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44 Gonzaga Law Review 81 (2008-2009)


Anyone who has been paid attention to developments in the world of business over the past quarter century can attest to the fact that intellectual property (IP) is a hot commodity. Indeed, in contrast to the companies that emerged out of the Industrial Revolution, the companies that have spawned as part of the so-called “Information Age” attribute much of their value and future prospects to intangible, rather than tangible, assets. Unfortunately, while bankruptcy courts have generally recognized the need to distinguish between tangible and intangible assets, particularly when determining whether a claim is secured or unsecured, they often fail to acknowledge the practical and legal differences between the various forms of IP. Not all forms of IP are created equal. Trade secrets, in particular, present a challenge for the bankruptcy courts because, by definition, they must be “secret.” Thus, the very act of identifying and attempting to place a value on trade secrets may result in the loss of such rights.

A number of recent articles have addressed the treatment of IP assets in bankruptcy proceedings. Typically, these articles focus on two important aspects of bankruptcy law as it relates to intellectual property generally: (1) how to perfect a security interest in intellectual property assets, i.e., “general intangibles” in the parlance of Article 9 of the Uniform Commercial Code (“the U.C.C".), and (2) the treatment of executory contracts involving intellectual property assets. While both of these issues are important, they are meaningless with respect to trade secrets unless the trade secrets continue to exist after the bankruptcy petition is filed. Thus, rather than jump to a discussion of security interests and executory contracts as they relate to trade secrets, this article begins with a discussion of trade secret law and how various trade secret issues may arise in the bankruptcy context. Because the nature of the relationships in which trade secrets are disclosed is a key aspect of trade secret law, the article then proceeds to explore the interests and objectives of the various players in a bankruptcy proceeding, including the debtor, the trustee, creditors, licensees, and other third parties. The article concludes with a discussion of the interests of the unsecured creditors, employees of the debtor, and the buyer of estate assets.