Under Section 365, what protection does the actual test provide to licensees in bankruptcy?

Under Section 365, what protection does the actual test provide to licensees in bankruptcy?

• A. The other party is not forced to accept performance from a different entity.
• B. The debtor cannot assume any license.
• C. The license automatically terminates on bankruptcy.
• D. The license may be assigned to another entity with court approval.

Answer: (C)

Under Section 365, licenses are treated as executory contracts in bankruptcy, so the debtor can choose to assume or reject them. A key protection for licensees is that intellectual property licenses have special rules to preserve the licensee’s rights even if the debtor’s estate handles the contract differently later. In particular, IP licensees may be allowed to continue using the licensed IP under the terms of the license after rejection, and the license can often be assigned to a successor entity with court approval, ensuring the licensee’s continued rights despite the bankruptcy process. Automatic termination of the license simply because of bankruptcy is not the standard outcome; the statute focuses on allowing continuation or orderly transfer rather than immediate wipeout of the license.

Under Section 365, licenses are treated as executory contracts in bankruptcy, so the debtor can choose to assume or reject them. A key protection for licensees is that intellectual property licenses have special rules to preserve the licensee’s rights even if the debtor’s estate handles the contract differently later. In particular, IP licensees may be allowed to continue using the licensed IP under the terms of the license after rejection, and the license can often be assigned to a successor entity with court approval, ensuring the licensee’s continued rights despite the bankruptcy process. Automatic termination of the license simply because of bankruptcy is not the standard outcome; the statute focuses on allowing continuation or orderly transfer rather than immediate wipeout of the license.