October 01, 2007
New Mexico Court Adopts "Actual Test," Defines New "Footstar Test."
In In re Aerobox Composite Structures, LLC, 2007 WL 2178045 (Bankr. D. N.M. 2007), the bankruptcy court for the District of New Mexico has adopted the actual test. Tubus Bauer GmbH had licensed patents to Aerobox. When Aerobox filed its chapter 11 petition, Tubus Bauer filed a motion to compel Aerobox to reject the license, relying on the Catapult decision.
Judge McFeeley denied the motion, based on application of the actual test set forth in Institute Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997). Along the way, he made a couple of interesting points.
First, he addressed the Debtor's argument that the patent license was not executory. In this particular case, the license was pre-paid. The Court found material performance remained on both sides as a result of standard anciliary provisions found in the license. The licensee had an obligation to refrain from selling certain technology separately and to maintain confidentiality. The licensor had an obligation to defend the patent. These provisions were enough to make the license executory.
Second, the Court defined a new "Footstar Test." In the Footstar decision, the Court reasoned that for purposes of section 365(c) the term "trustee" means only that, and does not encompass the term "debtor in possession." Thus, section 365(c) can only affect the right of a trustee to assume a contract, not a debtor in possession. The Aerobox decision referred to this as the "Footstar Rule" and applied it as an alternative basis for reaching its result.
Judge McFeeley denied the motion, based on application of the actual test set forth in Institute Pasteur v. Cambridge Biotech Corp., 104 F.3d 489 (1st Cir. 1997). Along the way, he made a couple of interesting points.
First, he addressed the Debtor's argument that the patent license was not executory. In this particular case, the license was pre-paid. The Court found material performance remained on both sides as a result of standard anciliary provisions found in the license. The licensee had an obligation to refrain from selling certain technology separately and to maintain confidentiality. The licensor had an obligation to defend the patent. These provisions were enough to make the license executory.
Second, the Court defined a new "Footstar Test." In the Footstar decision, the Court reasoned that for purposes of section 365(c) the term "trustee" means only that, and does not encompass the term "debtor in possession." Thus, section 365(c) can only affect the right of a trustee to assume a contract, not a debtor in possession. The Aerobox decision referred to this as the "Footstar Rule" and applied it as an alternative basis for reaching its result.
Labels: assignment, assumption, patent license
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