Last year, the German government came forward with a ministerial bill for the reform of the German insolvency regulations with regard to licenses. The bill will most likely be enacted in the year 2009.
Currently, license agreements are not insolvency remote: In case of insolvency of one of the parties, the liquidator may choose to either fulfill the license agreement or to deny performance. For the licensee, the latter would have the consequence that it would lose its license and the respective exploitation rights, and could only claim damages for non-performance that would have to be registered with the liquidator, resulting in a quote to the insolvency table only. This often had the consequence that subsequent license chains also were affected. According to the proposed §108a of the German Bankruptcy Act (Insolvenzordnung), a license agreement continues in force with effect for the insolvency estate if the licensor becomes insolvent. This is helpful especially in the media sector where licenses to film rights are very often sublicensed to various licenses.
One of the drawbacks of the draft is that the new provision does not apply to an insolvency of the licensee, resulting in the same problematic situation as is currently existent: The liquidator would have the choice of fulfillment of the agreement or denial of performance. If the liquidator chose denial of performance or would generally fail to exploit the licensed rights, this may cause significant problems for the technical innovations subject to the agreement. Also, in case of denial of a license, the licensees who derive their rights from the insolvent licensee will lose their license rights.
The liquidator will also be entitled to request financial adjustments regarding the license remuneration in case the agreement displays a noticeable disparity between the license grant and the respective consideration. Not only will it be difficult for the liquidator to determine such noticeable disparity, but in addition, according to the draft, such financial adjustments would give rise to a right to extraordinary termination for the licensee. Although this suggested provision serves a merited purpose, i.e., the balance of interests of the licensee and the creditors, it is uncommon for the German insolvency law, and the practicality of this draft provision is likely to present various issues.