Insolvency, restructurings, and proposals create tidal waves of uncertainty for the numerous parties implicated in the proceedings. Third party intellectual property licensees who have relied on a long-term licence arrangement are often swept up in these proceedings, without certainty on whether they can continue to use the IP and, if so, under what conditions.
On November 1, 2019, recent amendments to the Bankruptcy and Insolvency Act (the BIA) and Companies' Creditors Arrangement Act (the CCAA) will come into force. The amendments codify and clarify IP rights during an insolvency proceeding, and grant broader protection to IP licence-holders.
These changes were included in Bill C-86 Budget Implementation Act (Bill C-86),1 which received Royal Assent in December 2018. Bill C-86 is part of the Government of Canada's new national IP strategy, which was first unveiled in April 2018. These changes represent the Government's continuing efforts to modernize Canada's IP legislation and to provide businesses and entrepreneurs with access to a more proactive and comprehensive IP legislation.
What will the new amendments change?
Prior to the amendments, the BIA and the CCAA allowed debtors to disclaim agreements as part of its restructuring process. However, where the disclaimer implicates the rights of an IP license-holder, the BIA and the CCAA restricts the effect of the disclaimer where certain criteria are met. The BIA and CCAA have provisions that permit an IP license-holder to continue to use the IP and to enforce an exclusive use during the life of the contract, so long as the license-holder continues to perform its obligations under the licence.2
The new amendments will grant the same protection to broader situations, which will cover bankruptcies and receiverships. For example, where a court is involved in ordering the sale or disposition of a debtor's assets,3 sales or dispositions by the trustee in bankruptcy,4 and sales or dispositions by a receiver.5
Once these amendments come into force, there will be more expansive protection for the rights of IP users in connection with a disclaimer under a BIA proposal, receivership, bankruptcy, or CCAA proceeding.
What does this mean going forward?
The amendments to the BIA and CCAA are steps being undertaken by the Government of Canada to minimize the risk exposure for IP licence-holders. Without sufficient statutory guidance, the potential loss of a long-standing IP licence agreement due to a...