Legal uncertainty abounds for entertainment industry licensees and licensors when their license counterparties enter the murky waters of bankruptcy. When a licensor hits the skids, a licensee’s two primary concerns should include: 1) whether the protections afforded by Bankruptcy Code §365(n) are available if the debtor-licensor rejects the license; and 2) protecting its rights if the debtor-licensor seeks to sell the intellectual property. By contrast, when a licensee considers filing for bankruptcy, it must consider whether it can assume or assign the license.

Reject, Assume or Assign?

A key decision for any entertainment industry debtor is whether to reject, or assume and assign its “executory contracts.” By assuming a contract, a debtor reaffirms the contract and agrees to honor its obligations going forward. The debtor must cure or provide “adequate assurance” that all defaults will be cured, and provide adequate assurance of future performance.

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