The anti-deprivation principle provides that “there cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and, on the happening of that event, go over to someone else, and be taken away from his creditors”.

In Butters and Ors v BBC Worldwide [2009] EWCA Civ 1160, the Court of Appeal held that provisions in an IP licence entitling the licensor to terminate the licence on the licensee’s insolvency was unobjectionable and did not breach the anti-deprivation principle. A summary of the facts of the case may be found on our website at http://www.herbertsmith.com/NR/rdonlyres/263184BF-3D8F-49EE-9C93-319960C53740/14122/260110IPLicencesandinsolvencyUPDATEJoelSmithandLau.html.

The first instance court held that the interlinking of (i) a provision in a joint venture agreement (JVA) that permitted one joint venture partner, on the insolvency of the other joint venture partner (or a member of its group), to serve a notice to acquire all of the shares in the joint venture company, with (ii) a provision that terminated a valuable IP licence on the service of that notice, had the effect of depriving assets from creditors and was contrary to the anti-deprivation principle.

The Court of Appeal held that the provision entitling the licensor to determine the IP licence on the licensee’s insolvency was unobjectionable since it merely involved the termination of the licensee’s limited interest.

The provision in the JVA that provided for the shares in the joint venture company to be acquired was also not objectionable. Since each provision was independently acceptable, they could not be objectionable because they existed together.

The Court of Appeal stated that the anti-deprivation rule could be avoided by careful drafting. As such, when considering contractual provisions relating to the effects of insolvency on IP rights, specialist advice should be sought.