Institut Pasteur v. Cambridge Biotech Corporation involves bankruptcy licenses. Which test does Section 365 apply that tends to favor licensees?

Institut Pasteur v. Cambridge Biotech Corporation involves bankruptcy licenses. Which test does Section 365 apply that tends to favor licensees?

• A. The actual test under Section 365.
• B. A hypothetical test.
• C. The substantial-performance test.
• D. The automatic-stay test.

Answer: (A)

When a debtor in bankruptcy faces the decision to assume or reject an IP license, Section 365 focuses on what actually needs to be cured and compensated. The test applied here is the actual test, which looks at the real, concrete defaults and the actual obligations that must be cured to keep the license in force. This approach tends to favor licensees because it keeps the cure requirements tied to what has actually happened and what must be paid to continue performance, rather than imposing hypothetical or speculative obligations. If the hypothetical test were used, the court would consider future or potential breaches as if they were certain, which could inflate cure costs and threaten the licensee’s ability to continue operating under the license. The substantial-performance test is a broader contract-law concept about whether a party has performed enough to avoid breach, not the specific cure-and-assume analysis under Section 365. The automatic-stay test concerns how the bankruptcy stay operates, not how licenses are cured and assumed. So, the test under Section 365 that tends to favor licensees is the actual test.

When a debtor in bankruptcy faces the decision to assume or reject an IP license, Section 365 focuses on what actually needs to be cured and compensated. The test applied here is the actual test, which looks at the real, concrete defaults and the actual obligations that must be cured to keep the license in force. This approach tends to favor licensees because it keeps the cure requirements tied to what has actually happened and what must be paid to continue performance, rather than imposing hypothetical or speculative obligations.

If the hypothetical test were used, the court would consider future or potential breaches as if they were certain, which could inflate cure costs and threaten the licensee’s ability to continue operating under the license. The substantial-performance test is a broader contract-law concept about whether a party has performed enough to avoid breach, not the specific cure-and-assume analysis under Section 365. The automatic-stay test concerns how the bankruptcy stay operates, not how licenses are cured and assumed.

So, the test under Section 365 that tends to favor licensees is the actual test.