Understanding IP Assets Is Crucial During Corporate Bankruptcies

Thinking about potential insolvency or bankruptcy induces stress in intellectual property departments as much as any other corporate department. The path to restructuring or liquidation is often paved with poor business decisions that usually are made by those far removed from the IP team.

However, a company’s IP may be one of the most valuable assets for generating value to fuel restructuring or discharge debt—provided it can be reliably understood.

Determining and safeguarding that value requires a disciplined analysis centered on identifying and maintaining high-value IP assets in the marketplace. Best practice calls for assessing IP periodically.

When financial implosion is on the horizon, this kind of analysis is crucial. Whether you’re determining what goes into the lifeboats or identifying opportunistic treasure for the taking, objective data-driven analysis is the key to making a smart decision.

The US Bankruptcy Code directs procedures regarding patents, copyrights, and trade secrets—but differs in its treatment of trademarks, trade names, and service marks. Conducting an IP portfolio audit and inventory enables a company to fully understand the risks and remedies available in refinancing, asset sales, and bankruptcy relative to buyers and existing licensees.

IP owners should conduct an annual in-depth review of their IP portfolios relative to an annual IP budget to ensure dollars are driving value. Owners should consistently observe all requisite formalities to maintain ownership rights relative to employees and inventors. This is true for your own IP, the IP of others, and any IP of interest to you.

Owners and licensors of IP assets should secure their own rights when negotiating a licensing agreement to mitigate risk in the event a licensee enters insolvency. For licensees, licensing agreements should be drafted to avoid disputes during insolvency and prohibit an insolvency administrator from terminating the agreement.

This is critical to protecting co-developed IP, for example, where one party licenses a patent to a second party who develops further advanced technology using the first party’s patented technology and cross-licenses their innovation’s IP back to the first party.

There is also value to potential purchasers in charting the course of a distressed company. Similarly analyzing the distressed company’s assets is key to placing a successful stalking-horse, or initial, bid and gaining ample time to evaluate an IP portfolio before any formal bankruptcy is filed.

Even if a sale doesn’t result, such investigatory activities provide a chance to obtain important information about IP assets and the market prior to the bankruptcy process, which is guided by rigid procedures that can limit the flow of information.

As an added benefit, multiple parties vying to buy a distressed company’s assets may force speculators—such as non-practicing entities—to withdraw, generating a better deal value for the serious market participants.

Insolvency administrators and advisers should consider an objective analysis of market value to safeguard the IP assets of a bankruptcy estate. Administrators often welcome and benefit from data-driven analysis that allows them to control important decisions needed to protect and preserve what is of value—while ignoring the flotsam and jetsam of a financial wreckage.

Regardless of your position or vantage point, seeking professional guidance from qualified bankruptcy or insolvency practitioners is paramount. Likewise, aim to provide a complete portfolio inventory and associated market valuation data to administrators, special counsel, and business advisers to maximize their efficiency and effectiveness.

Whether you are trying to determine if “here Be dragons” or if it’s simply time to switch boats, data-driven, objective analysis will be your North Star to navigate choppy waters.

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