Articles Posted in Intellectual Property

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On July 30, 2015, Relativity Media, along with 144 of its affiliates, filed a Chapter 11 bankruptcy.  The multi-million dollar entertainment company, which produced films such as The Social Network, The Fighter, Limitless, and others, is headquartered on Beverly Blvd. in Beverly Hills.  As of the date of the bankruptcy, according to its court filings, Relativity and its affiliates had approximately 89 full- and part-time employees and approximately 760 temporary production personnel in the film and television side of the business.

Lead bankruptcy counsel for Relativity are Rick Wynne, Bennett Spiegel, and Lori Sinanyan, three well-known Los Angeles bankruptcy lawyers.  The most recent hearing in the case on August 25 was an all-day affair to consider Relativity’s request for debtor-in-possession financing and for approval of procedures so that it can sell all of its assets within the next six weeks.  At that hearing, Relativity’s lenders — who are owed $350 million on account of pre-petition obligations and another approximately $50 million which they have advanced or committed to advance since the filing and who are also the proposed buyers of all of the assets for a credit bid of approximately $250 million — were represented by Mark Shinderman, another prominent Los Angeles bankruptcy practitioner.   At that same Court hearing, Mr. Wynne and Mr. Shinderman sparred for hours with Evan Jones, another noted Los Angeles bankruptcy attorney, who represents a hedge fund that had also advanced money to Relativity.

Others making appearances at the Court hearing were veteran Los Angeles bankruptcy attorneys Joseph Kohanski, representing the directors’, screen actors’ and writers’ guilds, and Ted Stoleman, on behalf of a licensor of the film Act of Valor.  A review of the case docket shows notices of appearance in the case by many other Los Angeles bankruptcy lawyers including Brian Davidoff of our office, Peter Gilhuly, Pamela Webster, Sam Newman and others, representing a variety of Los Angeles-based production companies, talent, or other creditors or contract parties of Relativity.

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Intellectual property (“IP”) can act as collateral to be pledged to secure an extension of credit.  For example, a company that borrows money from a bank can pledge its patents as collateral for the loan.  The bank (referred to as the “secured creditor”) in this case will of course want to make sure that its security interest in the IP can be enforced against the borrower if the borrower defaults on the loan.

What Happens to Your Security Interest in a Debtor’s Intellectual Property in Bankruptcy?

  • It is Important to Hold a Perfected Security Interest in Bankruptcy
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What is IP in the Bankruptcy World?

In bankruptcy, intellectual property (IP) licenses are considered property of the bankruptcy estate, and a bankrupt party can do a variety of things with these licenses.  It is important for holders of IP licenses to know what the possibilities are.  But first, what exactly constitutes IP under the Bankruptcy Code?

The Bankruptcy Code defines IP to include: trade secrets; patents; patent applications; and copyrights.  Curiously, the Bankruptcy Code’s definition of IP does not include trademarks, and courts are divided regarding whether trademarks should be included in IP, as the term is defined under the Code.  Most courts have interpreted the omission of “trademarks” from the definition to mean that trademarks are treated differently than the other forms of IP in bankruptcy.

IP Licenses Are Generally Considered to Be Executory Contracts in Bankruptcy

Although the term “executory contract” is not defined in the Bankruptcy Code, it generally includes contracts on which performance remains due to some extent on both sides.  Under the Bankruptcy Code, an IP license is generally considered to be an executory contract because such a license almost always requires some form of continuing performance by both sides.  For example, a licensee must continue to pay royalties in order to be able to use the IP, and a licensor is obligated to continue to refrain from suing the licensee for infringement (so long as the agreed-upon royalty payments are made).  These obligations constitute outstanding “performance” sufficient to make an IP license an executory contract.  Because IP licenses are considered executory contracts, a bankrupt party has certain options, described below, regarding what it can do with these licenses. Continue reading