On September 18, 2009, many long-awaited amendments to Canada's Bankruptcy and Insolvency Act (BIA) and Companies' Creditors Arrangement Act (CCAA) came into force. One of these new provisions will help protect intellectual property (IP) licensees in the event of the bankruptcy of their licensors.
Under current Canadian common law, it is generally accepted that a trustee in bankruptcy can disclaim some kinds of contracts entered into by the bankrupt debtor, in order to promote the successful restructuring of the debtor's business. It has been unclear, however, whether or not IP license agreements are among such contracts. The issue has been raised, but never settled, in a number of Canadian cases. A discussion of these cases can be found in Stikeman Elliott's February 2009 Intellectual Property Update.
Significant amendments to the BIA and CCAA were passed in 2005 and 2007, but-aside from a few provisions that became effective in July 2008-the amendments sat dormant, awaiting proclamation into force.
Pursuant to Order in Council P.C. 2009-1207, almost all of these amendments have now been brought into force. In particular, section 65.11 of the BIA has been amended to include the following provision governing disclaimers of IP licenses:
65.11(7) If the debtor has granted a right to use intellectual property to a party to an agreement, the disclaimer or resiliation does not affect the party's right to use the intellectual property--including the party's right to enforce an exclusive use--during the term of the agreement, including any period for which the party extends the agreement as of right, as long as the party continues to perform its obligations under the agreement in relation to the use of the intellectual property.
In essence, the amendments provide protection similar to that found in Section 365(n) of the U.S. Bankruptcy Code, which provides that if a trustee in bankruptcy rejects an intellectual property license, the licensee has the option of retaining its rights under the license as they existed prior to the bankruptcy for the rest of the term of the license, as well as for any periods for which the licensee had the right to extend the license.
This new provision enhances commercial certainty for Canadian IP licensing agreements. Although the term "intellectual property" is not defined in the amendments, it is arguable that it includes at least the traditional types of registrable IP: copyrights, trademarks, patents, and industrial designs. The implicit inclusion of trademarks is notable, because trademarks are not covered by the equivalent provisions of section 365(n) of the U.S. Bankruptcy Code.