensor is bankrupt!

With a patent license, the licensee receives permission to use the licensed patent. But what happens if the licensor becomes insolvent?


The answer is surprising: unlike in many countries, licenses in Germany are generally not insolvency-proof. Rather, the insolvency administrator has the free choice to terminate the license agreement. If he does so, the licensee loses his right of use.


The insolvency of the licensor can have devastating consequences for the licensee: He is left empty-handed - often after years of substantial investment. The German legislator is aware that this legal situation is not in the interests of the licensee. However, attempts at reform have failed so far.


It is therefore all the more important for the licensee to draft the license agreement in such a way that he is protected in the best possible way in the event of the licensor's insolvency. In legal practice, there is a range of different options: One popular option is the so-called 'double trust solution', in which the license is transferred to a trustee who holds it for both parties and transfers it to the licensee for exploitation in the event of insolvency. Other solutions are discussed under the headings of security usufruct, pledge and special purpose vehicle.


In recent years, further conceivable solutions have been added as a result of several rulings by the German Federal Court of Justice (see BGH, I ZR 173/14 - 'Ecosoil' on the validity of intra-company licenses in the M&A context).


Nevertheless, there is no panacea when it comes to contract design. Constructing a license agreement that best suits each individual case requires careful examination and risk assessment.


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(article by Börge Seeger, first printed in Life Science Magazine 'transkript', Patent Commentary, p. 18)