Bankruptcy Administrators Must Act Quickly to Protect IP Assets

For bankruptcy administrators, good intentions and basic legal familiarity aren’t always enough. Administrators must act quickly, methodically, and, sometimes, with substantial outside expertise to protect a bankruptcy estate and maximize its assets.

When a company faces bankruptcy, administrators—whether trustees, receivers, or debtors-in-possession—are immediately tasked with a complex and high-stakes responsibility: handling the debtor’s intellectual property assets. Patents, trademarks, copyrights, and trade secrets are often pivotal to the debtor estate’s value and future prospects.

Administrators frequently step into these roles with little advance warning. And unless they have specific industry or IP experience, the intricacies of intangible assets may overwhelm them.

Unlike real estate or equipment, IP assets are far less “visible.” Their worth is shaped by legal agreements, technical details, and market conditions that are rarely straightforward. Yet IP may represent a debtor’s most significant asset.

Assembling a Team

The first step for any administrator should be to assemble a multi-disciplinary team with expertise across legal, technical, accounting, and business domains relevant to the estate. In high-tech industries, this team typically includes IP valuation specialists, bankruptcy and IP attorneys, accountants, engineers, and professionals experienced in the debtor’s industry.

Each member contributes vital insights. IP counsel can clarify complicated license terms and statutory obligations, valuation experts determine the market worth of patents or trademarks, accountants pinpoint liens or encumbrances, and engineers and industry experts explain operational dependencies and the IP’s true scope and potential value.

Bringing together these perspectives—rather than relying on a single professional’s judgment—ensures that the administrator identifies all valuable assets, understands their value and restrictions, and formulates optimal strategies for monetization or restructuring. This “dream team” also provides the ability to identify the most likely parties interested in licensing, purchase, or investment.

However, the careful review of license obligations is a central and often overlooked aspect of IP management in bankruptcy. Licensing agreements for patents, copyrights, trade secrets, and trademarks contain terms that influence what the administrator can transfer, retain, or monetize.

Bankruptcy law alters the parties’ rights in these agreements. Under Section 365 of the Bankruptcy Code, a debtor may “reject” many executory contracts and unexpired licenses.

For patent, copyright, and trade-secret licenses, this triggers special protections. Licensees can elect to retain their usage rights as long as they meet their payment and performance obligations, even if the debtor rejects the contract.

While this provides stability for licensees—and can preserve third-party business continuity—it also restricts the administrator’s ability to sell assets free of encumbrance or create value streams. Failure to account for these rights can result in legal disputes and reduce anticipated recovery for creditors.

Trademark Complications

Trademark licenses present unique complexity in bankruptcy. Historically, they weren’t included in the Section 365(n) framework, creating uncertainty for licensees after contract rejection.

However, the US Supreme Court’s 2019 decision in Mission Product Holdings v. Tempnology established that rejection of a trademark license doesn’t automatically terminate the licensee’s rights. Licensees who continue to meet contractual obligations retain their rights to use the trademark.

Despite this, trademark value often depends on ongoing quality control and operational oversight. Administrators must evaluate whether the estate or reorganized debtor can fulfill such requirements or whether license agreements expose the estate to new liabilities.

Administrators should approach this starting with an exhaustive inventory of IP assets—taking stock of every patent, trademark, copyright, trade secret, and all license agreements. Working with their multi-disciplinary team, administrators should analyze each license for assignment rights, termination provisions, royalty and fee obligations, and any terms that may hinder transfer or sale.

It is also essential to verify legal chain of title, ownership history, existing liens, and possible disputes. This process is both legal and operational. For example, a critical patent may underpin the debtor’s product line, while a key license agreement might supply essential technology to outside partners. Missing a single agreement can expose the estate to loss or liability and undermine asset monetization.

Once the IP portfolio and licenses are mapped, administrators should develop a strategy for disposition. In liquidation scenarios, monetization often focuses on selling individual IP assets to the highest qualified bidder. In cases of reorganization, certain IP may be retained to support continued operations, with administrators negotiating with licensees and creditors to preserve ongoing business relationships.

Either outcome demands regular communication with stakeholders—including creditors, licensees, the court, and prospective buyers—to explain asset valuations, transaction strategies, and contractual constraints. Clear, transparent communication avoids confusion and litigation, strengthens negotiation positions, and fosters support for proposed solutions.

Key Takeaways

Bankruptcy and IP law can be unforgiving when statutory or contractual requirements are missed. Multi-disciplinary teams bring technical proficiency and ensure no detail is overlooked, whether it involves registering security interests, meeting notice deadlines, or addressing performance duties in ongoing licenses.

Administrators who operate alone or cut corners may inadvertently trigger adverse litigation, reduce asset value, or violate fiduciary obligations to creditors. Their approach before and in the first days of bankruptcy can determine whether creditors receive meaningful recoveries—or whether they’ll lose opportunities for value preservation and restructuring.

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

Christine McCarthy is a partner at Barnes & Thornburg who focuses her practice on electrical, telecommunications and computer software implemented technologies. She advises global clients on strategic IP portfolio management, standards essential patents, and patent licensing.

Molly Sigler is a partner at Barnes & Thornburg who focuses on insolvency matters, representing creditors in bankruptcies and receivers in receiverships nationwide, and efficiently advancing complex, multilayered cases toward resolution.

Gurpreet Kaur is vice president of intellectual property at UnitedLex, where she leads patent, trademark, and litigation teams and advises clients on IP strategy and operations.

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