"I did not want you to hear this on the news for the first
time, but we are filing for bankruptcy next week." "This
is a difficult call to make. We are going out of business and will
probably be filing a chapter 7 in the next couple of days."
Needless to say, bankruptcy is problematic for a licensor: the
licensee may cease performing, the royalty stream may run dry, and
the licensee or a trustee could attempt to sell or assign the
license in bankruptcy to an undesirable licensee, or even a
competitor. There is however one silver lining in these scenarios -
the licensor received a heads up about the bankruptcy before it was
filed.
With the benefit of advance notice, a licensor should consider
terminating the license before the licensee actually goes into
bankruptcy.1 Once the licensee files for bankruptcy
protection, the automatic stay will enjoin the licensor from taking
any action against the licensee. While termination may still be
possible in bankruptcy, first the
