1) Does your country have a registration system for IP licenses? If yes, please describe this system.

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1 Question Q241 National Group: Title: Contributors: Reporter within Working Committee: The Netherlands IP licensing and insolvency Jaap BREMER; Arnout GIESKE; Lily GEERDES- KLYMOWSKY; Bernard LEDEBOER; Michiel ODINK; Jana VAN OLST; Wouter PORS; Fleur TUINZING-WESTERHUIS; Erik VISSCHER; Karin VERZIJDEN; Joost BEKKERS; Jan- Pieter HUSTINX; Huib BERENDSCHOT Huib BERENDSCHOT Date: 7 APRIL 2014 Questions SUMMARY Save for reference to licenses in specific IP law, the term is not defined elsewhere in the law. A license agreement is widely considered to be a reciprocal agreement by which the licensor grants a license, the right to use, particular IP to the licensee. The (main) purpose of the bankruptcy is liquidation of the estate for the benefit of the creditors. The proceeds of the liquidation of the estate will be divided between the creditors in accordance with their claims. The claim of the licensee (to be able to continue the use of the IP) has no priority over any other claims. The liquidator does not have to respect the contract and the ability for the Licensee to continue to use the IP may be highly uncertain. The IP license will be dealt with in the best interest of the creditors. These interests may not match the interest of the licensee. 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. 1) Does your country have a registration system for IP licenses? If yes, please describe this system. Licenses granted with respect to registered industrial property rights can also be registered. In particular, licences can be registered for patents (art 56 lid 2 Dutch Patent Act), for Benelux trademarks ( art 2.33 Benelux Convention on Intellectual Property, BCIP ), for EU trademarks ( art 23 Regulation 207/2009), for Benelux Design rights (art 3.27 BCIP), Community Design rights (art 33 (2) Regulation 6/2002), topographies of semiconductors ( art 14 lid 3 Semiconductor Act) and for Dutch Plant Breeder s Rights (art 63 (2) Seeds and Planting Materials Act, SPM"). There is no system for the registration of licenses relating to copyright 1

2 Registration of the licences is neither mandatory nor a constitutive requirement for the existence of the license. However, the relevant IP laws provide that the license will have third party effect upon registration. Although the statutory provisions do not clarify what is meant by third party effect, there appears to be agreement in the legal literature that this means that a third party who acquires the licensed IP right, must respect the license, as he cannot claim he was not aware that the license had been granted. 2) Describe the type or types of bankruptcy and insolvency proceedings that are available in your country. Three types of bankruptcy and insolvency proceedings can be distinguished in the current Dutch Bankruptcy Act ( DBA ): (1) Bankruptcy; (2) Suspension of payments; and (3) Debt restructuring for private individuals. The latter may fall outside the scope of this paper, however for the sake of completeness, the debt restructuring for private individuals will also be described. (1) (Bankruptcy) According to article 1 DBA, a debtor who is in a situation where he has ceased to pay his due and demandable debts may, on request, be declared bankrupt by court order. The request may be filed by the debtor himself or by the creditors (at least two). The bankruptcy order shall provide for the appointment of one of the members of the District Court as supervisory magistrate in bankruptcy ('rechter-commissaris'), and the appointment of one or more liquidators ( curator ). The liquidator is in charge of the administration and liquidation of the bankruptcy estate. The (main) purpose of the bankruptcy is liquidation of the bankrupt estate for the benefit of the creditors. The proceeds of the liquidation of the estate will be divided between the creditors in accordance with their claims. (2) (Suspension of payments) The suspension of payment gives the debtor a temporary relief against its creditors. Its purpose is to provide an instrument for reorganisation and continuation of the (partially) viable businesses in financial distress. The suspension of payment is only granted to legal entities and to natural persons carrying out a business or practising an independent profession. In contrast to bankruptcy, suspension of payment may only be granted by the court at the request of a debtor. When the request has been granted, the court shall appoint an administrator and a supervisory magistrate. However, the task of the administrator is different than the task of the liquidator in a bankruptcy. In the suspension of payment proceedings, the administrator cooperates with the debtor, and both parties need to have permission from the other party to perform legal acts. (3) (Debt restructuring) Debt restructuring for private individuals is a debt rescheduling scheme for natural persons. According to art 284 DBA, a natural person may apply to the court for an order for the implementation of a debt rescheduling scheme. When the court decides to grant a debt rescheduling scheme to the debtor, the court will appoint an administrator ( bewindvoerder ) and a supervisory magistrate ( rechtercommissaris ) who will supervise the administrator. The administrator is in charge of the administration and liquidation of the debtor s estate. 2

3 The period of the rescheduling scheme is normally three years. In these three years, the court decides how much income the debtor may keep in order to pay for his living. The remaining amount of the income as well as the proceeds from the liquidation of the debtor s assets is deposited to a special bank account. The money in this account is divided between the admitted claims controlled by the administrator. If the court decides that the debtor has fulfilled his obligations under the debt rescheduling scheme, the debtor will then be granted a clean slate. In that case, any remaining debt which could not be paid during the period of the rescheduling scheme shall no longer be payable. The main purpose of the debt restructuring for private individuals is remediation of the debts of the debtor. 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 DBA does not specifically address IP licenses as distinct from other types of contract. According to article 20 DBA the bankruptcy covers all of the debtor s property at the time of the declaration of bankruptcy, as well as anything he will acquire during the bankruptcy. IP rights of the debtor, as they are property rights, therefore generally also form part of the bankruptcy estate. The only exception (and the only IP right specifically addressed in the DBA) is copyright, albeit in very specific circumstances. Article 2 (3) DCA states that the copyright owned by the original author of the work or, in the event that the author is deceased, by his heirs, is not susceptible to seizure. Article 21 paragraph 1 DBA stipulates that copyrights which are not susceptible to seizure, remain outside the bankruptcy estate. This exception only applies if the debtor is the author of the copyrighted work. It does not apply to copyright which has been assigned and transferred by the original author to a third party. The term author in this context in any case encompasses the actual author, but it may also be construed to refer to the actual author s employer, if the work has been created in the course of employment (article 7 DCA). Furthermore, if a work is made in accordance with the directions and under the guidance and supervision of another person, the latter person shall be deemed to be the author of the work (art. 6 DCA). Finally, if a work has been made available to the public by a public institution, an association, foundation or corporation, and work is made available to the public as originating from such entity, without mentioning the name of the actual author, the copyright in the work is deemed to vest in the entity (art. 8 DCA). For the sake of completeness, it is noted that a bill was submitted to parliament on the 18 th of June 2012, which stipulates that the copyright seizure exemption as laid down in art in article 21 DBA and in article 2 (3) DCA shall not apply when the author of the work is a person or legal entity according to art 7 and 8 DCA. Topics such as the legal qualification of IP licenses (in terms of property law) and the related question how such licenses are to be treated in insolvency and bankruptcy situations are governed by the general rules of the Dutch civil code supplemented by specific rules set out in the legislation governing the individual IP rights (e.g. the DCA, the DPA, the BCIP etc.). These rules are further clarified in the legal doctrine and in case law. The legal consequences of the bankruptcy of the proprietor of an IP right and its impact on the enforceability of a license agreement by licensee vis-a-vis the 3

4 liquidator on behalf of the bankrupt estate are governed by the provisions of the DBA and are clarified in corresponding case law (e.g. the Supreme Court s so-called Nebula judgment of 3 November 2006 (NJ 2007, 155), which will be discussed in more detail in the answers to the questions below). Finally it must be noted that the term (IP) license is not defined in any part of the law on property. The communis opinion is that a license is an operative reciprocal agreement imposing obligations on both the licensor and the licensee. As an IP license is generally considered a mere contractual right, and not a right in rem, licenses, save for compulsory licenses, are widely assumed to be impacted by the consequences of the Nebula judgement referred to in the previous paragraph and further explained in paragraph 4. 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. For a description of bankruptcy and insolvency proceedings reference is made to the answer to question 2 above. Bankruptcy does not affect the continuation of an agreement, unless the agreement provides otherwise. The liquidator has the same rights and obligations as the bankrupt party had under the license agreement prior to bankruptcy. If the license agreement gives a party the right to adopt, assign, modify or terminate the IP license, the liquidator can exercise these rights also in the event of bankruptcy. License agreements generally qualify as reciprocal agreements that at the time of the declaration of bankruptcy, have not been performed at all or only partially by the debtor and his counterparty. For these types of agreements, article 37 DBA provides that the liquidator will lose his right to demand performance of the agreement, if he does not declare within a reasonable period after the written request thereto of the counterparty, that he will continue to perform the obligations of the bankrupt party under the license agreement. If the liquidator states that the bankruptcy estate is prepared to perform the agreement, then he has to provide security for such performance. If the bankruptcy administrator declares that he will not perform the agreement, the counterparty can either terminate the agreement and submit a damage claim for verification, or submit a claim for performance of the agreement for verification. The key task of a liquidator is to liquidate the bankrupt estate and to distribute the proceeds among the creditors.it is noted that the liquidator may disregard obligations arising out of an agreement, not in all circumstances though particularly not if and when such would be contrary tot the interests oft he creditors. In the Nebula case (Supreme Court, 3 November 2006, NJ 2007/155), the Dutch Supreme Court held that the fact that the bankruptcy does not affect the continuation of an agreement, does not mean that the counterparty of a party that is declared bankrupt can exercise its rights under the agreement as if there was no bankruptcy. This also applies in the event that the bankrupt party does not have an active obligation to perform the agreement, but only has to tolerate the use of its property. Otherwise, the counterparty of the bankrupt 4

5 party could ignore the bankruptcy, which would not be in line with the principle of 'paritas creditorum' (equality of creditors). In literature it is assumed that the Nebula ruling also applies to IP licenses. This would mean that a liquidator can set aside an IP license if this is for the benefit of the bankrupt estate. It is assumed that the judgment of the European Court of Justice in Oracle vs. UsedSoft (3 July 2013, C-128/11) restricts the effects of the Nebula case for certain software licenses, i.e. licenses to use software in the business and that are granted for an indefinite period and against upfront payment of a lumpsum. One assumes that the liquidator cannot prohibit use of evergreen software licenses purchased against payment of lumpsum prior to the bankruptcy, as the copyrights to that software have been exhausted. b) Are equitable or public policy considerations relevant to how an IP license is treated? In Sigmacon II (Supreme Court 24 February 1995, NJ 1996, 472) and Maclou (Supreme Court 19 April 1996, NJ 1996,727) the Supreme Court of The Netherlands decided that the liquidator, in the performance of his tasks, has to take into account not only the interest of the creditors, but also public interests, such as employment and continuity of the business. Under certain circumstances the public interest may even prevail over the interest of an individual creditor. It is only in exceptional circumstances that a public interest will prevail over the interest of the creditors. Generally, the IP license will be treated as will be in the best interest of the creditors. Reference is made to the answer to Question 4 (i) below. c) Is the law different for different types of bankruptcy and insolvency proceedings in your country? Insolvency and bankruptcy are regulated in a single act, i.e. the DBA. That act distinguishes between bankruptcy, suspension of payments and debt restructuring for private individuals, all of which are described under question (2) above. d) Does the law require, or give preference to, IP licenses that have been registered according to a registration scheme? There is no general registration scheme for IP licenses as such. Registration of a license will be an option open to parties if the concerned IP right can itself be entered into a register. Mostly, in these cases, there will be legal provisions in the specific IP laws that stipulate that the registration of a license bestows third party effect on the license (see question (1) above). The status of such a registered license in case of bankruptcy of the licensor is debated. It can be argued, also on the basis of the wording of the Nebula-decision discussed above (see answer to question 4(a), that where there are legal provisions in specific IP laws that determine that a license can be invoked against third parties upon registration (see the answer to question (1) above), the liquidator and/or parties that have IP rights transferred to them by the liquidator are indeed third parties against whom the license can be invoked. 5

6 Registration of the license would then be a bar against the transfer of the IP right by the liquidator, free of the license right. However, the matter is debated and has not been decided upon in case law. 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? IP rights can be subjected to a security right by vesting a right of pledge ( pandrecht, article 3:228 Dutch Civil Code, DCC ). The objective of a right of pledge is to secure monetary obligations. As the right of pledge is a right in rem, the holder thereof may disregard the bankruptcy proceedings and execute the pledged IP right in case of arrears. The latter will often be stipulated to occur automatically in case of bankruptcy. Even if as the case may be - the liquidator executes the pledged property, he can deduct (no more than) the general insolvency costs from the proceeds, the remainder of which is fully due to the holder. While the holder of a right of pledge over an IP right, that is part of a bankrupt estate, may have leverage over the liquidator, who cannot sell the IP right free from encumbrance, the pledge holder can in principle not appropriate the IP right. This means that, by its nature, a pledge securing a license right will affect the legal position of the licensee in relation to the liquidator, but can only be used indirectly by the licensee to secure continued use of the license. In addition, the execution takes place through a public sale supervised by a bailiff at which the licensee (holder of the pledge) is allowed to place bids (art. 3:250 (3) DCC). Finally, although not a usual practice, subject to the court s prior approval, a pledged property may also be privately sold to the holder of the right of pledge (article 3:251 paragraph (1) DCC). 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. Differences in the application of the law are caused by the different regimes that are applicable for the different IP right. The effects of general rules will always have to be considered for each type of IP right separately. As mentioned before (see the answer to question 4a above) it is relevant whether the concerned IP right is a registrable right such as a trademark, design or patent, as the acts for these rights provide for third party effect upon registration of a license. In the absence of such provisions, the insolvency of the licensor will cause that claims of the licensee will be may be dealt with in the same fashion as other claims (paritas creditorum). Notably, copyrights are exempt from the reach of the liquidator in bankruptcy situations as long as these have not been transferred by the author of the copyrighted work (article 2 (3) DCA). This means that the mere insolvency of such copyright owners will not impact on existing license relations (see also 3 above). g) Does the law apply differently to sub-licenses versus main licenses? 6

7 The law as set out above does not provide specific rules applicable to sublicences as opposed to main licenses. Sub-licenses are seen as by nature derivative from a main license. Sub-licenses will therefore share the fate of the main license, unless it is agreed otherwise. h) Does the law apply differently to sole or exclusive licenses versus nonexclusive licenses? No, the Dutch Bankruptcy Act ( DBA ) does not make a distinction between exclusive licenses versus non-exclusive licenses. The application is the same. i) Does the law apply differently if the bankrupt party is the licensee versus the licensor? No, the law does not apply differently if the bankrupt party is licensee versus a licensor. The policy of the bankruptcy administrator however may be different. In the event that the bankrupt party is a licensor, in the short term it will be in the interest of the creditors to continue the license and collect license fees. However, in the long term, the bankruptcy administrator may prefer to terminate the agreement, in order to sell the IP rights, free and unencumbered. If the bankrupt party is a licensee, it will be in the interest of the creditors to continue license agreement to continue the business or to transfer and assign the license to a third party (in so far as permitted under the agreement). j) Please explain any other pertinent aspects of this law that have not been addressed in the sub-questions above. Bankruptcy in the case of fully paid-up license: in some business fields fully paid-up license deals are not unusual. In the case of bankruptcy of the licensor, the licensee s situation under Dutch law is particularly uncertain, as pursuant to the Nebula decision (details of which are set out above), it is not obvious that the liquidator will continue to perform its obligations under the license agreement. As a consequence, licensee s upfront investment may leave it empty-handed upon bankruptcy. Where possible licensees are recommended to structure payment of royalties such that the liquidator, for the benefit of the creditors, has an interest to continue to perform the license. Bankruptcy after completed milestones by licensee: IP license agreements, for instance in the field of biotechnology and or life sciences, quite often contain financial commitments for the licensee when certain milestones have been met. If such milestones were met shortly before the bankruptcy of the licensee, it will often be difficult for the licensor to collect such milestones, as his claim does not have any precedence over claims from other creditors. 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? No. In Dutch bankruptcy proceedings the DBA takes precedence over any choice of law in an IP license agreement. It cannot be expected from a Dutch liquidator that he deals differently with assets covered by an IP license agreement depending on any choice of law made in such agreement. So, in so far as the bankruptcy is governed by 7

8 the laws of the Netherlands, a choice of law provision, has no immediate impact on the liquidator s competence. This may be different if the centre of main interests, i.e. the place where the debtor conducts the administration of his interests, is located outside the Netherlands. The situation will then be governed by Council regulation 1346/2000 on insolvency proceedings. 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? Many licenses contain clauses that provide that the solvent party may terminate the license agreement if and when the other party becomes insolvent or if a liquidator is appointed. These clauses are generally considered enforceable, irrespective of the invoking by the solvent party or by the liquidator on behalf of the insolvent party. Such clauses are usually construed such that the terminating party may terminate the agreement if and when the other party becomes insolvent. Any such act of termination may be challenged on the basis that the termination is not equitable (article 3:12 DCC). Automatic termination, so termination by virtue of the occurrence of the bankruptcy and which does not require an active act of the solvent party, can not be challenged on that basis. In the case Oilily versus SaasPlaza (Court of Amsterdam, 9 Aril 2009, LJN: BJ5559) in a situation where Oilily had requested suspension of payments (so Oilily was insolvent but not bankrupt) and (see 2 above) the court considered that SaasPlaza could not immediately terminate delivery of services (software as a service), as the services delivered by SaasPlaza to Oilily were essential to the Oilily being able to continue its business. Consequently, given Oilily s dependency of these services, the court ordered SaasPlaza to observe a reasonable term for termination so that Oilily was able to take the necessary precautions. 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? A clause in an IP license agreement that restricts or prohibits transfer or assignment of the IP license will be considered to be enforceable. In theory the invoking of such clause may be challenged on the basis that such invoking thereof is not equitable (article 3:12 DCC). 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 transfer or assignment of an IP license resulting from a bankruptcy does not differ from a regular transfer or assignment of an IP license. 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? 8

9 No. The Dutch Bankruptcy Act ( DBA ) has no explicit provisions relating to the situation where such an IP license is terminated during bankruptcy or insolvency proceedings (save for a specific clause on copyrights, art. 21 sub 1 DBA). As a consequence, with the termination of the IP license the licensee loses the right to perform the exclusive rights. After such termination, the (former) licensee does not have any special right or claim to obtain a new IP license. Concluding, under Dutch law, the licensee is not protected against termination of the IP license in case of bankruptcy of the licensee. 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 the Netherlands, the statute of co ownership of IP rights may be found in both a) the general rules of the DCC, applicable to all property rights, including IP rights, and b) in the specific laws regulating the various IP rights. Reference is made to the answers to Q 194 The Impact of Co-Ownership of Intellectual Property Rights and their Exploitation. The DCA and the BCIP do not provide for a specific rule on licensing of co-owned rights. Therefore, the licensing of copyrights, trademarks and design rights is regulated by the general provisions of the DCC. According to Article 66(2) of the DPA a license to third parties or any permission to perform acts, which are reserved for the patent proprietor(s), may only be granted with consent of all co owners. The Dutch SPM contains a similar stipulation. However, such actions may be governed by the general stipulations of Title 7 of Book 3 DCC that will be discussed below. General rules of the Dutch Civil Code Title 7 of Book 3 DCC contains general rules on co-ownership. To the extent that the granting of licenses is not governed by specific IP legislation, Title 7 of Book 3 DCC applies. This DCC Title makes a distinction between various acts regarding the coowned property, including the regular use (article 3:168 and article 3:169 DCC) and management thereof (article 3:170 (2) DCC) as well as 'other acts' with respect to the co-owned property (article 3:170 (3) DCC). Each of these acts is subject to a different regime. Literature is divided on the question how the granting of licenses should be qualified: either as management or as other acts. Case law is scarce at this point. The Court of Appeal of 's-hertogenbosch (27 December 1994, Rooijakkers v Wouters) once ruled that the granting of licenses qualified as regular use. However, in literature it is (virtually) unanimously argued that this was an erroneous decision. The Court in The Hague (4 April 2013, Playgo) and the Court in Arnhem (13 April 2011, Rijschool v Echoboomer ) ruled that the granting of licenses qualifies as management set forth in article 3:170 (2) DCC. According to Article 3:170 (2) DCC, management includes all acts which may serve the normal exploitation of the property. In case the granting of licenses qualifies as such management, the parties may only jointly exploit the co-owned property, but they are at liberty to make a different arrangement. Article 3:170 (3) DCC does not give positive examples of the other acts covered by this article, but explicitly excludes (i) acts for the purpose of ordinary maintenance or preservation of co owned property and acts that cannot be delayed as meant in article 3: 170 (1) DCC), and (ii) management as meant in article 3:170 (2) DCC. In 9

10 any case, the other acts covered by article 3:170 DCC can only be performed jointly by the co-owners. 10

11 (I) Joint licensing based on article 3:170 (3) DCC In case a license has been granted jointly by the co-owners, it could be argued, that the Nebula case (details of which are set out above) would equally apply and that the administrator of the insolvent owner can seek an injunction against the licensee requesting the licensee to stop using the licensed rights The administrator is entitled to start an injunction procedure, either on a.) the basis of article 3:171 DC, or b.) in some instances on the basis of IP specific laws. a. Article 3:171 DCC Based on article 3:171 DCC, each of the co-owners has the right to institute legal actions and to file petitions to obtain a judicial decision for the benefit of the community, unless otherwise agreed. However, if the solvent co-owner disagrees to such action, the solvent co-owner could (probably): (i) request the Court to decide that the administrator cannot do so e.g. because it is not for the benefit of the community (article 3:168 (2) DCC), or (ii) take the position that starting an injunction procedure against a licensee that could have detrimental consequences to the solvent co-owner, may be deemed contrary to the principles of reasonableness and fairness that according to Article 3:166 DCC apply to the juridical relations between participants and start a legal procedure against the administrator to prevent the administrator from starting or continuing an injunction procedure against the licensee. Also the licensee could apply to the Court because article 3:168 (2) DCC stipulates that the possibility to apply to the Court is available to any interested party. b. IP specific laws The DCA, the DPA and the Dutch SPM, also grant each of the co-owners the right to institute injunction proceedings independent of the other owner(s). However, such actions may be governed by the general stipulations of Title 7 of Book 3 discussed above, at least by the principles of reasonableness and fairness. Licensing based on article 3:170 (2) DCC If the granting of licenses would qualify as management, for example when the granting of licenses is the regular business model of the co-owners (e.g. software company), they could agree that only one of them is entitled to grant licenses. a. In case that the co-owners agreed that the solvent co-owner is entitled to independently grant licenses, the administrator is in principle bound by such agreement between the co-owners, and the administrator cannot successfully take the position that the relevant licensee violates the IP right. However, the administrator could apply to the Court and request the Court to modify the agreement between the co-owners upon the ground of unforeseen circumstances (article 3:168 (3) DCC). However, it remains to be seen whether this could have consequences for licenses already granted. b. In case the co-owners agreed that the insolvent co-owner is entitled to independently grant licenses, it could be argued that the Nebula case (details of which are set out above) would equally apply and that the administrator of the 11

12 insolvent owner can seek an injunction against the licensee requesting the licensee to stop using the licensed rights. In addition to the remedies against an administrator not willing to continue the license, as set out above under I. a, the following is of relevance. The solvent coowner could request the Court to modify the agreement between the co-owners and to stipulate that the solvent co-owner can grant licenses independently (article 3:168 (3) DCC) upon the ground of unforeseen circumstances. Also the licensee could apply to the Court and request that his license be continued, because article 3:168 DCC stipulates that the possibility to apply to the Court is available to any interested party. In case the co-owners did not make an agreement, the license shall be granted jointly. If one of the co-owners becomes insolvent, the situation as described under b.) above is likely to be equally applicable. 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? Legal practice in our country shows a wide variety of non-statutory based steps to hedge against the effects of insolvency of counterparties to a license agreement. Remedies to protect licensors against the insolvency of licensees are generally relatively straight-forward: it is commonplace in Dutch contract practice to list insolvency, and/or the early warning signs thereof as a termination event, either automatically or at the discretion of licensor. Measures to avoid or mitigate the effects of insolvency of licensor are more diverse. In this respect, the two types of non-statutory based steps most commonly seen are: (a) measures to avoid materialization of the "Nebula-risk" (see 4 above) and (b) steps aimed at preventing that bankruptcy occurs altogether. Obviously, these measures may also (and are often) combined. (A) Measures to fend off the Nebula risk: As was indicated under 4 above, the specific risk to fend off is that in the event of bankruptcy of licensor, the liquidator may choose to no longer honour mere license rights, thus preventing the licensee from receiving ongoing benefits from the license; It is important to note that this so-called "Nebula" risk is closely tied to the qualification of a license under Dutch law as a right in personam. To the contrary, rights in rem granted by the bankrupt entity before insolvency was foreseeable can be enforced against the liquidator without limitation. Not surprisingly, most common transaction structures therefore in some way use rights in rem to bolster "licensee's" usage rights. Apart from rights of pledge (see 4e above) one such element often deployed, albeit only in exclusive licenses, is a conditional transfer of (partial) ownership under condition precedent of insolvency. While there is some debate whether such a transfer may under circumstances be open to invalidation by the liquidator as prejudicial to creditors generally (action Pauliana), two-tier structures based on this concept are increasingly common. 12

13 A less far reaching means of securing a right of use that can be invoked in a bankruptcy situation is to obtain a right of usufruct (vruchtgebruik). The key characteristic of a right of usufruct under Dutch law is that the holder obtains a right in rem, whilst the bare legal title to the IP Rights remains with proprietor. The right of usufruct hence essentially equates to an exclusive license; As the right of usufruct is created by simple deed, the parties can tailor the deed of usufruct to mimic all elements of a regular license agreement. Note that the statutory basis of the right usufruct entails some particularities (such as a statutory maximum term of 30 years), but these are seldomly deemed prohibitive. In principle, a right of usufruct encumbers its object with respect thereto it is vested (in this case: the IP rights) as a whole. As a result, it is somewhat more challenging to vest multiple simultaneous or consecutive rights of usufruct (each with respect to the undivided IP right), since the various right holders need to then contractually agree how they will deal with each other and the IP right going forward,. (B) steps aimed at preventing bankruptcy altogether Another protection strategy that is often used in commercial licensing practice involves the creation of a bankruptcy remote entity to hold and license key IP rights and "ring-fencing" the entity through its articles of association and additional agreements i.e. imposing restrictions on activities and ability to incur debt or liabilities - to minimize, to the extent possible, the risk that this entity itself may become insolvent. 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? The system for registration of licenses, in the areas where it exists, is considered to be useful. The Dutch group has no suggestions for improvement. It is happy with the features of the current system. The registration has no constitutive character but informs third parties of the existence of licenses. Some consider it desirable to register copyright licenses for the purpose of notifying third parties of the existence thereof, albeit it that this may work out as a burdensome requirement for right holders. 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 Dutch group believes that it would be useful if the law that governs bankruptcy and insolvency proceedings would address IP licenses. The law should protect licensees against non-performance of the agreement by the liquidator of the licensor. A regime similar to the one laid down in section 365(n) (USA) is preferred. If the debtor or trustee rejects a license, under Section 365(n) a licensee can elect to retain its rights to the licensed intellectual property, including a right to enforce an exclusivity provision. In return, the licensee must continue to make the required royalty payments. The licensee also can retain rights under any agreement supplementary to the license, which should include source code or other forms of technology escrow agreements. Jointly these provisions protect a licensee against deprival of its rights to continue to perform its business, i.e. to use the licensed intellectual property. 13

14 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? If the solution as described under (13) above cannot be achieved, the group prefers that the liquidator cannot immediately terminate his performance of the agreement and that the liquidator has to observe a term so as to enable the licensee to take the necessary precautions for the benefit of the continuation of its business. The term to be observed should depend on the facts and circumstances of the matter (compare Court of Amsterdam, 9 April 2009, Oilily versus SaaSplaza, LJN BJ5559). 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. The Dutch group prefers a more flexible right of usufruct, such as the ability to grant such (non-exclusive) rights to more than one person (over time) and to afford protection to users of such rights of usufruct in insolvency and bankruptcy situations. III. Proposals for substantive harmonisation The Groups are invited to put forward proposals for the adoption of harmonised laws in relation to treatment of IP licenses in bankruptcy and insolvency proceedings. More specifically, the Groups are invited to answer the following questions without regard to their existing national laws. 16) Is harmonization of laws relating to treatment of IP licensing in bankruptcy and insolvency proceedings desirable? Under (12 (15) the group expressed the wish to have certain improvements for the benefit of protecting solvent licensee in the event of a bankruptcy of the licensor. If such improvements would materialize the group s perspective is that they need to be adopted at European level to avoid disparity between markets. 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? The liquidator should be under an obligation to continue to perform the license for the benefit of the registered licensee on the condition that the licensee continues to perform his obligations under the license. The liquidator should not be able to modify the license or to terminate it. Any such changes should form part of statute. 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? This should not depend on registration of the 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? 14

15 The solvent licensee should be protected against non-performance of the license by the liquidator. d) With 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? No. 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? No. 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? No. 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? No. 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? Yes. 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? No, but the parties should not be allowed to deviate at the burden of the licensee. 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? The EU insolvency regulation defines the concept of the centre of main interest. The Regulation attempts to control forum shopping by requiring that the main proceeding be opened in the EU Member State where the debtor s centre of main interests (COMI) is. In the example, if that causes the proceedings to be opened in the Netherlands, then the bankruptcy laws of the Netherlands should be applied 15

16 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. See the answers to the previous questions in sections II and III. The Groups are invited to comment on any additional issues concerning any aspect of IP law and insolvency that they deem relevant. 16