What Happens to Patents When a Company Goes Bankrupt?

When a company goes bankrupt, its patents don't expire automatically. Patents are property and like other property, they pass into the bankruptcy estate and are subject to the proceedings. What happens next depends on the type of bankruptcy and the decisions made by the trustee, creditors and courts.

Patents become assets of the bankruptcy estate

When a company files for bankruptcy under Chapter 7 (liquidation) or Chapter 11 (reorganization), all of its assets, including intellectual property, become part of the bankruptcy estate. A trustee (in Chapter 7) or the debtor-in-possession (in Chapter 11) takes responsibility for managing those assets on behalf of creditors.

Patents can be sold, licensed, pledged as collateral, or abandoned. Their fate during bankruptcy depends on how much value they represent and the priorities of the proceedings.

Chapter 7: liquidation

In a Chapter 7 liquidation, the company is shutting down. The trustee's job is to convert assets to cash to pay creditors. Patents are often sold to the highest bidder.

Buyers of bankrupt patent portfolios include competitors, patent licensing entities (sometimes called patent assertion entities or "patent trolls") and holding companies that acquire IP assets speculatively.

If the patents have significant value, they may sell quickly. If they're narrow in scope, in a crowded field, or have limited remaining term, they may sell for little or be abandoned if no buyer emerges.

Abandoned patents enter the public domain. The trustee can formally abandon assets that are burdensome or worthless and an unrenewed patent whose maintenance fees go unpaid during proceedings effectively lapses.

Chapter 11: reorganization

In Chapter 11, the company is restructuring, not liquidating. It may emerge from bankruptcy as a leaner entity that retains its patent portfolio, or it may sell off parts of the portfolio to raise cash for reorganization.

Debtor-in-possession financing arrangements sometimes use patent portfolios as collateral. If the reorganization fails and converts to Chapter 7, those pledged patents may transfer to secured creditors.

Chapter 11 also allows companies to reject executory contracts, including patent licenses. If a company licensed its patents to third parties before bankruptcy, those licenses can potentially be rejected, complicating the licensee's ability to continue using the technology. This has been a contested area in bankruptcy law, with the US Supreme Court addressing some aspects in the Tempnology case (2019).

Maintenance fees during bankruptcy

If a company is in bankruptcy proceedings and no one is paying the maintenance fees on its utility patents, the patents will lapse when the grace period expires. A trustee who believes the patents have value will arrange for fees to be paid. If no one acts, the patents expire.

Reinstating lapsed patents is possible within 24 months of the missed deadline if the delay was unintentional. In bankruptcy contexts, courts have sometimes addressed whether a trustee's failure to pay can constitute "unintentional" delay.

How this affects people who licensed patents from bankrupt companies

If your company holds a license to use a patent and the patent owner files for bankruptcy, your license may be at risk. Under the Supreme Court's Tempnology decision, a licensor in bankruptcy can reject a patent license, though the licensee retains some rights under 11 USC 365(n) to continue using the IP on pre-bankruptcy terms.

The practical implications depend on the specific license terms, the type of bankruptcy and whether the debtor actually chooses to reject the license. Licensees in this situation typically need legal counsel familiar with both patent and bankruptcy law.

Patent expiration is unaffected by bankruptcy

The expiration date of a patent is not affected by the bankruptcy of the patent owner. The patent continues to run its term, subject to maintenance fee payments, regardless of who owns it or what legal proceedings surround the owner.

A patent that would have expired in 2030 still expires in 2030 whether the original company is still operating, has been acquired, has been reorganized, or has liquidated. Ownership changes, but the clock doesn't reset.

The Patent Sunset calculator shows the calculated expiration date for any patent regardless of its current ownership status, since expiration is based on the filing date and prosecution history, not the identity or financial condition of the current owner.