Protecting, Monetizing and Leveraging IP Assets During Chapter 11

When a company enters Chapter 11 bankruptcy, it faces a critical juncture, one in which the primary goal is to obtain debt relief. The remedy also offers a chance to reorganize operations, improve its balance sheet and emerge as a stronger entity. Among a business’s greatest assets is its intellectual property (IP). Whether consisting of patents, trademarks, copyrights, trade secrets or proprietary software, these intangible assets can play a pivotal role in the restructuring process. 

Here’s how a company can make the most of its IP assets during Chapter 11:

1. Take stock of all IP — The first step is a thorough inventory and valuation. Catalog everything from patents and trademarks to copyrights and trade secrets. Get independent experts to assess what each IP portfolio is truly worth. Next, review all IP-related contracts, especially licenses. These are often “executory contracts,” meaning both parties still have obligations. The company must decide whether to assume (keep) or reject (terminate) these agreements. Sometimes, retaining a license is vital to ongoing operations, while unprofitable arrangements can be shed.
2. Monetize IP — IP can be a powerful revenue generator during Chapter 11. One way is licensing, by either creating new agreements or renegotiating existing ones. Licensing can fund operations and can make the company more attractive to potential investors or acquirers. Section 363 of the Bankruptcy Code allows “free and clear” sales of assets, including IP, with court approval. This process can maximize proceeds by washing away old liens and contested claims. IP can be bundled with other assets like customer lists or software platforms to fetch a higher price.
3. Leverage IP for financing — Obtaining debtor-in-possession (DIP) financing is often a make-or-break moment. IP can be pledged as collateral, often giving lenders the confidence they need to fund ongoing operations. To secure the best terms, companies must highlight the strength and relevance of their IP portfolio, such as by demonstrating its strategic importance within the industry. All such arrangements must get the approval of the bankruptcy court.

A skilled Chapter 11 attorney can assist in these undertakings in multiple ways, such as:

• Ensuring creditors do not seize or interfere with IP once the Chapter 11 is filed
• Litigating adversary proceedings if creditors or competitors challenge IP ownership
• Reviewing decisions on whether to assume or reject IP licenses and technology agreements
• Advising on trade secret confidentiality measures and preventing disclosure during court filings
• Obtaining court approval of Section 363 sales of IP free and clear of liens to maximize value
• Drafting and negotiating licensing agreements to generate revenue streams
• Packaging IP with customer data, brand goodwill or technology to attract higher bids
• Obtaining approval for use of IP portfolios as collateral to secure DIP loans for operating capital
• Framing IP as a growth engine in the reorganization plan to attract investor confidence

The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most experienced Chapter 11 bankruptcy law firms, with 12 locations across the region. If your business is facing overwhelming debt, please call us at 310-271-6223 or contact us online to schedule a consultation.