Gibson Dunn’s year-end update on German law (found here) provides helpful news for any company that does business in Germany, across a broad array of topics. Those in the fashion industry will particularly want to take note of a high-profile case that affects the rights of licensees when a licensor becomes insolvent.
In July 2013, the Higher Regional Court of Munich (Oberlandesgericht München) rendered a judgment that helps to resolve some of the uncertainty under German law as to whether non-exclusive licenses can be terminated by a bankruptcy administrator in case of the insolvency of the licensor as an executory contract (i.e., a contract that has not yet fully been performed) under Section 103 of the German Insolvency Code (Insolvenzordnung - InsO). The case concerned various non-exclusive patent licenses that were granted by Qimonda to Infineon when Qimonda was spun-off from Infineon and went public. When Qimonda went bankrupt, the patent portfolio constituted its most valuable remaining asset. Qimonda's bankruptcy administrator terminated these licenses based on the German Insolvency Code to protect the interests of the estate and Qimonda's debtors. The Munich Court, however, found that the irrevocable, perpetual, fully paid-up, non-exclusive patent licenses granted to Infineon did not constitute “executory contracts” and thus were not subject to the administrator's termination right for ongoing contractual obligations.
The U.S. Court of Appeals for the Fourth Circuit reached a similar conclusion in related proceedings in the U.S., concluding that Section 365(n) of the U.S. Bankruptcy Code also prevented a termination of the U.S. patent licenses by Qimonda's bankruptcy administrator, because the U.S. interest in promotion of technological innovation and the licensee's interests outweighed the interests of Qimonda's debtors.
Given the number of trademarks, copyrights, and design patents that are licensed among international entities in the fashion industry, these cases could be highly relevant if a company that produces apparel, jewelry, footwear, perfume, or cosmetics subject to a license finds that the company that licensed the relevant rights were to file for bankruptcy. The Munich Court decision has been appealed to the German Federal Supreme Court (Bundesgerichtshof - BGH), and the decision itself was fact intensive and could leave room for interpretation in other comparable licensing disputes.