USTOMERS of an application service provider (ASP) can be at great risk when the ASP enters bankruptcy. That is because ASPs (and their bankruptcy trustees) typically have the ability to reject technology license agreements as executory contracts, jeopardizing a licensee’s use of a licensed technology or process that may be crucial for its business.[1]� Fortunately, Bankruptcy Code �365(n) provides substantial protection to licensees who carefully negotiate the terms of ASP contracts in advance.[2]�
At its simplest, �365(n) allows a licensee to continue to enjoy certain benefits of a license agreement for intellectual property for the term of the license, and any extension periods, under certain conditions regardless of whether the intellectual property license is rejected in bankruptcy. Indeed, �365(n) protects not only a licensee’s use of the intellectual property that is the subject of the agreement but any right to exclusivity the licensee enjoyed at the time the licensor filed for bankruptcy.
