13 A Study of the Handling of Intellectual Property
Licenses in International Insolvency Proceedings (*)
Research Fellow: Ikumi SATO
A system of automatic perfection for non-exclusive licenses was introduced in Japan in the 2011 revision of
the Patent Act. This system put in place greater protection for licensees in situations involving the assignment ofpatents or the insolvency of patent rights holders, thereby laying stable foundations for economic activities
conducted on the basis of license agreements. It is hoped that this will also provide a firm footing for theaccelerated development of open innovation. However, existing intellectual property legislation is based on the
territorial principle. Accordingly, in cases with a foreign element – for example, situations in which a foreign
patent is among the patents covered by the license, or in which one of the parties to the agreement is a foreigncompany – a question arises as to the ambit of the automatic perfection system. In other words, the protection
offered by patent licenses is determined by such factors as the applicable law of the agreement, the patents coveredby it, and the nationality of the parties, so the conclusion can differ according to the combination thereof. Basedon this awareness of the issue, this study clarifies the forms and extent of protection offered by non-exclusive
licenses, focusing on situations involving international insolvency, and examines the potential impact of thisprotection.

I

Introduction

Ⅱ The Automatic Perfection Systemand the Foreign Element

The protection offered by patent licenses isdetermined by such factors as the applicable lawof the agreement, the patents covered by it, andthe nationality of the parties, so the conclusion
can differ according to the combination thereof1.
Based on this awareness of the issue, this study
clarifies the forms and extent of protection
offered by non-exclusive licenses, focusing on
situations involving international insolvency, andexamines the potential impact of this protection.
Chapter II sets out a simple patent license
involving a foreign element as a model andidentifies the legal approach to the issue. Chapter
III provides an overview of existing international
insolvency legislation and focuses on a number ofsystems for protecting domestic interests.
Chapter IV examines how such protection
systems function in relation to non-exclusive
licenses. In addition, it applies the arguments up
to this point to cross-licensing, which is a more
complex form of agreement, and clarifies theuniversal side-effects that could arise fromterritorial protection of non-exclusive licenses.
Finally, Chapter V sums up the policy implications
identified through the foregoing review.

1

The Premise of the Automatic Perfection
SystemArticle 99 of the Patent Act stipulates that
“After a non-exclusive license arises, it shall haveeffect on any person who subsequently acquires
the corresponding patent right or exclusive
license , or an exclusive license for the patentright.” This is what is called the system of
automatic perfection for non-exclusive licenses.
What this system seeks to regulate is the issue of
perfection between a licensee and a third party
who has been assigned by the patent rights holder
a patent for which a license has been granted.
Before the 2011 revision, in this situation, it wasnecessary to register a non-exclusive license toensure that it was effective against a third party.2
As a result of this revision, a licensee ispermitted to continue using a previously-granted
patent license automatically, so to speak, without
the need to register it. However, opinion is
fiercely divided over the question of whether or
not the effect of automatic perfection in thissituation is that the license agreement itself isinherited by the third party. Consequently, the(*) This is an English translation of the summary of the report published under the Industrial Property Research
Promotion Project FY2013 entrusted by the Japan Patent Office. IIP is entirely responsible for any errors in
expression or description of the translation. When any ambiguity is found in the English translation, the original
Japanese text shall be prevailing.

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relationship of rights and obligations formed as aresult of this system is unclear.
This system has been assembled on the basisof one major assumption. This is the fact that theissue of perfection is concluded entirely within
Japan. In other words, this system is nothing
more than a commitment to protect the licensee if
all of the elements that compose the issue of
perfection are located within Japan. Accordingly,
the question of protection in cases with a foreign
element is an unknown quantity.
2

Establishment of the Model

Accordingly, the following simple patent
license case is set as the model, with a foreign
element added to the patent, parties, andagreement. In the model, Company A of Country
X and Japanese Company B have concluded alicense agreement and have agreed that the law ofCountry X is the applicable law of the agreement.
The patents covered by the license are A’spatents in Country X and Japan, and B does
business in Country X and Japan on the basis of
the non-exclusive license for these patents.
Protection of the non-exclusive license inCountry X is achieved on the basis of registration,in the same way as the system previously
employed in Japan. During this relationship,
insolvency proceedings were instituted against A
in Country X and a trustee was appointed. It is
assumed that A’s trustee has rescinded theagreement in question.
3

Governing Laws

The exercise of the right of rescission by thetrustee from Country X will likely be expressedin a Japanese court in one of the following forms:(a) a demand by the trustee from Country X for an
injunction against B; (b) a demand by B against
the trustee from Country X for performance of
the agreement or for compensation for damages
for breach of contract; or (c) a demand by thetrustee from Country X for execution of the final
and binding judgment rendered in Country X. In
this situation, the Japanese court would deal withthese cases in accordance with a judgment
framework that broadly consists of two stages.
The first stage is the judgment on procedure.
At this stage, the court must judge whether or
not the trustee from Country X has standing inthis litigation. This feeds back into the questionof whether or not the court should grant
recognition of and assistance for the effectivenessof foreign insolvency proceedings in Japan.
Consequently, the applicable law at this stage is
the Act on Recognition of and Assistance for
Foreign Insolvency Proceedings (hereinafterreferred to as the “Foreign Insolvency
Recognition and Assistance Act”). The trusteefrom Country X is only granted standing by being
appointed as the “recognition trustee” via anorder of recognition (Article 36 of the Foreign
Insolvency Recognition and Assistance Act).
If recognition and assistance are granted inthis way, the case proceeds to the second stage,
which is a judgment on the substance. At thisstage, a judgment is made concerning whichcountry’s law should form the basis for rescission
by the trustee from Country X. This selection of
applicable law is governed by privateinternational law; more specifically, this stage isgoverned by the Act on General Rules forApplication of Laws (hereinafter referred to as
the “General Rules Act”).
However, when it comes to insolvency, it is
not always easy to draw a line between
procedural matters and the substance of thematter. For example, if the nature of the debts
held by creditors within Japan changes inaccordance with the reorganization plan in theother country, or if those debts are discharged,
how should the legal nature of this be regarded3?
Does it constitute procedure or substance?
Furthermore, if regarding this as procedure, is it
recognition of and assistance for foreign
proceedings, or merely enforcing recognition of aforeign judgment in accordance with Article 118of the Code of Civil Procedure? Opinions on thispoint can differ. Thus, there are cases in which it
is not possible to clearly separate procedure fromsubstance based on the dualist approach. However,in many cases, this judgment framework can be
expected to be valid.

Ⅲ International Insolvency
Domestic Interests
1andEffectiveness of Insolvency Proceedings(1) Territorialism vs. universalism
There are two main approaches to theoverseas effect of insolvency proceedings
instituted in a particular country: territorialism
and universalism. Under territorialism, theproperty within each country is dealt with inaccordance with that country’s domestic law. On
the other hand, under universalism, all of the
debtor’s property scattered across the globe is

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dealt with in a single procedure. In insolvency
proceedings involving multinational corporations,these two approaches give rise to differences interms of cost, distribution, predictability, andreorganization4. First of all, regarding cost, under
territorialism, it is necessary to instituteproceedings in each individual country in which
the debtor’s property is located, causing the costto mushroom, whereas under universalism, only asingle proceeding is instituted, so costs are
curbed, comparatively speaking, enabling themoney saved to be distributed to creditors. Next,
regarding distribution, under territorialism, theamount of property within the country
substantially affects the amount distributed tocreditors, so it is difficult to achieve cross-border
equity among creditors, but under universalism,
creditors in the same situation can be treatedequally, irrespective of nationality. Furthermore,with regard to predictability, under territorialism,
it is easy for debtors to engage in forum shoppingby transferring property, making it difficult for
creditors to ascertain the location of property inadvance and thereby reducing the efficiency ofthe distribution of funds. Moreover, this meansthatcertain,more
economically-powerful
creditors are able to engage in strategic behavior
to secure their own individual interests, at theexpense of the interests of the creditors as awhole. In contrast, universalism increases
predictability
forcreditors.
Given
the
multiplicationoftheseadvantages
anddisadvantages, the reorganization of multinational
corporations is difficult under territorialism, buteasy under universalism. Thus, in theory,
universalism is superior in every regard.
(2) Modified universalism in the UNCITRAL
Model Law
From this, one might expect thatinternational insolvency legislation has beendeveloped on the basis of universalism, but this is
not the case. Currently, an eclectic stance called
modified universalism is employed in the
resolution of cases. One of the projects driving
this move is the UNCITRAL Model Law. This isformally known as the UNCITRAL Model Law on
Cross-Border Insolvency (hereinafter known as“the Model Law”)5. It was drafted by the United
Nations Commission on International Trade Law(UNCITRAL) and was adopted in 1997.6 To date,
20 countries, including Japan, have completed theupgrading of their domestic laws in accordancewith the Model Law7.
The Model Law permits a situation in

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which multiple proceedings may be ongoing
simultaneously worldwide. As such, it actuallyemphasizes the regulation of traffic between
proceedings. This regulation of traffic is achievedby dividing foreign proceedings into mainproceedings and non-main proceedings, anddifferentiating between them in terms of theeffect of recognition. Here, “foreign mainproceeding” means “a foreign proceeding taking
place in the State where the debtor has the centerof its main interests” (Article 2 (b) of the Model
Law), where the center of the debtor’s maininterests is presumed to be the debtor’sregistered office, in the case of a corporation(Article 16.3 of the Model Law). On the other
hand, a “foreign non-main proceeding” means “aforeign proceeding, other than a foreign mainproceeding, taking place in a State where thedebtor has an establishment” (Article 2 (c) of theModel Law). A foreign proceeding recognized as
the main proceeding automatically acquires theeffect prescribed in the Model Law in therecognizing state, and other effects can be addedat the discretion of the judge (Articles 20 and 21of the Model Law). On the other hand, if a foreign
proceeding is recognized as a non-mainproceeding, all judgments on the effect of that
foreign proceeding within the country are left tothe discretion of the judge (Article 21 of theModel Law). Thus, the concept of “center of its
main interests” is the key to the acquisition ofuniversal effect by insolvency proceedings.
(3) Domestic interests and public policy
Efforts have thus been made to conquer
territorialism in relation to the effect of
insolvency proceedings. However, it is not thecase that recognition of and assistance for foreign
proceedings is haphazard under current
legislation. Provisions concerning public policy
protect domestic interests from the universal
effect of foreign proceedings. Article 6 of theModel Law falls into this category, stipulating that
“Nothing in this Law prevents the court fromrefusing to take an action governed by this Law if
the action would be manifestly contrary to the
public policy of this State.” If, as a result of areview, an action is deemed to be a breach of
public policy, recognition of and assistance for theforeign proceeding is not granted. However, evenin this situation, it is possible to apply thisprovision flexibly, by such means as confining thescope of the refusal to only part of theproceeding8.

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2

Private International Law of Insolvency(1) Law of the state of the opening ofproceedings approach
First, there is the approach that also links
the substance of the case to the country where
proceedings were opened, emphasizing the
integrity of substance with procedure. If
proceedings are initiated in multiple countries,
the substance is linked to the law of the state
where the main proceeding was opened 9 .
Consequently, the decision on the mainproceeding and non-main proceedings in the firststage of the court’s judgment framework
determines the applicable law in the second stage,
thereby determining the ultimate resolution.
This approach is attractive to trustees. It
enables the trustee from Country X to use thelaw of Country X as the basis for dealing not onlywith property located in Country X, but also
property located in Japan. This means that it
saves time and money10. Moreover, employing asingle policy to deal with property dispersed
acrossvariouscountries
contributes
tocross-border reorganization11. On the other hand,according to this theory, there is a risk that therational predictions of creditors concerning
applicable law will be confounded. That is,starting proceedings in the country where thedebtor’s head office is permanently located makes
it possible to ensure predictability, but if, at thetime of making the decision on applicable law,proceedings have only been started in the place
where the debtor has a business establishment,
the application of the law of the country where
the business establishment is located is likely tocome as a shock to the creditor, who would haveexpected the law of the country where the head
office is located to be the applicable law wheninsolvency occurred.12(2) The ordinarily applicable law approach
Second, there is the approach in which thelaw applicable under ordinary circumstances isheld to remain applicable in the event of
insolvency, emphasizing the continuity of the law
regulating legal relationships. According to thisapproach, a security interest, for example, would
be linked to the place where the subject property
is situated, in accordance with Article 13 of theGeneral Rules Act, which prescribes the law
applicable to rights in rem.13 As a result, if theproperty of the debtor is dispersed around theworld, the laws of multiple states will be emerge
as applicable laws, but in this situation, a notional

insolvency trust should be established in eachcountry whose laws are applicable 14. Regarding
the right of avoidance, which is peculiar to
insolvency law, this approach focuses on the factthat its function approximates the creditor’s rightof rescission under ordinary circumstances 15. The
General Rules Act does not stipulate the law
applicable to the creditor’s right of rescission, but
the concurrent application of the law applicable tocredit and the law applicable to fraudulent acts isbelieved to be the majority approach16.
This approach is attractive to creditors. Morespecifically, it can guarantee widespread
predictability and the safety of transactions for
creditors, who do not necessarily have the closest
relationship to the country where proceedings
were opened.17 On the other hand, it imposes a
substantial burden on the trustee. Under thisapproach, the applicable laws differ according toeach legal relationship, so the trustee must referto the laws of various countries18. As a result,dealing with insolvency takes a vast amount oftime and money. Moreover, if one adheres to theprevailing view regarding the right of avoidance,
agreement by the parties to a detrimental act
would enable them to designate the law of acountry with stringent requirements regarding
avoidance as the applicable law19. It is probably
because of this disadvantage that it is extremely
difficult to reorganize multinational corporations.
(3) Domestic interests and exceptional
connecting factors
Thus, there is a conflict between the law of
the state of the opening of proceedings approachand the ordinarily applicable law approach interms of which law should regulate the substanceof the case when insolvency occurs. However,this is nothing more than a conflict in terms of
their approach to principles. For example,
COUNCIL REGULATION (EC) No 1346/2000 of
29 May 2000 on insolvency proceedings(hereinafter referred to as the “EU Regulation”)
contains provisions regarding the privateinternational law of insolvency and stipulates thatthe law of the State of the opening of proceedings
shall be regarded as the basic rule.20 However,this legal policy is not uniformly applied to set-off,avoidance, rescission of a bilateral contract yet tobe performed or other matters. 21 While theseprovisions are positioned as exceptions to thebasic rule of applying the law of the state of the
opening of proceedings, they can probably be bothbe interpreted as indicating that the law
applicable at normal times should have

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precedence when dealing with important mattersof substance. Consequently, at the specificindividual level, there remains scope for
exceptional connecting factors in both approaches,
so one can say that the differences between the
two are relative.
So why has this policy of exceptional
connecting factors been adopted? In the case of
the law of the state of the opening of proceedings
approach, the justifications for permitting thecountry in which the real estate is situated to be
used as an exceptional connecting factor in a realestate lease contract are (1) the protection oflessees, and (2) the need for assistance indisposing of real estate22. Moreover, Article 10 of
the EU Regulation, which allows the handling of
employment contracts at the time of insolvency
to be governed by the law applicable toemployment contracts, would seem to have beendrafted based on a policy judgment that thiswould protect workers. As such, it can be said
that there is scope to accept exceptional
connecting factors in the interpretation of theregulation, in cases in which there is a tangle ofinterests and there is accepted to be a need for
powerful protection from a policy standpoint.
3

Domestic Proceedings(1) Handlingofmultinational
parentcompanies and subsidiaries
Companies that do business on a global scale
do not necessarily have a single juridical
personality. It would appear that many companies
establish a local subsidiary for strategic reasons
when doing business overseas, with thissubsidiary then managing the company’s businessand property within that country. Domestic
proceedings can first of all be used in theinsolvency of such multinational corporate groups.
Chapter IV of the Model Law prescribes theforms of cooperation between trustees. In reality,
these can be achieved by such means as theconclusion of a protocol that coordinates theproceedings in the two countries in relation to theright of management and the disposal of assets,
and the recognition thereof by a court23.
However, in the case of multinational
corporate groups, debtor-in-possession (DIP)
proceedings are adopted both domestically andoverseas, so even in cases in which the parent
company’s management takes the initiative inembarking upon integrated reorganization, it isacknowledged to be difficult to keep proceedings
in step24. This is because the conflict of interests

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exacerbated because of such factors as
differences in the precedence of security
interests and the right of priority between legal
systems, the lack of ex officio involvement by thesame court, and the existence of activist
creditors25.
(2) Disposal of domestic business by aforeign trustee
Domestic proceedings can also be used by aforeign trustee to dispose of businesses of acertain scale belonging to debtors in Japan. If it isfor this kind of purpose, it is theoretically amply
possible to use recognition of and assistance forforeign proceedings as an alternative to domestic
proceedings. However, with recognition andassistance, there is a risk that the handling oflabor claims and security interests or the
rescission of bilateral executory contracts under
foreign proceedings could pose an impediment, so
in practice, it is deemed necessary to undertake
proceedings cautiously, while securing theagreement of these creditors26. In other words, if
the scale of operation within Japan is above acertain level, the cost of domestic proceedings
and the cost of recognition and assistanceproceedings are reversed. In this situation, aforeign trustee would have an incentive to initiate
domestic proceedings that would suit his/her
purposes.
(3) The protection of domestic interests bydomestic creditors
The third use of domestic proceedings iswhen they are instituted by creditors for theprotection of domestic interests, in situations inwhich the foreign trustee has opted forrecognition
andassistanceproceedings.
Conventionally, domestic proceedings were
expected to have the following three functions inthis kind of situation: (1) serving as an alternativeif there were no foreign proceedings that could berecognized; (2) to maintain priority if there were arisk that the privileged status that the domestic
creditor was recognized to have in relation to thedebtor’s domestic property might not be upheldin the foreign proceedings; and (3) to provide
relief that would assist in realizing the rights ofcreditors, where it would be unfair to requirethem to participate in foreign proceedings 27 .
Function (2) is achieved through the application oflex fori. Moreover, function (3) can be achieved byusing the cross-filing system to establish common

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creditors in both proceedings, by having theforeign trustee file proofs of claims in theJapanese proceeding on behalf of the foreign
creditors, and having the Japanese trustee file
proofs of claims in the foreign proceeding on
behalf of the Japanese creditors28. The fact thatthe presumption of the cause of insolvency comes
into play in petitions for domestic proceedings
supports the use of such proceedings by domestic
creditors for this purpose29.
However, it cannot be said that domestic
proceedings always contribute to this purpose.
This is because, in situations in which the opinionof the foreign trustee does not accord with theopinions of domestic creditors concerning thenature of the plan in Japan, the plan that has
garnered majority support at a meeting of thecreditors will ultimately be selected 30 . In thissituation, if the foreign trustee is representing amajority of foreign creditors via the cross-filingsystem, the foreign trustee would takeprecedence in a vote 31 . As such, in order toensure that domestic creditors have some degreeof influence over the content of the plan, it isimperative to engage in negotiations having
already established a coordinated stance32. If theycannot do so, they could end up wasting theirmoney.

Ⅳ Universal Impacts Arising from
Territorial
ProtectionofNon-exclusive Licenses
1

The Function of Systems for theProtection of Domestic Interests in
Relation to Non-exclusive Licenses(1) Public policy
Proceedings in Country X that permit therescission of the license agreement by the trustee
are in direct conflict with legal policy in Article 99of the Patent Act, which aims to protect licensees
in this kind of situation. Furthermore, in themodel, not only is a Japanese patent included in
the scope of the license, but also the licensee is aJapanese company, so there is an extremely
strong relationship to Japan. Consequently, there
is ample possibility that the proceedings in
Country X will be judged as partially conflictingwith Japanese public policy. 33 In this situation,
recognition and assistance concerning the part ofthe proceedings in Country X that permit thetrustee to rescind the license agreement would
be rejected, at least insofar as the Japanese patent
was involved.

(2) Exceptional connecting factors
There are no express provisions in Japan’s
private international law concerning the law thatshould govern the effect of non-exclusive licenses
in the event of insolvency. Accordingly, the law
applicable to this is left open to interpretation.
The selection of the applicable law begins with adecision on the legal nature (characterization) of
the case in foreign private law. The possible
characterizations are “patent”, “agreement”, and“insolvency”.
Accordingly, let us first characterize it as apatent. A patent can be regarded as falling into
the category of a “right requiring registration” in
Article 13 of the General Rules Act. This article
connects such rights to the place where thesubject property of the right is situated. Patents,
which are intangible entities, have no location in aphysical sense. However, they can be notionallyregarded as being situated in the place where
they are registered. From this, one can reach theconclusion that Japanese law is applicable to theeffect of non-exclusive licenses concerning
Japanese patents.
Next, characterizing it as an agreement,
under Article 7 of the General Rules Act, the lawof the place chosen by the parties shall be applied.
However, the autonomy of parties is only
appropriate in the formation and effect of theagreement. In contrast, changes in rights in rem,such as the transfer of rights to property based on
the agreement, are governed by the law of theplace where the subject property of the right issituated, in accordance with Article 13 of the Act.
Accordingly, in this situation too, Japanese law
would be the applicable law in relation to theeffect of the non-exclusive license for theJapanese patent.
Finally, let us characterize it as insolvency. In
this case, under the ordinarily applicable law
approach, it would appear that one would reachthe identical conclusion, using the same route as
when characterizing it as a patent or anagreement. On the other hand, if the law of thestate of the opening of proceedings approach isadopted, it will have a connection to Country X.
Accordingly, under the law of Country X, thetrustee from Country X can rescind the license
agreement. However, this kind of result is in
direct conflict with legal policy in Article 99 of the
Patent Act, which aims to protect licensees in thiskind of situation. Furthermore, in the model, notonly is a Japanese patent included in the scope ofthe license, but also the licensee is a Japanesecompany, so there is an extremely strong

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relationship to Japan. If these points are taken
into consideration, there is a strong possibility
that the application of the law of Country X would
be judged to be “against public policy” (Article 42of the General Rules Act). In this situation, theapplication of foreign law to the effect of the
non-exclusive license concerning the Japanese
patent would be rejected in accordance with thisarticle, and Japanese law would be applied instead.
As well as public policy, Article 99 of the Patent
Act can also be regarded as an absolute,
mandatory provision, justifying a decision to
reject the application of the law of Country X anduphold the application of Japanese law. Thinking
about it in this way, the issue of non-exclusive
licenses in the event of insolvency is subject to
exceptional connection to Japan, as the forum,
solely in cases involving a Japanese patent.
Thus, there are multiple conceivablecharacterizations for the handling of anon-exclusive license in the event of insolvency.
However, all of these can lead to the partial
application of Japanese law. In any event, apattern emerges in which there can be multiple
points from which to begin considering the issue,
but they all lead to the same place. This pattern isbased on the fact that the license covers aJapanese patent.
(3) Domestic proceedings
The creation of a parallel insolvency
situation via the institution of domestic
proceedings contributes to protecting theinterests of domestic creditors, in the sense thatthe property of the debtor situated within Japan isdealt with on the basis of Japanese law. However,
it is likely that the creditor in that situation was
originally intended to be a monetary creditor. In
contrast, the party with a monetary claim in thecase of a simple patent license is insolvent
Company A. Accordingly, initiating domestic
proceedings will not directly lead to theprotection of the non-exclusive license, so
Licensee B will probably only fulfill therequirements
topetitionfordomestic
proceedings in a limited number of cases.
However, if it can be said that B has suffereda loss as a result of the rescission of the license
agreement by A’s trustee, there would seem to be
no impediment to B’s filing a claim for damages indomestic proceedings. In doing so, the key issue
will be whether B can calculate the amount ofcompensation on the premise of automatic
perfection. More specifically, if this is possible, B
can expect a substantial sum in damages, but if

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not, starting domestic proceedings would end up
being a waste of money34.
However, it would appear that this point ofcontention can feed back into the issue of theapplicable law. As described in IV-1-(2), in privateinternational law, there is a strong possibility thatJapanese law will be applied in relation to theeffect of the non-exclusive license in the event of
insolvency, but only in regard to the Japanese
patent. As a result, the amount of compensation
based on the premise of the automatic perfectionof the non-exclusive license concerning theJapanese patent can be anticipated. Using this asa trump card in negotiations could open the way
to a settlement with favorable terms, including
the continuation of the patent license
agreement35.
2

Similarities between the Systems for theProtection of Domestic Interests

Thus, in the context of patent licenses, allthree of these systems for the protection ofdomestic interests are closely linked to theterritorial nature of the patent, enabling thelicensee to be protected. To put it another way,
the country in which the patent covered by thelicense is registered plays a decisively importantrole. In contrast, even if (a) the applicable law of
the agreement, (b) the country in which
insolvency proceedings were opened, or (c) the
country in which the party is incorporated isclosely linked to Japan (and its laws), it is difficult
to use this fact on its own as grounds for theapplication of Japanese patent law. In other words,
these elements are of only secondary importance.
Consequently, the protection of licenses ininternational insolvency would appear to be anaggregation of multiple forms of protection of
non-exclusive licenses, which can differ according
to the country in which the patent concerned isregistered.
As such, in this model, whereas the fate (interms of the exercise of the right of rescission by
the trustee of A) of the non-exclusive license
concerning the patent in Country X will be
determined by whether or not it was registered in
Country X, the non-exclusive license concerning
the Japanese patent will be protected by theautomatic perfection system. As a result, B will at
least be able to continue its business in Japan.
This outcome will not change, even if the trustee
assigns A’s patent in Country X and Japanese
patent to C. In addition, in this situation, it goes
without saying that the assignee C will be able to

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continue A’s business in Country X and Japan.
3

Cross-licensing and Business Survival

Finally, let us apply the foregoing argument
to a foreign cross-license. The following model
shall form the basis for considering this matter.
Corporation A of Country X and JapaneseCorporation B have concluded a cross-licensing
agreement and have agreed that the law ofCountry X is the applicable law of the agreement.
The patents covered by the cross-license are A’spatents in Country X and Japan, and B’s patentsin Country X and Japan; both A and B do businessin Country X and Japan on the basis of their own
patents and the non-exclusive license for eachother’s patents. During this relationship,
insolvency proceedings were instituted against A
in Country X and a trustee was appointed. A’strustee then assigned A’s Country X patent andJapanese patent, which are covered by theagreement in question, to C.
Let us summarize the relationships of rights
in that situation between patent assignee C andparty to the agreement B. First, there is the
scenario in which Country X uses a registration
system. In this situation, whereas the question ofwhether or not B can perfect the non-exclusive
license in relation to C’s patent in Country X will
be determined by whether or not it is registeredin Country X, B can perfect the non-exclusive
license in relation to C’s Japanese patent.
Accordingly, B will at least be able to continue its
business in Japan. On the other hand, C has notbeen promised that it can use B’s patent inCountry X and Japanese patent. Consequently, C
may not be able to do business in either Country
X or Japan. Next, there is the scenario in which
Country X uses an automatic perfection system
and what kinds of rights and obligations will becreated under this system is uncertain. In thissituation, B can perfect the non-exclusive license
in relation to both C’s patent in Country X and
C’s Japanese patent. Accordingly, B will be able tocontinue its business in both countries. On theother hand, C has not been promised that it canuse B’s patent in Country X and Japanese patent.
Consequently, C may not be able to do business ineither Country X or Japan.
It is anticipated that this inconvenience forassignee C will be resolved by agreement
between the three parties involved (A, B, and C).
It has already been pointed out in discussions
concerning cross-licensing without a foreign
element that in this kind of situation, B (thesurvival of whose business is affirmed) has anadvantage over C (whose succession to thebusiness is not always affirmed) in negotiations 36.
C, which wants to purchase the patents, cannot be
expected to emerge unless there is a prospect of
doing business, so the value of the patent will
decline and the loss will be shifted onto thecreditors of insolvent Company A of Country X37.
Moreover, the circumstances were already suchthat it was difficult to form a mature market for
intellectual property. The birth of the automatic
perfection system could spur on this tendency, as
it could impede the assignment of patents. In thissituation, B may ultimately have the opportunity
to acquire the patents cheaply. It is feared that asa result, there will be few new entrants to thefields of business in question.

Ⅴ Conclusion
First, taking a simple patent license as amodel, this report considered how the protectionof non-exclusive licenses can be achieved underinternational insolvency legislation based on
modified universalism. The conclusion is that
instituting systems (public policy, exceptional
connecting factors, and domestic proceedings)
aimed at protecting domestic interests, in which
the non-exclusive license is linked to theterritorial nature of the patent, will enable
licensees to receive territorial protection. Using
this conclusion as a guide, this study finallyestablished a model involving cross-licensing
with a foreign element, using this to consider the
relationships of rights among the interested
parties and whether or not their businesses
would survive. In doing so, this study clarified
that territorial protection of non-exclusive
licenses widens differences in the bargaining
power of the parties and could have a universal
negative impact on the insolvency ofmultinational corporations.
Here, the term “universal” means that theissue will certainly not remain merely somebody
else’s problem. This is likely to become
pronounced in the opposite situation (ifinsolvency proceedings are instituted in relation
to Japanese Company B). Let us summarize therelationships of rights in that situation between
patent assignee C and non-insolvent party to theagreement A (the company from Country X). If
Country X has a registration system, A could
continue its business in Japan, whereas C may not
be able to succeed to the business in Japan.
Moreover, if Country X has an automatic

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be able to succeed to the business in either
Country X or Japan. Accordingly, Company A ofCountry X would be at an advantage innegotiations concerning an agreement between
the three parties. In this kind of situation, thevalue of the patents would decline and it would be
difficult to reorganize insolvent JapaneseCompany B. This would ultimately shift theburden onto B’s creditors. In addition, A could
bargain down the price for B’s patents, which
could ultimately impede new entry to the field.
There is a risk that the system of automatic
perfection for non-exclusive licenses could havesuch side-effects. As such, there could well be aneed to pay close attention to ensure that theexistence of this system does not cause aslowdown in economic activities that are notcentered on licensing.
1

Shinto Teramoto, International Patent Licenses and theInsolvency of Licensers, in Nishimura & Asahi andNishimura Institute of Advanced Legal Studies (eds.),
Japanese Law amid Globalization (Anthology inMemory of Toshiro Nishimura), at 405 onward(Shojihomu, 2008).
2
Article 99, paragraph (1) of the former Patent Act.
3
For the presentation of this issue and developments inarguments, see Hideyuki Sakai, International
Insolvency (2): Effect (Security, Enforcement, andInsolvency Today 15), Jurist No.1451, at 77 (2013).
4
In making the following remarks comparing the two interms of cost, distribution, predictability, andreorganization, the author is particularly indebted toSamuel L. Bufford, "Global Venue Controls Are Coming:
A Reply to Professor LoPucki," 79 American
Bankruptcy Law Journal 105, 141 (2005). A
Japanese-language translation of this paper can befound in Kazuhiro Yanagida (trans.), Forum Controls inInternational Insolvency Cases [I, II, III], Journal of theJapanese Institute of International Business Law Vol.36,
No.1 at 4 onward, No.2 at 191 onward, and No.3 at 319
onward (2008).
5
The author is indebted to Kazuhiko Yamamoto,International Insolvency Legislation, at 201 onward(Shojihomu, 2002) for the translation of the Model Law.
6
<http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model.html> (accessed June 3,2014).
7<http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model_status.html>(accessed
March 22, 2014).
8
Yamamoto 2002 supra note 5 at 42-43.
9For example, see Toshiyuki Kono, Private International
Law of Insolvency, Katsumi Yamamoto, Kazuhiko
Yamamoto, and Toshiyuki Kono, New Developments inInternational Insolvency Legislation: Theory andPractice (Special Issue of Kinyu Shoji Hanrei No.1112),
at 147-148 (2001).

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10

Ibid.
Ibid.
12
Yamamoto makes this point concerning predictability
for the beneficiary in relation to the law applicable to
avoidance (Kazuhiko Yamamoto, Recent Problems inInternational Insolvency, Rule of Law, No.170, at 14
and note 42 (2013)).
13
Hiroshi Morita, The Laws Applying to the Right ofSegregation and Security Interests in Insolvency[Final] (A Review of International Insolvency Law 4),
NBL No.660, at 61-62 (1999).
14
Ibid.
15
Yoshihisa Hayakawa, A Consideration of International
Insolvency from the Perspectives of Private
International Law and the Law of International Civil
Procedure, Rikkyo Law Review, No.46, at 155 onward(1997).
16
For example, see Yasushi Nakanishi, Aki Kitazawa, Dai
Yokomizo, and Takami Hayashi, Private InternationalLaw, at 259 (Yuhikaku, 2014).
17
Morita 1999 supra note 13 at 61-62.
18
Shinnosuke Fukuoka, International Insolvency (1):Applicable
Law
and
Recognition(Security,
Enforcement, and Insolvency Today 14), Jurist
No.1450, at 85-86 (2013).
19
Yamamoto 2013 supra note 12 at 14 and note 42.
20
Article 4 of the EU Regulation.
21
See Articles 6, 13, 8, 10, etc. of the EU Regulation.
22
Kono 2001, supra note 9 at 153.
23
Eiji Katayama, The Significance of Parallel Insolvency,
Katsumi Yamamoto, Kazuhiko Yamamoto, andToshiyuki Kono, New Developments in International
Insolvency Legislation: Theory and Practice (Special
Issue of Kinyu Shoji Hanrei No.1112), at 104 (2001).
24
Report of Research Group on Expediting Business
Rehabilitation (2nd season) V, Various Issues
Concerning International Aspects of Bankruptcy
Practice (Report 5), NBL No.994, at 78 (2013).
25
Ibid, at 78 and note 10.
26
Katayama 2001 supra note 23 at 106-107, and 108.
27
Yuko Kawasaki, Universalism and the Protection ofDomestic Interests in International Insolvency Law(Domestic Law): Insights from the German
Government’s Draft Revision to Germany’s Insolvency
Law, The Hitotsubashi Review, Vol.117, No.1, at
176-177 (1997).
28
Katayama 2001 supra note 23 at 105.
29
See Article 31 of Model Law and Katayama 2001 supranote 23 at 104.
30
Katayama 2001 supra note 23 at 107-109.
31
Ibid.
32
Ibid, at 105 and note 4.
33
The issue discussed here is public policy during
proceedings (Article 6 of the Model Law and Article 21,
item (iii) of the Foreign Insolvency Recognition andAssistance Act).
34
Using the Spansion Japan case as an example,
Shimadera and Matsunaga point out that a rejection
damages claim (RDC) arising from the rescission of an
executory contract can lead to the recovery of
substantial sums of money in the USA (Motoi
Shimadera and Takashi Matsunaga, Spansion Japan (3):Problems in Parallel Insolvency Involving Japan andthe USA (Verifying DIP Reorganization 1), NBL,
11

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No.953, at 52 (2011)).
In the Spansion Japan case, the Japanese subsidiary(Spansion Japan) filed a lawsuit for administrative
expenses against its US parent company (Spansion US),seeking payment of proceeds of sales based on theformer contract price in the USA; using this as a lever,it succeeded in acquiring the intellectual property
license that it needed for its future business.
36
Eiji Katayama, Handling of Insolvency under theAutomatic Perfection System, Nobuhiro Nakayama,
Tomokatsu Tsukahara, Yoichi Omori, Masayasu Ishida,
and Eiji Katayama (eds.), Toward the Development of a
Nation Based on Intellectual Property (Festschrift for
the 80th Birthday of Minoru Takeda), at 131-133 (Japan
Institute for Promoting Invention and Innovation,2013).
37
Ibid.
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