Statement by BIO Deutschland on the Amendment to Patent Law

In the run-up to the decision on new patent legislation (the Patent Modernisation Bill) by the Bundestag (Lower Chamber in the German Federal Parliament), BIO Deutschland urged that licence contracts be guaranteed in the case of a company’s insolvency as part of the new law.

Peter Heinrich, Chairman of the Board of BIO Deutschland, stressed that it is vital for innovative companies in particular to be able to sell their licences securely and at market value as one of their most important promotional tools and sources of income in periods of worldwide financial and economic crisis. For this reason, Peter Heinrich believes that it is essential that the new Patent Modernisation Act include a regulation on price stability for licence contracts in cases of insolvency. “Licence contracts usually involve long-term agreements and high levels of investment in innovative technologies. It would be beneficial to both licensees and licensers if a secure and permanent legal basis was created for these investments,” Heinrich added.

The draft legislation of 5 December 2007 by the Federal Government on the debt write-off of bankrupt individuals, the improvement of creditors’ rights, and regulations on the price stability of licences in cases of insolvency (BT-Drs. 16/7416) plans to introduce the price stability of licences in cases of insolvency in the form of a new Clause 108a in the Insolvency Regulations. However, it is highly unlikely that this law will come into force during this legislative period. Hence, it would have been a good opportunity to deal with this important topic as part of the Patent Law Modernisation Bill.

According to current legislation, as mutual contracts as stipulated by Clause 103 of the Insolvency Regulations, licence agreements are subject to the decision of the receiver. The receiver can decide if he will continue to fulfil the defaulter’s licence contracts or not. If the liable party in the insolvency is the licenser and the receiver refuses to adhere to the licence contract, the licensee is no longer allowed to use the licensed rights. This is particularly problematic for the licensee if he has made investments that depend on the continuation of the licence contract. In some cases, the insolvency of the licenser may even destroy the licence’s economic basis. In times of economic instability, the main impact of this legal uncertainty is that companies taking on a licence set off their costs against these risks during licence negotiations. This leads to a considerable reduction in the value of licences.

In an earlier statement by the biotechnology industry, BIO Deutschland drew attention to this problem and suggested that companies that conduct research be protected by making licences “insolvency-proof”. The suggestion includes granting decision-making authority to the licensee in cases where the receiver decides not to fulfil the licence contract; this would grant the licensee the authority to agree with the non-fulfilment decision or to decide to continue the licence contract by continuing to pay for the licence.

Rainer Wessel and Martin Pöhlchen, joint chairmen of BIO Deutschland’s Working Group on Licences and Technical Contracts, said, “Rent and leasing contracts are not subject to the decision-making power of the receiver as stipulated by Clause 103 of the Insolvency Regulations. These contracts continue to be valid. It is very important to small and medium-sized companies, who are able to continue to invest in research and innovations as a result of licence contracts, that a similar exception regulation for licence contracts be added.” Rainer Wessel added that this new regulation should naturally not be contrary to the interests of the insolvent company’s creditors.

The complete text of the statement is available in German at: Position Papers