“‘Free and Clear’ Bankruptcy Sales Do Not Extinguish Claims of Patent Infringement”

Sales of assets in bankruptcy are governed by §363 of the Bankruptcy Code and provide the purchaser with title to the assets “free and clear of all liens, claims and encumbrances.”  Indeed, the policy behind a “free and clear” bankruptcy sale is to increase the value of the assets by providing the purchaser with clear title and a clean break from both the stigma of bankruptcy and from creditors who may have claims against the assets. However, this clear break cannot alter the underlying nature of the assets purchased or the fact that they may infringe a patent or violate a trademark or copyright, and that the intellectual property holder still has the ability to enforce its legal rights, even when the owner of the intellectual property participates in the bankruptcy  proceeding leading up to the sale and benefits from the sale proceeds.

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