Technology and Regulatory Black Holes: Issues in Protecting IP Rights in Insolvency for Both Licensors and Licensees

Abstract

Australia’s insolvency laws have a curious deficiency:  There are virtually no provisions on the treatment of ongoing contracts.  Such contracts may well represent some of the most valuable assets of a business debtor, small or large, especially in this new era of rapid technological innovation, where tangible property often pales in value to that inherent in intellectual property.  Indeed, IP rights are often the nucleus around which a small business’ vitality revolves.  The inability of businesses predictably to rely on, manage, and protect license contracts preserving IP rights is a problem that is sure to become more acute in the coming decades, as both the importance of IP rights and the incidence of business insolvency rise.  Experience from across the Pacific portends a potential wave of coming disputes involving such rights in developed economies like Australia’s, potentially hitting small entrepreneurs hard and undermining the effectiveness of insolvency proceedings for these crucial debtors and their creditors.  This article reveals a proliferation of disputes concerning IP license rights and several salient challenges confronted by both licensors and licensees, debtors and non-debtors, in domestic and cross-border insolvency proceedings in US insolvency proceedings.  The common root of these challenges seems to be legislation that did not foresee the rise of IP licensing as a mainstay of modern entrepreneurship.  The simple common solution, and a guide for Australian regulators, is more careful consideration of non-obvious pitfalls in laws that preserve IP license rights in insolvency cases to maximise value not only for the parties involved, but for modern societies who increasingly depend on innovation and entrepreneurship.