Who Gets Paid? Section 365(n) Royalty Payments Under "Zombie Licenses" after a Sale of IP

This short article discusses the Bankruptcy Code's unusual treatment of certain intellectual property licenses. First, it gives a brief overview of § 365(n) of the Bankruptcy Code. It then provides a short analysis of a difficult but important question: If a licensee of a debtor’s intellectual property opts to retain its license rights under § 365(n), who should receive the stream of licensing payments in the event that the IP is sold: the buyer of the IP, or the debtor in bankruptcy? The answer that has emerged in some of the case law is somewhat surprising -- after providing nuanced analyses, several courts have directed royalty payments to the debtor rather than the purchaser (and new owner) of the IP. In conclusion, the article suggests practical approaches that parties might take in negotiating and drafting purchase and sale agreements involving intellectual property in bankruptcy.