Sales Free and Clear of an Intellectual Property Licensee’s Interests in Bankruptcy –– Looking to In Re Tempnology for Guidance

Uncertainty surrounds many issues that exist at the intersection of bankruptcy law and intellectual property law. Section 363(f) of the Bankruptcy Code permits the debtor to sell assets free of a third party’s interest in such assets, provided one or more preconditions is satisfied. When a debtor rejects a license agreement pertaining to the debtor’s intellectual property, however, § 365(n) of the Bankruptcy Code allows the licensee to choose to retain its rights to use the intellectual property that was the subject of the rejected license agreement. One unsettled question is whether a debtor may sell intellectual property pursuant to § 363(f) and thereby extinguish any interest a nondebtor licensee might have otherwise retained under § 365(n). This Article seeks to bring clarity to this important question. The Article first examines this question in light of the Supreme Court’s decision in Mission Prod. Holdings, Inc. v. Tempnology, LLC. It concludes that the Court’s analysis in Tempnology, buttressed by principles of statutory construction and the relevant legislative history, supports the conclusion that the protections of § 365(n) should not be construed as trumping the free and clear sale power of § 363(f). The Article then examines this result against the backdrop of two competing visions for the role of bankruptcy law—the proceduralist account and the traditionalist account. The Article determines that both theoretical frameworks support the conclusion that the free and clear sale power of § 363(f) should not be curtailed by the protections afforded to licensees in the context of the rejection of an intellectual property license agreement