On December 3, 2013, the U.S. Court of Appeals for the Fourth Circuit confirmed the decision of the U.S. Bankruptcy Court for the Eastern District of Virginia in Jaffe v. Samsung et al. This case involves the application of Section 365(n) of the U.S. Bankruptcy Code to protect licenses of U.S. intellectual property rights even in the context of non-U.S. bankruptcies where those protections are not available under the applicable foreign bankruptcy law. In general, Section 365(n) provides the right of licensees to continue using licensed intellectual property when the debtor licensor or its bankruptcy trustee rejects the license agreement in a bankruptcy proceeding. The appeal to the Fourth Circuit arose out of the Bankruptcy Court for the Eastern District of Virginia's decision in October 2011 in In re Qimonda that application of Section 365(n) was necessary in order to prohibit the bankruptcy trustee of a bankrupt German company from unilaterally rejecting the outstanding licenses.

In the Qimonda case, Qimonda AG filed for insolvency in Germany in 2009. Dr. Michael Jaffe, the insolvency administrator, elected to essentially cancel a number of existing cross-license agreements, as permitted under German insolvency law. In ruling for the licensees, the U.S. bankruptcy court decided that not protecting the licensees' rights under Section 365(n) of the Bankruptcy Code would be manifestly contrary to the public policy of the United States.

The Fourth Circuit recognized that a balancing test is required to weigh the interests of the existing licensees against the interests of the foreign debtor, and in this particular case, decided that the application of Section 365(n) is necessary in order to ensure that the existing licensees of the debtor's U.S. patents are sufficiently protected.

Here is a link to the Fourth Circuit's decision - http://www.ca4.uscourts.gov/Opinions/Published/121802.P.pdf.

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