I. Current law and practice

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1 Question Q241 National Group: Title: Contributors: Reporter within Working Committee: Egyptian National Group IP licensing and insolvency Mohamed-Hossam LOUTFI Mohamed-Hossam LOUTFI Date: May 11, 2014 Questions I. Current law and practice 1) Does your country have a registration system for IP licenses? If yes, please describe this system. Yes, Egypt holds a registry for IP licenses with the competent ministries, i.e., Ministry of Culture for copyright and related rights, Ministry of Agriculture for breeders rights, Ministry of Scientific Research for patents, Ministry of Health for pharmaceutical products, Ministry of Trade for marks and industrial designs. The beneficiary of a license is under obligation to submit an original copy of its license to be registered as to enable him to exercise his rights. For patents, the patent office holds this registry. As for copyright, the Ministry of Culture holds this registry. 2) Describe the type or types of bankruptcy and insolvency proceedings that are available in your country. Egyptian law differentiate between bankruptcy and insolvency. Bankruptcy applies to commercial transactions and insolvency applies to civil transactions. The Commercial Code describes the bankruptcy and the Civil Code describes the insolvency proceedings. For traders, the Commercial Code is applicable. For civil persons (individuals), the Civil Code is applicable. The bankruptcy proceedings are described in the Commercial Code (Law 17 for the year 1999) from Article 550 to Article 772. The types of the bankruptcy are: a trader s bankruptcy and a company s bankruptcy. The insolvency proceedings are described in the Civil Code from Articles 249 to 264. There are no different types of insolvency for individuals in the Egyptian law.

2 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 Commercial Law that governs bankruptcy proceedings addresses IP rights or IP licenses without distinction from other types of contracts, assets, and property rights. It is worth to be noted that the Anglo-Saxon System does not differentiate between bankruptcy and insolvency. Both are subject to the bankruptcy laws. While the classic Latin system confines bankruptcy to traders, insolvency is only applied to non traders. 4) 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. Declaration of bankruptcy does not terminate IP agreements. For bankruptcy, Article 571 of Commercial Law regulates the functions of a bankruptcy administrator. He will be appointed by the court as an agent for the creditors to administrate the bankruptcy procedures, named Le Syndic. Article 573 states that this agent will be liable to administrate and preserve all assets of the debtor. Hence, the administrator shall continue to implement the IP license. b) Are equitable or public policy considerations relevant to how an IP license is treated? Article 623/1 provides that the declaration of a bankruptcy does not terminate IP license ipso facto. Only economic considerations are relevant. There are two legal theories regarding bankruptcy; one adopts that bankruptcy regime is a universal regime and therefore follows the bankruptcy of the main domicile of the enterprise and the other theory adopts the local view that looks to where the assets are located. Both theories regard bankruptcy procedures of public order. The UNCITRAL has issued a model standard law that covers transborder bankruptcy transactions. c) Is the law different for different types of bankruptcy and insolvency proceedings in your country? Yes. The Commercial Law distinguishes between the proceedings of a bankruptcy applicable to a trader (Articles 550 to 570) and that of a company (Articles 698 to 711). For insolvency, the Civil Code applies to the individual (non-trader) debtor (Articles 249 to 264). d) Does the law require, or give preference to, IP licenses that have been registered according to a registration scheme? Yes. The law requires that the IP licenses must be registered. A registered IP license will be easily recognised by the syndic as an obligation of the debtor. 2

3 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? Yes. The pledge or the security interest (right of usufruct) must be recorded with the registration of the IP license to be effected. 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? If the IP license agreement qualifies as "a transfer of technology" agreement, the Egyptian law must apply to any contract covering the technology applicable in Egypt, with no regard to the nationalities of the parties or the physical location of the assets. 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? Yes. It is the rule of pacta sunt servanda ; the parties are free to provide whatever they want in their contract; including automatic termination except for the governing law and settlement of disputes that should be before a court or arbitration in Egypt. Optional termination may be subject to the decision of the court. 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? Yes. 3

4 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? The rights and the obligations between the transferee and the remaining, original party or parties are subject to their agreement. It does not matter if the insolvent party is a licensor, a licensee or a sub-licensee. 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 (and if so, are there any limitations on such use)? Does the (former) licensee have a claim to obtaining a new license? The licensee shall not be able to continue using the underlying IP rights in the event an IP license is terminated during a bankruptcy or insolvency proceeding in Egypt. The licensee does not have a claim to obtain 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? The IP license could not be terminated if only one of the joint owners becomes insolvent. 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? All the suggested seniors are applicable on a non-statutory basis. 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? We do have a registration system for IP licenses which is considered useful. These registration systems are not very burdensome. There are aspects of the system that could be improved. 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? Our law does not differentiate between IP licenses and other types of contracts. The bankruptcy proceedings cover all types of IP rights including IP licenses. 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 this law that could or should be improved to limit this ability? Should equitable or public policy considerations be taken into account? 4

5 There are no aspects of Egyptian law that could or should be improved to limit the bankruptcy administrator s ability to adopt, assign, modify, or terminate an IP license. Equitable or public policy considerations should be taken into account. However, only economic considerations are considered. 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. III. Proposals for substantive harmonisation 16) Is harmonization of laws relating to treatment of IP licensing in bankruptcy and insolvency proceedings desirable? Yes. 17) Please provide a standard that you consider to be best in each of the following areas: a) What restrictions, if any, should be placed on a bankruptcy administrator s ability to adopt, assign, modify, or terminate an IP license in the event of bankruptcy of a party to that license? Should these restrictions be statutory? There should be restrictions placed on the administrator to respect the agreement of the parties in case of bankruptcy. Such restrictions should be statutory. b) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon pre-bankruptcy registration of the IP license? c) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon whether the bankrupt party is the licensor or a licensee? d) regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon whether the licensee has a security interest in the underlying IP rights? e) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon whether the license is a sub-license or a main license? f) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon whether the license is sole, exclusive or nonexclusive? 5

6 g) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon the type or types of IP rights that are licensed in the IP license? h) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon equitable or public policy considerations? The restrictions should be based on equitable or public considerations. i) With regard to sub-paragraph 17(a) above, to what degree, if at all, should such restrictions depend upon the language of the license itself, e.g., a right to terminate upon insolvency or a prohibition against assignment? The agreement of the parties should be paramount. j) In the event a bankruptcy or insolvency proceeding in your country involves treatment of an IP license between a domestic entity and a foreign entity, which national bankruptcy laws should be applied? Should this depend on the choice of law clause in the IP license? Should this depend on the physical location of the entities or the assets involved? It should depend on the location of the assets and not the choice of law provision. 18) To the extent not already stated above, please propose any other standards that you believe would be appropriate for harmonization of laws relating to treatment of IP licenses in bankruptcy and insolvency proceedings. None. Summary Q241 Egypt holds a registry for IP licenses with the competent ministries. The beneficiary of a license is under obligation to submit an original copy of its license to be registered. For patents, the patent office holds this registry. As for copyright the ministry of culture holds this registry. A registered IP license will be easier recognised by the syndic as an obligation of the debtor. The Commercial Code describes the bankruptcy procedures that applies to traders while the Civil Code describes the insolvency proceedings that applies to individuals. The Commercial law addresses IP rights or IP licenses without distinction from other types of contracts, assets, and property rights. Moreover, the declaration of bankruptcy does not terminate IP agreements. There are two legal theories regarding bankruptcy; one adopts that bankruptcy regime is a universal regime and therefore follows the bankruptcy of the main domicile of the enterprise and the other theory adopts the local view that looks to where the assets are located. Both theories regard bankruptcy procedures of public order. 6