Contract is with creator of intellectual property. BK company owns IP. 20% of income goes to creator as royalty stream without need for creator to do anything.
Can that contract we wiped out?
A: If the company is being liquidated, then the trustee
(in Chapter 7
) (or debtor-in-possession
, in Chapter 11) has the authority to either assume or reject the contract. If assumed, then the contract remains due and payable. If rejected, the trustee/debtor is in breach, and the creator has a claim for damages against the bankruptcy estate. As a practical matter, there is no good reason to reject the contract if it's making money for the estate. But, if it is rejected, then the creator could potentially sue and obtain all of his/her intellectual property rights as part of his/her damages.Contract is with creator of IP in which he's contracted to do 200 hours of work, and upon completion he gets paid and then can get his 20%, but not until he does the other work. IP exists somewhat whether he finishes or not.
How does that fair?
A: Answer is the same as above.
Contract offers person a "credit" (producer credit, for instance) on any sequels to a particular project. Doesn't offer pay. Has "you agree to work if we require it" clause, so he doesn't actually have to perform unless requested.
Does that get wiped out and he loses his credit?
A: A contract is either valid and enforceable, or it's in breach. If the former, then the contract is as written. If in breach, then the injured party can seek to recover damages, which could include the party's intellectual property rights. A creator of a work under the Copyright Act is entitled to all rights in the creative work. Thus, a rejection of the contract could result in the company losing all of its rights in the intellectual property.
There is also the possibility in a Chapter 11 of negotiated outcome, assuming that the creator has something to lose if the contract is rejected. As with any negotiation, the sky is the limit, as long as the debtor's unsecured creditors receive at least as much as they would have received had the intellectual property been liquidated for fair market value. Same deal: gets a credit and pay is subject to good faith negotiations.
Project stays with company as it emerges from BK. Does company still have same obligation?
A: See above.
Same deal: assets are sold off. Does new buyer have any obligations:
credit, good faith negotiations?
A: if the contract is liquidated, then the buyer is the owner and has no obligation to anyone other than the counterparty to the contract (presumably the creator).With IP question above, does new buyer have to pay creator 20%, or does new buyer have it free and clear?
A: If the contract is sold to a buyer, then the buyer is obligated to the creator exactly as if the buyer were the seller. The creator's rights as a creditor are based on the contract terms and conditions, unless the contract is rejected, and then the creator can attempt to recover the creative work entirely, because the debtor is in breach of contract.
Hope this helps. NOTICE
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