Ph.D. Radislava Kosseva, LL.M., Polina Bakalova, LL.M.

Transcription

1 Question Q241 National Group: Title: Contributors: Bulgarian National Group of AIPPI IP Licensing and Insolvency Ph.D. Radislava Kosseva, LL.M., Polina Bakalova, LL.M. Reporter within Working Committee: Date: 15 May 2014 Questions I. Current law and practice Groups are invited to answer the following questions under their national laws. If both national and regional laws apply to a set of questions, please answer the questions separately for each set of laws. Please number your answers with the same numbers used for the corresponding questions. 1) Does your country have a registration system for IP licenses? If yes, please describe this system. Yes for Industrial Property licensing agreements. No for Copyrights and Neighbouring Rights licensing agreements. According to the Law on Patents and Utility Model Registration, the Law on Marks and Geographical Indications, the Law on Industrial Design, the Law on Topography of Integrated Circuits and the Law on the Protection of New Plant Varieties and Animal Breeds, licensing agreements concluded for the provision of the right to use a respective object of industrial property protection are subject to registration in the State Registers of the Patent Office of the Republic of Bulgaria. The effect of license agreements with regard to third parties starts from the date of publication in the Official Bulletin of the Patent Office of the entry of the agreement in the State register of the Office. From the same date, the rights arising from the agreement shall be made public and shall be enforceable against the conscientious third parties. 2) Describe the type or types of bankruptcy and insolvency proceedings that are available in your country. Insolvency proceedings in Bulgaria are regulated by the Commercial Law (CL) and aim to provide a fair satisfaction of creditors and the possibility of rehabilitation of the

2 debtor s enterprise. In the proceedings the interests of creditors, the debtor and its employees are taken into account (Art. 607 of the CL). Under Art. 607a of the Commercial Law, proceedings shall be instituted for a merchant who is insolvent. In addition to cases of insolvency, bankruptcy proceedings shall be instituted also in the case of an over-indebtedness of a limited liability company, a joint-stock company, or a public partnership limited by shares. Bankruptcy proceedings shall be instituted pursuant to an application in writing submitted to the court by the debtor, respectively by the liquidator or the debtor's creditors under a commercial transaction, and by the National Revenue Agency, for a public obligation to the state or municipalities related to the commercial activity of the debtor (Art. 625 of the CL). The bankruptcy estate includes the property rights of the debtor as of the date of initiating the proceedings, including the rights arising from license agreements concluded in the capacity of a licensor or a licensee. 3) Does the law that governs bankruptcy and insolvency proceedings in your country address IP rights or IP licenses as distinct from other types of contracts, assets, and property rights? If yes, is the law statutory, regulatory, or based on precedent? Please identify any relevant statutes or regulations. The legislation governing insolvency proceedings does not provide for specific rules, dealing with licensing agreements for objects of industrial and intellectual property and intangible assets, included in the portfolio of the company concerning the rights on objects of industrial property. Merchant under the Commercial Law is defined as any natural or legal person who executes any of the deals listed in Art.1 (1) of the Law, whereas item 10 of the said rule explicitly refers to licensing agreements. By its legal nature, a license agreement has certain peculiarities, either similar or identical to the characteristics of a sale agreement, a lease/rental agreement. By its nature a licensing agreement is sui generis. Being a commercial transaction within the meaning of the Commercial Law, the license agreement is treated in the legal regulation of bankruptcy in the same way as all other commercial transactions. The legal logic for this stems from the fact that such an agreement binds the parties by legal relationships, affected in possible bankruptcy proceedings, as well as by the legal consequences for the creditor and the debtor - regardless of whаt the capacities of the licensor and the licensee are under the agreement. Please answer the following sub-questions based upon the law and jurisprudence in your country that governs bankruptcy and insolvency proceedings: a) Describe the law and its effects on a bankruptcy administrator s ability to adopt, assign, modify, or terminate an IP license. Under Art. 635 of the Commercial Law, upon institution of bankruptcy proceedings, or in cases provided for by the Law, the debtor shall continue his activities under the supervision of the trustee in bankruptcy appointed by the Court to serve the bacruptcy proceedings). He may conclude new transactions with preliminary approval of the trustee in bankruptcy only, and in compliance with the measures, determined by the ruling on institution of bankruptcy proceedings or by other order of the district court having jurisdiction for the principal place of business of the company in whose competence the insolvency proceedings are. The court can deprive the debtor of the

3 right to manage and dispose of its property and may grant this right to the bankruptcy administrator, if the court finds that by its actions the debtor jeopardizes the interests of creditors. Creditors whose claims have arisen after the date of the decision to open insolvency proceedings shall receive payment at maturity, and where they have not received payment at maturity, they shall be satisfied in the manner provided for by law. Under the conditions provided for by law, the bankruptcy administrator is entitled to make requests for termination, cancellation or rescission of agreements to which the debtor is a party. The trustee in bacruptcy may terminate any agreement to which the debtor is a party if the agreement is not performed in whole or in part (Art. 644 (1) of th CL), but the law does not authorize the bankruptcy administrator to conclude a new deal, the transfer of rights by a license agreement being in its essence such type of deal. Upon termination of the agreement the other party shall be entitled to compensation for the damages suffered (Art. 644 (4) of the CL). The preservation of the agreement under which the debtor makes regular payments, does not obligate the bankruptcy administrator to make the payments that are past due before the date of the decision to initiate the insolvency proceedings. Under Art. 646 of the CL, a payment under a deal, involving a right or a property from the bankruptcy estate, shall be considered null and void with respect to the bankruptcy creditors if it is made not in accordance with the order establshed in the proceedings after the date of initiation of bankruptcy proceedings. b) Are equitable or public policy considerations relevant to how an IP license is treated? The considerations concerning the treatment of a license to transfer the right to use an item of industrial or intellectual property arise from the legal nature of the license agreement and its similarities with other types of commercial contracts, as mentioned above. Public policy is not relevant to the legal regulation of commercial transactions, and in particular the license agreement for industrial and intellectual property rights. c) Is the law different for different types of bankruptcy and insolvency proceedings in your country? d) Does the law require, or give preference to, IP licenses that have been registered according to a registration scheme? In the context of the above question, the fact whether the licensing agreement is entered into the State Register of the Patent Office or is not entered in this register, as well as the registration procedure itself is not relevant to the bankruptcy proceedings. The license agreement shall be in force with regard to the parties from the moment of its conclusion. The rights arising from the agreement shall be effective from the same date. Regardless of whether the procedures for entering the license agreement has been initiated or not, the existing contractual relationship and the possible failure of one party to the other party is the relevant legal fact which is

4 treated in bankruptcy proceedings as a relationship of an insolvent debtor to a creditor, becoming a reason to initiate bankruptcy proceedings. e) Would the existence of a pledge of or security interest in the IP rights for the benefit of the licensee affect application of the law in the case of an insolvent licensor? Special laws for all industrial property titles regulate the possibility for protected objects to become the subject of a registered pledge. The establishment of a registered pledge is subject to entering in the register of pledges and publication in the Official Bulletin of the Patent Office. The matter of the registered pledge is governed by the Law on Registered Pledges. The establishment of a registered pledge on the part of the licensor does not affect the bankruptcy proceedings of an insolvent licensee. The insolvency of the licensee, however, and the non-performance of its obligation under the license agreement (payment of license royalties) is a direct reason for the termination of the licensing agreement. The loss of earnings under the license agreement with regard to the licensee threatens the possibility of servicing the loan on the registered pledge and creates a high probability for the licensor, being a debtor under the registered pledge, to become insolvent in respect of this creditor. In this case, according to the Commercial Law, the object of the registered pledge shall be separated, it shall be removed from the bankruptcy estate and shall be used to satisfy the creditor, in whose benefit the registered pledge has been established. By performing this function, the registered pledge leads to partial reduction of the bankruptcy estate, and in that sense, affects the general proceedings. f) Is the law limited to or applied differently among certain types of IP rights (e.g., patents versus trademarks or copyrights)? If yes, please explain. g) Does the law apply differently to sub-licenses versus main licenses? h) Does the law apply differently to sole or exclusive licenses versus nonexclusive licenses? i) Does the law apply differently if the bankrupt party is the licensee versus the licensor? j) Please explain any other pertinent aspects of this law that have not been addressed in the sub-questions above. None. 5) Would a choice of law provision in an IP license agreement be considered during a bankruptcy or insolvency proceeding in your country? Is this affected by the nationalities of the parties to the IP license or by the physical location of the assets involved?

5 Contractual clauses concerning the jurisdiction shall not be considered in bankruptcy proceedings regardless of the nationalities of the parties to the IP license or by the physical location of the assets involved. According to Art. 621a (1) Item 1 of the Commercial Law the jurisdiction specified by law concerning bankruptcy proceedings can not be altered by agreement of the parties involved. 6) Would a clause providing the solvent party in an IP license agreement the right to terminate or alter an IP license be considered enforceable during a bankruptcy or insolvency proceeding in your country? Would the answer be different if the clause provides for automatic termination as opposed to an optional right to terminate? Under the conditions provided for by law, the trustee in bankruptcy is entitled to make requests for termination, cancellation or destruction of agreements to which the debtor is a party. The bankruptcy administrator may terminate any agreement to which the debtor is a party if the agreement is not performed in whole or in part, but the law does not authorize the bankruptcy administrator to conclude a new deal, the transfer of rights by a license agreement being in its essence such type of deal. Upon termination of the agreement the other party is entitled to compensation for the damages suffered. The answer is different in the case of providing for an automatic termination clause. In this case, the termination of the agreement is done automatically with the initiation of the bankruptcy proceedings, and not by a decision of the trustee in bankruptcy. 7) Would a clause in an IP license agreement that restricts or prohibits transfer or assignment of the IP license be considered enforceable during a bankruptcy or insolvency proceeding in your country? Such a provision is not considered applicable if on the grounds of Art. 607 of the Commercial Law it is proved that its removal is in the interest of the debtor and the creditor. Insolvency proceedings aim to ensure fair satisfaction of creditors and the possibility of rehabilitation of the debtor s enterprise. In bankruptcy proceedings the interests of creditors, the debtor and its employees are taken into account. Under a sanction by the Court, the trustee in bankruptcy may derogate restrictive clauses. His/her duties include the performance of other actions required by law or assigned by the Court, beyond those mentioned in the norm which defines the powers of the trustee in bankruptcy Art.658 (1) of the Commercial Law. 8) In the event of a transfer or assignment of an IP license resulting from a bankruptcy or insolvency proceeding, what are the rights and obligations between the transferee and the remaining, original party or parties to the IP license? Does it matter if the insolvent party is a licensor, a licensee, or a sub-licensee? In the event of a transfer or assignment of an IP license resulting from a bankruptcy or insolvency proceeding does no new rights and obligations arise between the transferee and the remaining, original party or parties to the IP license. It does not matter which of the parties is in bankruptcy. 9) In the event an IP license is terminated during a bankruptcy or insolvency proceeding in your country, would the licensee be able to continue using the underlying IP rights

6 (and if so, are there any limitations on such use)? Does the (former) licensee have a claim to obtaining a new license? In the cited case the licensor is able to continue using of the protected title without restriction, including to claim the acquisition of a new license. 10) If IP rights that are jointly owned by two parties have been licensed to a licensee by one or both of the joint owners, and one of the joint owners becomes insolvent, how would the IP license be treated in a bankruptcy or insolvency proceeding in your country? Could the IP license be terminated even if this would result in termination of an agreement between the solvent, joint rights owner and the solvent licensee? In this case, the presence of co-ownership in the license does not alter the general course of the proceedings. 11) Are there non-statutory based steps that licensors and licensees should consider in your country to protect themselves in insolvency scenarios, e.g., the creation of a dedicated IP holding company, creation of a pledge or security interest in the licensed IP for the benefit of the licensee, registration of the license, and/or inclusion of certain transfer or license clauses? Insolvency proceedings, stipulated in Part IV of the Commercial Law, aim to ensure fair satisfaction of creditors and the possibility of rehabilitation of the debtor s enterprise. In bankruptcy proceedings the interests of creditors, the debtor and its employees are taken into consideration. All actions that could protect the interests of the debtor in bankruptcy proceedings are governed by Bulgarian legislation. II. Policy considerations and proposals for improvements to your current system 12) If your country has a registration system for IP licenses, is it considered useful? Is it considered burdensome? Are there aspects of the system that could be improved? In accordance with the special laws governing the matter of protection of industrial property rights, licensing agreements are subject to registration in the State Registers of the Patent Office, which must be published in the Official Bulletin of the Office. The regime of registration of license agreements for different objects of protection is fully harmonized with the relevant regimes in the European System for Industrial Property Protection. 13) If the law that governs bankruptcy and insolvency proceedings in your country does not address IP rights or IP licenses as distinct from other types of contracts, assets, and property rights, should it do so? If yes, should the law be statutory? The treatment of industrial property rights and licensing agreements in bankruptcy proceedings is subject to the general regime governing bankruptcy in Bulgaria. Explicit regulations beyond the general regime would unnecessarily complicate and impede legal proceedings and would not guarantee a positive effect on legal entities in bankruptcy proceedings. 14) With regard to a bankruptcy administrator s ability to adopt, assign, modify, or terminate an IP license under the current law of your country, are there aspects of

7 this law that could or should be improved to limit this ability? Should equitable or public policy considerations be taken into account? There are no such aspects. The definition of the bankruptcy administrator s powers is entirely subordinated to the purpose of the bankruptcy proceedings to ensure a fair satisfaction of creditors and the possibility of rehabilitation of the debtor s enteprise. 15) Are there other changes to the law in your country that you believe would be advisable to protect IP licenses in bankruptcy? If yes, please explain.