Publication Title

Washington University Law Quarterly


Corporate control is the central concern of corporate law, and, in addition to priority, has become a core concern of bankruptcy. The question of corporate control in bankruptcy is especially important for intellectual property (“IP”) rights. Bankruptcy proceedings do not compromise fundamentally the value of most tangible assets. Tangible assets generally retain their value both during and after bankruptcy proceedings, although there is always, the risk that the business will be run poorly. IP is different. IP rights are typically most valuable when they carry a credible threat of injunction. As a result, to the extent the delay and coordination problems of bankruptcy lead to the under-enforcement of a debtor's IP rights-or simply to the impression of under-enforcement-bankruptcy can frustrate the important coordination benefits IP rights otherwise serve. The bankruptcy process itself potentially can erode the private value of IP to a firm and all of its constituencies, as well as the public value of IP in facilitating downstream commercialization of the subject matter IP otherwise protects. To ensure that a debtor's IP rights are enforced vigorously in bankruptcy, a party with the right incentives, information, and resources, as well as with standing to sue, must have control over IP assets in bankruptcy. A prepackaged bankruptcy or an assignment of a debtor's IP assets for the benefit of its creditors might mitigate the delay and coordination problems of bankruptcy. Borrowing from structured finance, we explore a different option: the creation of a bankruptcy-remote special purpose entity (“SPE”) to which a company transfers all or part of its IP assets to ensure that the assets do not become part of the company's bankruptcy estate when and if the company is ever in bankruptcy. A properly structured “IP SPE” would have the critical attribute that a holder of IP must have to ensure the value of the IP: the credible perception by all market players that the SPE can enjoin infringers of as well as transact over, the IP. The sort of “IP securitization “that we outline is very similar in structure to a traditional asset securitization. One of the principal normative criticisms of the IP securitization structure, as we propose it, is that the structure might accelerate what some might see as the death of legal liability by removing assets from the reach of a debtor's creditors in bankruptcy. Accordingly, in addition to outlining the IP securitization structure, this Article briefly explores how the death of legal liability may be exaggerated and how concerns over the death of legal liability may be overstated. More to the point, in some instances, IP securitization may best ensure the value of IP assets to the benefit of a debtor's creditors and other constituencies.