Vol 9 (2012) - Issue 1

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US Bankruptcy Court Refuses to Defer to Law of Foreign Main Proceeding

US Bankruptcy Court Refuses to Defer to Law of Foreign Main Proceeding Evan C. Hollander, Partner, and Richard A. Graham, Senior Associate, Financial Restructuring and Insolvency Group, White & Case LLP, New York, USA In our last article for International Corporate Rescue, we focused on an opinion addressing section 1520 of the US Bankruptcy Code, which concerns relief that arises automatically upon a US bankruptcy court’s recognition of a proceeding as a foreign main proceeding. In this article, we examine an opinion addressing section 1521 of the US Bankruptcy Code,4 which concerns relief that may be granted by a US bankruptcy court upon recognition of either a foreign main or nonmain proceeding. In In re Qimonda AG, the US bankruptcy court denied a request by an insolvency administrator in a German foreign main proceeding to grant relief in deference to German insolvency law on the basis that such relief would be 'manifestly contrary to the public policy of the United States'. Specifically, the Qimonda court declined to allow the insolvency administrator’s rejection of US patent licences to be treated as a termination of the licensees' rights, the result that the administrator believed would obtain under German law. The court also held that the relief requested failed to meet a US statutory prerequisite for granting discretionary relief under section 1521, viz, that the interests of those affected – in this instance, the licensees – be 'sufficiently protected'. As a result, the court permitted the licensees to retain their rights under the licences notwithstanding the rejection by the administrator in the German proceeding – essentially the same protection that would be afforded the licencees in plenary cases6 under the US Bankruptcy Code. Although the US bankruptcy court’s decision included a refusal to take action on the basis of the 'public policy' exception, the opinion provides less clarity for practitioners in future cases than one might expect.


The debtor and its licensees

Dr. Michael Jaffé is the German insolvency administrator of Qimonda AG ('Qimonda'), a German company formerly in the business of manufacturing semiconductor memory devices that has been in insolvency administration in Germany since 2009. Jaffé intends to monetise Qimonda’s assets, the most valuable of which are thousands of patents Qimonda holds throughout the world, including the United States. For many of the patents, however, Qimonda or its predecessor entities, Infineon Technologies AG ('Infineon') (from which Qimonda was spun-off) and Siemens AG (from which Infineon was spun-off), granted licences to certain licensees (including Infineon). Typically, the licences at issue were nonexclusive, reciprocal, perpetual, fully paid and irrevocable, and arose under worldwide portfolio cross-licence agreements, which are designed to prevent infringement litigation by covering entire blocks of patents between the parties in order to relieve them from having to identify particular patented technologies that might be used in the design, manufacture or sale of any given semiconductor device.