Bankruptcy Setbacks Offer a Chance for Strategic Success in IP

The Bankruptcy Code provides a framework for distressed businesses to liquidate or reorganize, but bankruptcy proceedings fail to adequately recognize the centrality of intellectual property to many businesses.

IP portfolios are often overlooked among a company’s assets. Once a company’s IP is swept into a bankruptcy estate and sold at auction, it’s likely to be undervalued. Intangible property, including IP, is often valued at $0, with sales dictated by what the market is willing to pay–often far less than the real value.

Companies should evaluate ways to exploit, license, or monetize IP portfolios before initiating bankruptcy proceedings. When they fail to do so, bankruptcy creates opportunities for third parties to acquire valuable IP rights at significant discounts.

There are several ways that struggling companies can use IP to avoid bankruptcy and how potential buyers can obtain valuable IP out of bankruptcy.

Leveraging IP

Businesses facing tightening liquidity can leverage IP to avoid bankruptcy and collateralize it to obtain financing, sold outright, or monetized through licensing and enforcement by:

Understanding the value of the portfolio. The first step to monetizing IP is understanding its value. Certain characteristics make a portfolio more valuable. The quality and scope of the rights are paramount.

A company should understand what its portfolio covers, who uses the covered technology, and the importance of that use. Broadly adopted technology generally commands higher value, as do portfolios with several active patent families covering a range of technologies.

Using IP as collateral. IP can serve as collateral for financing. This can attract investors who see opportunity in a struggling business’s technology and seek to gain a foothold in its future. In addition to providing capital, new partnerships can support management changes and strategic shifts that improve long-term viability.

Monetizing IP through sale. IP can also be leveraged as a salable asset. Businesses often bundle complementary IP rights for sale or license to generate immediate revenue.

Nokia Corp.’s pivot away from the mobile phone market illustrates this approach. As Apple Inc.’s iPhone began to dominate, Nokia shifted its focus to telecommunications infrastructure–where it found significant success.
Nokia monetized its IP portfolio through licensing and sales, generating capital from transfers to practicing entities and sharing in recoveries with an enforcement firm. The same considerations that go into valuing portfolios are essential in preparing for IP transactions.

Monetizing IP through enforcement. Litigation enforcement allows monetization of IP while retaining ownership. A successful case can yield damages from infringers or injunctions preventing competitors from using the IP.

Litigation is time-consuming, uncertain, and expensive, but risks and costs can be mitigated through experienced counsel, openness to reasonable settlements, and the use of alternative-fee arrangements or third-party litigation funding. Some law firms take strong IP cases on contingency, and some investors will fund litigation in exchange for a portion of the recovery. Others will invest in or purchase the company because of the value of the IP.

Several companies have used litigation to generate substantial value. TiVo converted a long-running patent dispute into a $500 million settlement in 2011. Netlist secured a series of jury verdicts exceeding $860 million against major industry players. Nokia’s 2017 resolution of its global IP dispute with Apple produced a sharp increase in Nokia Technologies’ licensing net sales, highlighting how rights-based resolutions can generate cash and recurring income.

Companies aiming to avoid bankruptcy should audit their IP and engage in monetization tactics that generate near-term cash and signal asset strength. That often means identifying the most enforceable and market-relevant patents and brands, pursuing paid licenses with current industry users, selectively litigating against high-value infringers, and considering non-core IP sales or financing secured by patents and trademarks. Royalty monetization and litigation finance accelerate value realization and offset enforcement costs.

Communicating valuation and monetization efforts can reshape market perceptions, expand borrowing capacity, and provide runway to stabilize operations. In this way, IP can bridge liquidity gaps, reassure lenders and investors, and buy time for operational fixes while fulfilling a core purpose of IP portfolios: protecting return on investment for creators and inventors.

Value From Bankruptcy

When a company does enter bankruptcy, buyers can acquire valuable IP at a discount. Compared to tangible assets, IP is harder to price. IP assets also are sold in time-compressed auctions where only a limited universe of bidders is both aware of opportunities and able to underwrite long-term value. That dynamic creates substantial option value for buyers who envision monetization strategies debtors didn’t pursue.

For example, Overstock purchased Bed Bath & Beyond Inc.’s brand, IP portfolio, and digital assets for $21.5 million—a price reflecting distressed conditions. Overstock then relaunched its platform under the Bed Bath & Beyond name, leveraging preexisting brand recognition.

Similarly, Tupperware Brands Corp. declared bankruptcy in 2024. A group of lenders acquired its IP rights and select operational assets, continuing the Tupperware brand without the debt that drove the company into bankruptcy. The transaction showed how IP can serve as the backbone of a “new” business that sheds legacy obligations.

Prospective buyers should remember that IP value is complex and often requires expert analysis as to how to leverage these rights through practice, licensing, and enforcement. Because bankruptcy sales are conducted differently than typical mergers and acquisitions, buyers are well served by working with advisers with deep experience in both IP and insolvency.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Gwen Tawresey and Greg Len are partners in Troutman Pepper Locke’s intellectual property group.

Gillian Schutt is an associate in Troutman Pepper Locke’s intellectual property group.

Deborah Kovsky-Apap contributed to this article.

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