Survival of patents after bankruptcy

Many recycling industries face challenges due to competition from cheaper production of virgin materials (=new materials). Especially the plastic recycling industry is in dire straits. Despite rising demand, production in Europe has fallen sharply as the European plastics industry loses out to cheap Chinese and American plastics.

Last year, quite a number of plastic recyclers declared bankruptcy. Many of these recyclers hold patents and patent applications. One question that then arises is: what happens to the patent portfolio of the company that goes bankrupt?

When a company goes bankrupt, the appointed curator assumes control over all assets, which includes its patents. The main role of the curator is to liquidate the assets and this may include selling the patents to recover funds.

Some important aspects of safeguarding the existence of patents after bankruptcy are:

·        Place the patent portfolio in a separate entity. This ensures the curator cannot seize the patents in case of bankruptcy. Legal agreements should specify that patents reside with the separate entity, while granting the operating company a license to use them. In this way, control over the patents is safeguarded, even in the event of financial difficulties such as bankruptcy;
·        Make sure that the curator is aware of the value that patents may have and that patent maintenance costs, such as renewal fees, continue during bankruptcy. If not recognized or done so, patents can expire, resulting in the loss of potential value.

Often, established companies are well aware of these risks and have taken the necessary measures. In contrast, startups are prone to struggle with securing their patents, for example due to a limited knowledge or financial constraints. These companies, which may experience financial difficulties during product development, risk losing ownership of essential patents during bankruptcy. If a startup does not retain ownership of its patents, another party could take control of essential patents which may complicate future innovation.

Are you interested in the best approaches to safeguard your patents in case of financial difficulties? Timely contact your patent attorney for advice.