Regarding whether Sanofi retained a nonseverable property interest in the Acthar gel intellectual property requiring Mallinckrodt to pay royalties post-confirmation , the district court declined to adopt Sanofi ' s theory .
Sanofi argued that the language in the asset purchase agreement providing that the sale of the intellectual property was " subject to the terms and conditions of the [ asset purchase agreement ]," including the royalty obligations , created a property interest similar to a covenant " running with the land ."
The court swiftly disagreed , finding that even if such a property right in intellectual property could theoretically be created , the boilerplate language of the asset purchase agreement did not do so .
Mallinckrodt reinforces the need for sellers of intellectual property to bolster their creditor status with respect to purchasers in the event they file for bankruptcy . As the court pointed out in its conclusion , any question of fundamental fairness is two-sided .
While it may be arguably unfair to allow a purchaser to continue to sell an entity ' s intellectual property without paying royalties , allowing royalties to survive discharge in contravention of the Bankruptcy Code would bestow sellers with " special treatment over other unsecured creditors for which [ the sellers ] did not bargain ."[ 10 ]
On Jan . 17 , Sanofi appealed the district court ' s decision to the Third Circuit . Pending the outcome of the appeal , however , sellers should heed the district court ' s suggestion and protect themselves by taking a security interest in the assets sold to secure royalty payments , structuring the transaction as a license rather than a purchase or forming a joint venture to retain part ownership of the assets .[ 11 ]
Sellers that fail to take any action to secure their royalties , retain ownership of their intellectual property , or structure their transaction as a license that a debtor must assume or reject in whole may unfortunately find that their purported royalty stream is no match for the fresh start provided by the Bankruptcy Code .
Mark E . Dendinger is a managing partner and Jonathan L . Lozano is an associate at Bracewell LLP .
The opinions expressed are those of the author ( s ) and do not necessarily reflect the views of their employer , its clients , or Portfolio Media Inc ., or any of its or their respective affiliates . This article is for general information purposes and is not intended to be and should not be taken as legal advice .
[ 1 ] Sanofi-Aventis U . S . LLC v . Mallinckrodt plc , Civ . No . 21-1636-TLA ( D . Del . Dec . 20 , 2022 ). [ 2 ] In re Mallinckrodt plc , Case No . 20-12522 ( JTD ) ( Bankr . D . Del . 2020 ). [ 3 ] 11 U . S . C . § 1141 ( d )( 1 )( A ). [ 4 ] 11 U . S . C . §§ 101 ( 12 ); 101 ( 5 ). [ 5 ] Opinion at 4 .