Bankruptcy of the Customer. [A] Protections for Vendors Under Bankruptcy Code section 365(c)(1), the debtor’s general right to assume and assign executory contracts (and to ignore contractual nonassignment provisions) does not apply when “applicable [non- bankruptcy] law” excuses the nondebtor party from “accepting per- formance from or rendering performance to” a new party. Therefore, since the federal (U.S.) common law is clear that the licensee position in a nonexclusive license cannot be assigned by the licensee without the consent of the licensor, this provision leads to preventing the customer from unilaterally assuming and assigning the agreement to a third party.
Bankruptcy of the Customer. [A] Protections for Vendors Under Bankruptcy Code section 365(c)(1), the debtor’s general right to assume and assign executory contracts (and to ignore contractual nonassignment provisions) does not apply when “applicable [non- bankruptcy] law” excuses the nondebtor party from “accepting per- formance from or rendering performance to” a new party. Therefore, since the federal (U.S.) common law is clear that the licensee position in a nonexclusive license cannot be assigned by the licensee without the consent of the licensor, this provision leads to preventing the customer from unilaterally assuming and assigning the agreement to a third party. Practice Tip for Vendors Be careful using “consent not to be unreasonably withheld” in your standard assignment clause. Some courts have held this to change the default common law rule of no assignment by the licensee, and therefore give the trustee or debtor-in-possession the right to assign. Software License Agreements § 1:12.3 [B] Potential Consequences for the Customer 3rd Proofs 02/01/18 The statutory language and case law regarding section 365(c), however, can go even further and lead to what some might consider a perverse result for the customer. Depending on whether the applica- ble court follows the “actual” or “hypothetical” test for evaluating the right to assume a nonexclusive license, a debtor-in-possession cus- tomer may be blocked, not only from assigning to a third party, but also from assuming and continuing its own operations under its nonexclusive licenses. This problem follows generally from the theory that the debtor-in-possession is considered to be a separate legal entity from the pre-petition debtor.
