Opinion ID: 573138
Heading Depth: 2
Heading Rank: 2

Heading: Preminger Letter Agreement

Text: 13 We examine the unperformed duties and obligations of each party to determine the status of an agreement. We have held that a computer software licensing agreement is executory. In re Select-A-Seat Corp., 625 F.2d 290, 292 (9th Cir.1980). In Select-A-Seat: (1) the licensee was obligated to pay the debtor (licensor) five percent of annual net return from use of the software; and (2) the debtor was under a continuing obligation not to sell this software to third parties. Id.; see also Wegner, 839 F.2d at 537 (duty to pay money on one side is a material obligation sufficient to render a contract executory provided corresponding material obligations exist on the other side). 14 The Fourth Circuit found an industrial processes licensing agreement executory. Lubrizol Enterprises v. Richmond Metal Finishers, 756 F.2d 1043 (4th Cir.1985), cert. denied, 475 U.S. 1057, 106 S.Ct. 1285, 89 L.Ed.2d 592 (1986). The court in Lubrizol held that the unperformed, continuing core obligations of notice and forbearance in licensing made the contract executory for the debtor/licensor. Id. 756 F.2d at 1045. The court found the contract executory as to the licensee because it owed an unperformed and continuing duty of accounting for and paying royalties for the life of the agreement. Id. at 1046. The court also observed that the promise to account for and pay future royalties went beyond a mere debt, or promise to pay money, and was at the critical time executory. Id. 15 Licensing agreements are not, however, universally considered executory contracts. See In re Learning Publications, Inc., 94 B.R. 763, 765 (Bankr.M.D.Fla.1988); In re Stein and Day, Inc., 81 B.R. 263, 267 (Bankr.S.D.N.Y.1988). Learning Publications and Stein and Day involved book contracts between a debtor/licensee and the author/licensor. Both contracts contained clauses: (1) giving the debtor broad publication and distribution rights; and (2) giving the author royalties and accounting rights. Learning Publications, 94 B.R. at 765; Stein and Day, 81 B.R. at 266-67. The authors had written the books and performed their contractual obligations as of the date of the bankruptcy filing. Both courts held that these book contracts did not constitute executory contracts because the author did not owe any remaining material duties to the debtor. 16 Qintex contends that the distinction hinges on the characterization of the debtor, not on the unperformed rights and obligations in the disputed contract. Qintex suggests that three cases where courts have found an executory contract, Select-A-Seat, Lubrizol, and In re Chipwich, 54 B.R. 427, 430 (Bankr.S.D.N.Y.1985), all involved a debtor/licensor. In contrast, Qintex cites several cases where the debtor was a licensee and the contract was not executory. See Learning Publications, 94 B.R. 763; Stein and Day, 81 B.R. 263. 17 We reject the attempt to portray the issue as one centered on the status of the two contracting parties. It turns on the particular rights and duties of each contracting party. See In re Alexander, 670 F.2d 885, 887 (9th Cir.1982); Select-A-Seat, 625 F.2d at 292. The existence of substantial and unperformed obligations on both sides determines this issue. Contrary to Qintex's claim, several bankruptcy courts have held that a licensing contract was executory even though the debtor was the licensee. See In re Three Star Telecast, Inc., 93 B.R. 310, 312 (D.P.R.1988) (television program licensing agreement); In re New York Shoes, Inc., 84 B.R. 947, 960 (Bankr.E.D.Pa.1988) (trademark contract); In re Best Film & Video Corp., 46 B.R. 861, 869 (Bankr.E.D.N.Y.1985) (movie distribution contract). 18 Preminger's contract is an executory contract. The agreement contains several significant unperformed obligations. Preminger must refrain from selling the rights to subdistribute the movies to third parties, must indemnify and defend Qintex, and exercises creative control over the colorization and marketing of the pictures. Like the licensee in Select-A-Seat, Qintex is contractually obligated to give accountings and pay royalties for future sales of the pictures. Qintex has only colorized two of the four pictures. The Preminger contract is executory and must be assumed or rejected by Qintex as provided in § 365. 19