(CN) – A German company in bankruptcy proceedings may appeal a U.S. court’s decision forbidding it from revoking its patent licenses with Samsung, IBM, Intel, Micron Technology and others, which the electronics companies allege will negatively impact the U.S. economy.
Qimonda AG is a German company that designs and manufactures semiconductor products. It also claimsto hold “one of the largest semiconductor IP portfolios in the world,” with over 10,000 patents, of which at least 4,000 are U.S. patents.
Among Qimonda patent licensees are major electronic companies Samsung Electronics, IBM, Intel Corporation and Micron Technology, which manufacture semiconductor products.
Qimonda is currently in bankruptcy proceedings in Germany and its patents are the company’s most valuable remaining asset. It seeks to terminate its licensee’s patent rights in order to sell its patent portfolio.
In Germany, a debtor is permitted revoke a licensee’s right to use one of its patents, but in the United States, a licensee may continue using the patent for the duration of the licensing agreement.
In 2009, the bankruptcy court applied German law to the matter of Qimonda’s U.S. patents, but the licensees appealed. They argued that the patent agreements are critical to the multi-billion dollar operation of their semiconductor-producing facilities and that the industry is, “key to the continued health of the United States economy.”
On remand, the bankruptcy court reversed its previous ruling, finding that “although it could not identify a specific dollar impact on the objectors, the significant risk of harm to their investments outweighed the quantified harm ($47 million) to the Qimonda estate,” according to the judgment.
It added that “innovation would obviously not come to a grinding halt if licenses to U.S. patents could be cancelled in a foreign insolvency proceeding.” However, the application of German law “would nevertheless slow the pace of innovation, to the detriment of the U.S. economy,” the bankruptcy court found.
U.S. District Judge Thomas Ellis III granted Qimonda’s request for certification of an appeal over the licensees’ objections, finding that the case raised a question of law that was a matter of public importance.
“The public importance here stems not only from the substantial clarification of important issues of cross-border insolvency jurisprudence that would result from resolution of this appeal, but also from the substantial ramifications that any decision will cause in the semiconductor industry and for businesses in any industry that heavily rely on patent licensing agreements,” Ellis said.
The judge noted that Congress directly enacted legislation in 1988 denying a debtor the ability to revoke patent licenses. Ellis quoted a state representative who said at the time that the legislation intended to address a “fundamental threat to the creative process that has nurtured innovation in the United States.” However, “the central principle underlying Chapter 15 is that bankruptcy proceedings be governed in accordance with the bankruptcy laws of the nation in which the main case is pending, and comity should be extended in all but the narrowest of circumstances. Thus resolution of this matter … has legal and practical ramifications that transcend the litigants and involve matters of public importance,” Ellis concluded.