Dr. Michael Jaffe v. Samsung Electronics Company

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 09-14766-RGM. [999250723]. [12-1802]

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 12-1802

MICHAEL JAFFÉ, Insolvency Administrator,
Plaintiff - Appellant,
v.
SAMSUNG ELECTRONICS COMPANY, LIMITED; INFINEON TECHNOLOGIES
AG; INTERNATIONAL BUSINESS MACHINES CORPORATION; HYNIX
SEMICONDUCTOR, INC.; INTEL CORPORATION; NANYA TECHNOLOGY
CORPORATION; MICRON TECHNOLOGY,
Defendants - Appellees.
-----------------------------UNITED STATES OF AMERICA,
Amicus Curiae,
VERBAND INSOLVENZVERWALTER DEUTSCHLANDS E.V.,
Amicus Supporting Appellant,
THE FEDERATION OF GERMAN INDUSTRIES, a/k/a Bundesverband der
Deutschen
Industrie;
INTELLECTUAL
PROPERTY
OWNERS
ASSOCIATION; SEMICONDUCTOR INDUSTRY ASSOCIATION; CHAMBER OF
COMMERCE
OF
THE
UNITED
STATES
OF
AMERICA;
NATIONAL
ASSOCIATION OF MANUFACTURERS; BUSINESS SOFTWARE ALLIANCE,
Amici Supporting Appellees.

Appeal from the United States Bankruptcy Court for the Eastern
District of Virginia, at Alexandria.
Stephen S. Mitchell,
Bankruptcy Judge. (09-14766-RGM)

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Argued:

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September 17, 2013

Decided:

December 3, 2013

Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.

Affirmed by published opinion.
Judge Niemeyer wrote the
opinion, in which Judge Floyd joined.
Judge Wynn wrote a
separate opinion concurring in Parts I, II, and III and the
judgment.

ARGUED:
Jeffrey A. Lamken, MOLOLAMKEN LLP, Washington, D.C.,
for Appellant.
William H. Pratt, KIRKLAND & ELLIS LLP, New
York, New York, for Appellees.
Mark R. Freeman, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Amicus Curiae the
United States of America. ON BRIEF: Robert K. Kry, MOLOLAMKEN
LLP, Washington, D.C., for Appellant. Jennifer M. Selendy, John
P. Del Monaco, New York, New York, Timothy Muris, Daniel A.
Bress, Washington, D.C., William E. Devitt, Dennis J. Abdelnour,
KIRKLAND & ELLIS LLP, Chicago, Illinois; Stephen E. Leach, LEACH
TRAVELL BRITT, P.C., Tysons Corner, Virginia, for Appellees
Infineon Technologies AG, Samsung Electronics Company, Limited,
and International Business Machines Corporation.
Lawrence A.
Katz, LEACH TRAVELL BRITT, P.C., Tysons Corner, Virginia;
Theodore G. Brown, III, KILPATRICK TOWNSEND & STOCKTON LLP,
Menlo Park, California, for Appellee Hynix Semiconductor, Inc.
Joseph E. Mais, Timothy J. Franks, Phoenix, Arizona, John K.
Roche, Washington, D.C., Alan D. Smith, PERKINS COIE LLP,
Seattle, Washington, for Appellee Intel Corporation.
Marc
Palay, Geneva, Switzerland, Jonathan Cohn, SIDLEY AUSTIN LLP,
Washington, D.C., for Appellee Nanya Technology Corporation.
Maurice Horwitz, New York, New York, M. Jarrad Wright, Adam P.
Strochak, Washington, D.C., Alfredo R. Perez, Houston, Texas,
Jared Bobrow, WEIL, GOTSHAL & MANGES LLP, Redwood Shores,
California, for Appellee Micron Technology.
Christopher J.
Wright,
Timothy
J.
Simeone,
WILTSHIRE
&
GRANNIS,
LLP,
Washington,
D.C.,
for
Amicus
Verband
Insolvenzverwalter
Deutschlands E.V.
Neil H. MacBride, United States Attorney,
OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia;
Stuart F. Delery, Acting Assistant Attorney General, Robert M.
Loeb, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Amicus Curiae the United States of
America.
Richard F. Phillips, Kevin H. Rhodes, INTELLECTUAL
PROPERTY OWNERS ASSOCIATION, Washington, D.C.; Jeffrey K.
Sherwood, Gary M. Hoffman, Megan S. Woodworth, DICKSTEIN SHAPIRO
LLP, Washington, D.C., for Amicus Intellectual Property Owners
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Association. Timothy J. Coleman, FRESHFIELDS BRUCKHAUS DERINGER
LLP,
Washington,
D.C.,
for
Amicus
Federation
of
German
Industries.
David Isaacs, SEMICONDUCTOR INDUSTRY ASSOCIATION,
Washington, D.C., for Amicus Semiconductor Industry Association;
Paul D. Clement, D. Zachary Hudson, BANCROFT PLLC, Washington,
D.C., for Amici Semiconductor Industry Association, Chamber of
Commerce of the United States of America, National Association
of Manufacturers, and Business Software Alliance; Robin S.
Conrad, NATIONAL CHAMBER LITIGATION CENTER, Washington, D.C.,
for Amicus Chamber of Commerce of the United States of America;
Quentin
Riegel,
NATIONAL
ASSOCIATION
OF
MANUFACTURERS,
Washington,
D.C.,
for
Amicus
National
Association
of
Manufacturers; Timothy A. Molino, BSA/THE SOFTWARE ALLIANCE,
Washington, D.C., for Amicus Business Software Alliance.

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NIEMEYER, Circuit Judge:
This appeal presents the significant question under Chapter
15 of the U.S. Bankruptcy Code of how to mediate between the
United States’ interests in recognizing and cooperating with a
foreign insolvency proceeding and its interests in protecting
creditors of the foreign debtor with respect to U.S. assets, as
provided in 11 U.S.C. §§ 1521 and 1522.
Qimonda

AG,

a

German

corporation

that

manufactured

semiconductor devices and was, for a brief time, one of the
world’s largest manufacturers of dynamic random access memory
(“DRAM”), filed for insolvency in Munich, Germany, in January
2009.

The principal assets of Qimonda’s estate consisted of

some 10,000 patents, about 4,000 of which were U.S. patents.
These

patents

Qimonda’s
industry

were

subject

competitors,
to

avoid

as

to

cross-license

was

common

infringement

risks

in

agreements

the

caused

with

semiconductor

by

the

“patent

thicket” resulting from the overlapping patent rights of some
420,000 patents in the semiconductor industry.
Ancillary to the German insolvency proceeding, Dr. Michael
Jaffé,

the

court,

filed

Eastern

insolvency
an

District

administrator

application
of

Virginia

in

the

under

appointed

by

Bankruptcy

Court

Chapter

15

the

of

Munich
for

the

the
U.S.

Bankruptcy Code, petitioning the U.S. court to recognize the
German insolvency proceeding as a “foreign main proceeding” in
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order to obtain an array of privileges available under Chapter
15.

Among other relief, Jaffé specifically requested that the

bankruptcy

court

entrust

to

him,

pursuant

to

11

U.S.C.

§

1521(a)(5), the administration of all of Qimonda’s assets within
the territorial jurisdiction of the United States, which largely
consisted of the 4,000 U.S. patents.
Contemporaneously

with

the

Chapter

15

proceeding,

Jaffé

sent letters to licensees of Qimonda’s patents under its crosslicense agreements, declaring that, under § 103 of the German
Insolvency Code, the licenses granted under Qimonda patents “are
no

longer

enforceable,”

including

company’s 4,000 U.S. patents.

the

licenses

under

the

As Jaffé later indicated to the

bankruptcy court, he intended to re-license Qimonda’s patents
for the benefit of Qimonda’s creditors, replacing licenses paid
for in-kind with cross-licenses with licenses paid for with cash
through royalties.
The

bankruptcy

court

entered

an

order

recognizing

the

German insolvency proceeding as a foreign main proceeding and a
separate
requested

order
under

granting
§

Jaffé

the

1521(a)(5).

discretionary

But,

following

relief
a

he

four-day

evidentiary hearing, it conditioned the § 1521 relief with the
requirement that Jaffé afford the licensees of Qimonda’s U.S.
patents the treatment they would have received in the United
States

under

11

U.S.C.

§

365(n),
5

which

limits

a

trustee’s

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unilaterally

licenses

to

the

debtor’s

intellectual property by giving licensees the option to retain
their rights under the licenses.

After balancing the interests

of Qimonda’s estate with the interests of the licensees of its
U.S.

patents,

the

bankruptcy

court

concluded

that

the

application of § 365(n) was necessary to ensure, as required by
§

1522(a),

that

the

licensees

were

“sufficiently

protected,”

even though it would adversely affect Qimonda’s estate.

The

bankruptcy court also concluded, pursuant to 11 U.S.C. § 1506,
that allowing Jaffé to cancel unilaterally Qimonda’s licenses of
U.S. patents “would be manifestly contrary to the public policy
of the United States,” recognizing “a fundamental U.S. public
policy

promoting

technological

innovation,”

which

would

be

undermined if it failed to apply § 365(n) to the licenses under
Qimonda’s U.S. patents.
In

this

direct

appeal

from

the

bankruptcy

court,

Jaffé

challenges both of these conclusions, arguing that the court
erred

in

its

construction

of

Chapter

15

and

abused

its

discretion in applying it.
We conclude that the bankruptcy court properly recognized
that Jaffé’s request for discretionary relief under § 1521(a)
required

it

to

consider

“the

interests

of

the

creditors

and

other interested entities, including the debtor” under § 1522(a)
and

that

it

properly

construed
6

§

1522(a)

as

requiring

the

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a

balancing

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test.

Moreover,

relying

on

the

particular facts of this case and the extensive record developed
during the four-day evidentiary hearing, we also conclude that
the

bankruptcy

court

reasonably

exercised

its

discretion

in

balancing the interests of the licensees against the interests
of

the

debtor

and

finding

that

application

of

§

365(n)

was

necessary to ensure the licensees under Qimonda’s U.S. patents
were sufficiently protected.

Accordingly, we affirm.

I
The German insolvency proceeding
Qimonda

AG

filed

an

application

to

open

a

preliminary

insolvency proceeding in the Munich Insolvency Court on January
23, 2009, which was converted to a final proceeding on April 1,
2009.

Upon converting the proceeding to a final one, the court

appointed Dr. Michael Jaffé to serve as the estate’s insolvency
administrator, a position akin to a bankruptcy trustee under
U.S.

law.

Subsequently,

Qimonda

ceased

all

operations and began to liquidate its estate.
assets

of

patents,

the

estate

including

consisted

about

4,000

of
U.S.

its

manufacturing
The principal

approximately

patents.

Most

of

10,000
these

patents covered products or processes related to DRAM, but some
covered other types of semiconductor technology.

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The “patent thicket” and the practice of cross-licensing
At the time Qimonda opened its insolvency proceeding, its
patents were subject to numerous cross-license agreements with
other

semiconductor

Technologies
Samsung

AG

(from

Electronics

Corporation

manufacturers,

(“IBM”),

which

Company,

Qimonda

Intel

including

had

spun

International
Corporation,

off

Infineon

Business

in

Hynix

2006),

Machines

Semiconductor,

Inc., Nanya Technology Corporation, and Micron Technology, Inc.
While some of these cross-license agreements were designed to
facilitate specific joint ventures, most simply reflected the
strategy

widely

response

to

adopted

infringement

in

the

risks

semiconductor

arising

from

industry

the

in

industry’s

“patent thicket” -- a term used to describe “a dense web of
overlapping

intellectual

property

rights.”

Carl

Shapiro,

Navigating the Patent Thicket: Cross Licenses, Patent Pools, and
Standard Setting, in 1 Innovation Policy and the Economy 119,
120 (Adam B. Jaffe et al. eds., 2001).

As the bankruptcy court

in this case aptly explained and all parties agreed, there are
so many patents implicated by any new semiconductor product that
“it would be all but impossible to design around each and every”
one.
2011).

In re Qimonda AG, 462 B.R. 165, 175 (Bankr. E.D. Va.
“Indeed, such is the number of potentially applicable

patents that it is not always possible to identify which ones
might cover a new product . . . .”
8

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The problem of the patent thicket is exacerbated by the
enormous costs incurred to bring a new semiconductor product to
market.

According to one expert, the price of building a new

semiconductor fabrication facility can now exceed $5 billion.
These sunk costs could create a classic “holdup” problem if a
new product were ultimately found to infringe someone else’s
patent,

with

the

patent’s

owner

being

able

to

extract

a

substantially higher royalty after the investment had been made
than if a license had been negotiated beforehand.
avoid

this

holdup

premium

and

enhance

their

Thus, to

design

freedom,

competitors in the semiconductor industry have routinely entered
into

broad,

other,

non-exclusive

“sometimes

with

(either

up-front

payments

account

for

differences

cross-license

the

addition

or

the

of

so-called

in

respective patent portfolios.”

agreements

size

with

equalizing

running
and

each

payments

royalties)

breadth

of

to
the

In re Qimonda AG, 462 B.R. at

175.
Consistent with this industry practice, Qimonda had patent
cross-license

agreements

with

nearly

every

other

major

semiconductor manufacturer at the time it opened its insolvency
proceeding.

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The Chapter 15 proceeding
Jaffé

commenced

this

Chapter

15

proceeding

on

June

15,

2009, for recognition of the German insolvency proceeding as a
“foreign

main

proceeding”

under

11

U.S.C.

§

1517.

Jaffé’s

petition identified Qimonda’s known assets in the United States
as including its “active patents and patent applications filed
with

the

United

States

Patent

and

Trademark

Office,”

and

it

sought relief designed to “give effect to the German Proceedings
in the U.S., protect the U.S. Assets, and to prevent creditors
in

the

U.S.

from

taking

German Proceedings.”

actions

that

[might]

frustrate

the

Jaffé also sought an order entrusting to

him, under § 1521(a)(5), “[t]he administration or realization of
all or part of the assets of [Qimonda] within the territorial
jurisdiction of the United States” and further declaring that
the “German Proceedings . . . be granted comity and [be] given
full force and effect” in the United States.
The bankruptcy court granted the relief Jaffé requested,
entering an order granting recognition of the German insolvency
proceeding as a “foreign main proceeding” under § 1517.
same

time,

“grant[ing]

it

also

further

Supplemental
representative

Order
of

entered
relief
made

Qimonda

a

under
Jaffé
AG

in

separate
11

the

Supplemental

U.S.C.

“the

At the

sole

United

§

Order

1521.”
and

States”

The

exclusive
and,

as

requested, specifically gave him the power to “administer the
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assets of Qimonda AG within the territorial jurisdiction of the
United States.”

It authorized Jaffé “to examine witnesses, take

evidence, seek production of documents, and deliver information”
concerning Qimonda.

Finally, it specified that, “in addition to

those sections [of the Bankruptcy Code] made applicable pursuant
to § 1520,” a number of other provisions of the Bankruptcy Code
would be “applicable in this proceeding,” including 11 U.S.C. §
365.

That provision gives a bankruptcy trustee power to assume

or reject any of the debtor’s executory contracts.
subsection,
unilaterally
property,

§

365(n),

reject

reserving

limits

licenses
to

the

to

the

trustee’s

the

licensees

ability

debtor’s
the

But one

option

to

intellectual
to

elect

to

retain their rights under the licenses.
Shortly after the bankruptcy court entered its Supplemental
Order, Jaffé began sending letters to companies that had crosslicense agreements with Qimonda, invoking § 103 of the German
Insolvency Code and declaring that the licenses under Qimonda’s
patents were “no longer enforceable.”

Section 103 of the German

Insolvency Code, much like § 365 of the U.S. Bankruptcy Code,
permits

an

insolvency

continue

to

perform

the

administrator
debtor’s

to

decide

executory

whether

contracts.

to
But,

unlike § 365, which includes the § 365(n) exception, § 103 does
not

specifically

address

intellectual

property

licenses.

In

Jaffé’s view, however, the licenses under Qimonda’s patents fell
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within the scope of § 103, and it was his duty, as insolvency
administrator,

not

to

recognize

them

since

they

provided

no

useful compensation to Qimonda’s estate.
After receiving these letters, Samsung and Elpida Memory,
Inc., responded with letters, taking the position that 11 U.S.C.
§ 365(n) protected their licenses under Qimonda’s U.S. patents
and announcing that they were electing to retain their rights
under the licenses.
The letters from Samsung and Elpida prompted Jaffé to move
to amend the bankruptcy court’s July 22, 2009 Supplemental Order
to delete entirely its reference to § 365.
asked

the

court

specifying

that

to

add

“Section

a

proviso

365(n)

to

Alternatively, Jaffé

the

applies

Supplemental

only

if

the

Order

Foreign

Representative rejects an executory contract pursuant to Section
365 (rather than simply exercising the rights granted to the
Foreign Representative pursuant to the German Insolvency Code).”
Several companies that had licenses under Qimonda’s U.S. patents
through cross-license agreements -- namely, Infineon, Samsung,
Micron,

Nanya,

IBM,

Intel,

and

Hynix

(hereafter,

the

“Licensees”) -- opposed Jaffé’s motion to amend the Supplemental
Order. 1

1

Infineon, Samsung, Micron, Nanya, and Elpida originally
objected to the motion, while IBM, Intel, and Hynix were later
allowed to intervene as objectors.
Elpida, which also had
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By an opinion dated November 19, 2009, the bankruptcy court
granted Jaffé’s motion, stating that its inclusion of § 365 was
“improvident.”

The court explained that consistent with Chapter

15’s goal of “providing a systematic and consistent resolution
to cross-border insolvencies,” the fate of the patent crosslicense agreements should be decided in the German insolvency
proceeding
amended

by

its

applying

German

Supplemental

Order

law.

The

to

court

accordingly

the

alternative

include

proviso that Jaffé had requested as an amendment.

The appeal to the district court and its remand order
The Licensees appealed the bankruptcy court’s amended order
to the district court, which thereafter remanded the case back
to

the

bankruptcy

court

to

consider

11

U.S.C.

§

1522(a)’s

requirement that the bankruptcy court ensure that “the interests
of the creditors and other interested entities, including the
debtor,

[were]

explained

that

sufficiently
§

1522(a)

protected.”

required

the

The

district

bankruptcy

court

court

“to

balance the relief granted to the foreign representative and the
interests

of

those

affected

by

such

relief,

favoring one group of creditors over another.”

without

unduly

In re Qimonda AG

elected to enforce its licenses from Qimonda under § 365(n),
subsequently reached a settlement with Jaffé and therefore is
not an objecting Licensee.
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Bankr.

Litig.,

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433

B.R.

547,

Pg: 14 of 45

557

(E.D.

Va.

2010)

(emphasis

omitted) (quoting In re Tri-Cont’l Exch. Ltd., 349 B.R. 627, 637
(Bankr. E.D. Cal. 2006)).

The court found it “unclear on [the]

somewhat anemic record whether the Bankruptcy Court adequately
balanced the parties’ interests, as required by § 1522,” noting
that the bankruptcy court had not adequately explained why the
application

of

§

365(n)

would

unduly

prejudice

Jaffé

or,

conversely, fully considered “whether cancellation of licenses
for [Qimonda’s U.S. patents] would put at risk [the Licensees’]
investments in manufacturing or sales facilities in this country
for products covered by the U.S. patents.”

Id. at 558.

As a separate basis for remand, the district court also
found that the bankruptcy court had failed to consider “whether
§ 365(n) embodies the fundamental public policy of the United
States, such that subordinating § 365(n) to German Insolvency
Code

§

103

is

an

action

‘manifestly

contrary

to

the

policy of the United States,’” under 11 U.S.C. § 1506.
at

565.

The

district

court

concluded

that

there

public

433 B.R.
were

two

primary circumstances in which a bankruptcy court should invoke
§ 1506:

first, when “the foreign proceeding was procedurally

unfair;” and second, when “the application of foreign law or the
recognition of a foreign main proceeding under Chapter 15 would
severely impinge the value and import of a U.S. statutory or
constitutional right, such that granting comity would severely
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hinder United States bankruptcy courts’ abilities to carry out .
. . the most fundamental policies and purposes of these rights.”
Id. at 568-69 (internal quotation marks omitted).
application

of

that

standard

“unclear

on

[the]

Finding the
record,”

the

court also directed the bankruptcy court on remand to consider
“whether

conditioning

the

applicability

of

§

365(n)

was

a

prohibited action ‘manifestly contrary to the public policy of
the United States’ under § 1506.”

Id. at 570-71.

On remand to the bankruptcy court
On remand, Jaffé filed papers in the bankruptcy court in
which he committed to re-license Qimonda’s patent portfolio to
the

Licensees

royalty.

at

a

reasonable

and

nondiscriminatory

(“RAND”)

He stated that he was prepared to “enter into good

faith negotiations” with the Licensees to set the royalty rates
and, if necessary, to submit the rate amounts to arbitration
before the World Intellectual Property Organization (“WIPO”). 2

2

RAND royalties are relatively common in high-tech
industries because of the role played by standard-setting
organizations,
which
help
ensure
the
interoperability
of
products, among other functions. To avoid the holdup problem in
this context, standard-setting organizations typically require
their members to agree in advance to license any patent
identified as necessary to a standard at RAND terms.
Both
Qimonda and the Licensees belong to such an organization.
Nonetheless, the Federal Trade Commission has observed that
“there is much debate over whether such RAND . . . commitments
can effectively prevent patent owners from imposing excessive
royalty obligations on licensees,” noting complaints by industry
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In

March

evidentiary

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2011,

hearing,

the

Pg: 16 of 45

bankruptcy

receiving

court

testimony

held

a

regarding

four-day

the

likely

effects of applying § 365(n) to licenses under Qimonda’s U.S.
patents.

Jaffé testified at the hearing that a ruling applying

§ 365(n) would render “the central assets of [Qimonda’s] estate,
that is [its] U.S. patents . . . largely worthless.”

He also

said that such a ruling would “violate the principle of equal
treatment of creditors under German law” by giving the Licensees
preferential treatment over Qimonda’s other creditors.
Jaffé also presented the expert testimony of Dr. William
Kerr, an economist, who concluded that based on his review of
existing licenses and licensing practices in the semiconductor
industry,

Qimonda’s

estate

would

receive

approximately

$47

million per year if Jaffé were allowed to re-license Qimonda’s
U.S. patents covering DRAM products at RAND terms.

Observing

that $47 million would represent a small fraction of what the
Licensees spend on research and development every year, Kerr
gave his opinion that “discontinuance of the cross-licenses at
issue [and subsequent re-licensing at a RAND rate] would not

representatives that the term RAND is “vague and ill-defined -particularly with regard to what royalty rate is ‘reasonable.’”
Fed. Trade Comm’n, The Evolving IP Marketplace: Aligning Patent
Notice and Remedies with Competition 192-93 (2011).
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unduly impair the function of the semiconductor industry or the
[Licensees].”
By contrast, the Licensees’ witnesses testified to the harm
that would befall the Licensees, as well as the semiconductor
industry as a whole, if the reference to § 365(n) were removed
from the Supplemental Order.
the

Licensees’

destabilizing

economist,

the

system

For example, Dr. Jerry Hausman,
gave

of

his

licensing

opinion
that

that

has

“[b]y

enabled

the

extraordinary success of the semiconductor industry and other
industries,

failure

to

apply

Section

365(n)

would

reduce

investment, innovation, and competition, which would harm U.S.
productivity

growth

productivity

and

calculation

of

U.S.

consumers

consumers.”

Hausman

the

and

likely

RAND

as

well

also

royalty

as

worldwide

disputed

rates,

Kerr’s

forecasting

significantly higher sums and arguing that the holdup threat
could not be eliminated.

Moreover, in Hausman’s view, Jaffé’s

offer to re-license the U.S. patents at RAND terms could not
“provide

adequate

protection

for

the

interests

of

the

[Licensees],” in part because of the danger that Jaffé would
subsequently sell the patent portfolio to an entity that might
itself

file

for

bankruptcy,

[Licensees’] licenses once again.”

17

thus

“extinguish[ing]

the

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The bankruptcy court’s decision on remand
At

the

conclusion

of

the

hearing,

the

bankruptcy

court

issued a memorandum opinion denying Jaffé’s motion to amend the
Supplemental Order and confirming “that § 365(n) applies with
respect to Qimonda’s U.S. patents.”
at 185.

In re Qimonda AG, 462 B.R.

The court assumed for the purpose of its analysis that

Jaffe’s interpretation of German law was correct and that § 103
of the German Insolvency Code would authorize him to terminate
the Licensees’ right to practice Qimonda’s patents.

With that

assumption, the court concluded that “the balancing of debtor
and creditor interests required by § 1522(a) . . . weighs in
favor

of

making

§

365(n)

applicable

administration of Qimonda’s U.S. patents.”
Explaining

its

balancing

analysis,

to

Dr.

Jaffé’s

Id. at 182.
the

bankruptcy

court

recognized that its ruling would “result in less value . . .
being realized by the Qimonda estate” but noted that Qimonda’s
patents would “by no means be rendered worthless.”
182.
would

462 B.R. at

On the other hand, the court found that a contrary ruling
create

investment

the

a

“very

real”

[Licensees]

“risk

.

.

.

to

the

[had]

very

substantial

collectively

made

in

research and manufacturing facilities in the United States in
reliance on the design freedom provided by the cross-license
agreements.”

Id.

Jaffé’s

to

offer

at

182-83.

re-license

The

Qimonda’s
18

court

acknowledged

patents

on

RAND

that
terms

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would lessen the holdup risk, but observed that, because of the
Licensees’

“sunk

costs,

[they

would]

not

have

the

option

of

avoiding royalties altogether by designing around the patent.”
Id. at 181-82.
As an independent ground for its decision, the bankruptcy
court also concluded, under 11 U.S.C. § 1506, that “deferring to
German law, to the extent it allows cancellation of the U.S.
patent licenses, would be manifestly contrary to U.S. public
policy.”

462 B.R. at 185.

Referencing the legislative history

of Congress’s enactment of the Intellectual Property Licenses in
Bankruptcy Act, Pub. L. No. 100-506, 102 Stat. 2538 (1988), the
court noted that § 365(n) resulted from Congress’s determination
“that allowing patent licenses to be terminated in bankruptcy
would

‘impose[]

development.’”

a

burden

on

American

technological

In re Qimonda AG, 462 B.R. at 184 (quoting S.

Rep. No. 100-505, at 1 (1988), reprinted in 1988 U.S.C.C.A.N.
3200, 3200).

Informed by this congressional policy choice, the

court reasoned that “[a]lthough innovation would obviously not
come to a grinding halt if licenses to U.S. patents could be
cancelled

in

a

foreign

insolvency

proceeding,

the

court

is

persuaded by Professor Hausman’s testimony that the resulting
uncertainty would nevertheless slow the pace of innovation, to
the detriment of the U.S. economy.”

Id. at 185.

On this basis,

the court concluded that “failure to apply § 365(n) under the
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circumstances of this case and this industry would ‘severely
impinge’ an important statutory protection accorded licensees of
U.S. patents and thereby undermine a fundamental U.S. public
policy promoting technological innovation.”

Id.

The bankruptcy court thus held that “public policy, as well
as

the

economic

harm

that

would

otherwise

result

to

the

[L]icensees, require[d] that the protections of § 365(n) apply
to Qimonda’s U.S. patents.”

462 B.R. at 167-68.

The direct appeal to the court of appeals
Jaffé
from

the

appealed

the

district

bankruptcy

court

a

court’s

certification

ruling
under

158(d)(2) for a direct appeal to this court.
concluded

that

the

bankruptcy

court’s

and

28

sought

U.S.C.

§

The district court

order

qualified

for

certification, and, by order dated June 28, 2012, we authorized
the direct appeal.

See 28 U.S.C. § 158(d)(2).

II
Congress enacted Chapter 15 of the Bankruptcy Code in 2005
as

part

of

the

Bankruptcy

Abuse

Prevention

and

Consumer

Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23, stating
that its purpose was “to incorporate the Model Law on CrossBorder
United

Insolvency,”
Nations

which

had

Commission

been
on

developed

in

International

1997

by

Trade

the
Law

(“UNCITRAL”), “so as to provide effective mechanisms for dealing
20

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with cases of cross-border insolvency.”

11 U.S.C. § 1501(a);

see also H.R. Rep. No. 109-31, pt. 1, at 105 (2005), reprinted
in

2005

U.S.C.C.A.N.

replaced

former

11

88,

169.

U.S.C.

In

§ 304,

this

which

respect,

Chapter

authorized

15

bankruptcy

courts to award appropriate relief in a case ancillary to a
foreign proceeding but which was largely discretionary.
U.S.C.

§

304(c)

objectives:
other

(2000).

Chapter

15

lists

five

See 11
specific

(1) to encourage cooperation with “the courts and

competent

authorities

of

foreign

countries

involved

in

cross-border cases;” (2) to increase “legal certainty for trade
and

investment;”

(3)

to

promote

the

“fair

and

efficient

administration of cross-border insolvencies” so as to “protect[]
the interests of all creditors, and other interested entities,
including the debtor;” (4) to protect and maximize “the value of
the

debtor’s

assets;”

and

(5)

to

financially troubled businesses.”

facilitate

“the

rescue

of

11 U.S.C. § 1501(a); see also

H.R. Rep. No. 109-31, pt. 1, at 105.
To further these stated objectives, Chapter 15 authorizes
the

representative

of

a

foreign

insolvency

proceeding

to

commence a case in a U.S. bankruptcy court by filing a petition
for recognition of the foreign proceeding.
1509(a), 1515.

11 U.S.C. §§ 1504,

If the petition meets the requirements listed in

§ 1517, the court must enter an order granting recognition of
the

foreign

proceeding.

And

if
21

that

foreign

proceeding

“is

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pending in the country where the debtor has the center of its
main

interests,”

proceeding.”
With

the

it

is

recognized

as

a

“foreign

main

11 U.S.C. § 1517(b)(1); see also id. § 1502(4).

entry

proceeding,

of

the

an

order

foreign

recognizing

representative

a

of

foreign
the

main

proceeding

automatically receives relief as stated in § 1520, including the
automatic stay created by § 362 with respect to the debtor and
its property within the United States and the ability to operate
the debtor’s business within the United States under § 363, as
well as the right to sue and be sued and the right to “intervene
in any proceedings in a State or Federal court in the United
States

in

which

the

1509(b)(1), 1524.

debtor

is

a

party.”

Id.

§§

1520(a),

Moreover, the statute provides that following

entry of a recognition order, “a court in the United States
shall

grant

comity

representative,”
Chapter 15.

thereby

or

cooperation

implementing

a

to

the

principal

foreign

purpose

of

Id. § 1509(b)(3).

Even before entry of the order granting recognition, § 1519
authorizes the bankruptcy court, on the foreign representative’s
request, to grant preliminary relief when “urgently needed to
protect

the

creditors.”

assets

of

the

debtor

or

the

interests

of

the

11 U.S.C. § 1519.

In addition to the automatic relief that comes with the
entry

of

an

order

granting

recognition
22

of

a

foreign

main

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proceeding,

Filed: 12/03/2013

§

1521

authorizes

discretionary relief.
necessary
protect

to

creditors,

assets

of

the

court

representative,

grant

1521(a).

the

bankruptcy

court

to

grant

Specifically, § 1521 provides that “where

effectuate

the

Pg: 23 of 45

the

purpose

the

debtor

may,
any

at

of
or

the

this
the

and

interests

request

appropriate

chapter

of

relief.”

of

the
11

to
the

foreign
U.S.C.

§

This discretionary relief may include “entrusting the

administration or realization of all or part of the debtor’s
assets within the territorial jurisdiction of the United States
to the foreign representative,” id. § 1521(a)(5), as well as
“entrust[ing] the distribution of all or part of the debtor’s
assets

located

in

the

United

States

to

the

foreign

representative,” id. § 1521(b).

The bankruptcy court, however,

may

relief

only

grant

discretionary

determines

that

interested

entities,

protected.”

“the

Id.

§

interests
including

of
the

1522(a).

It

under

the

§

1521

creditors

debtor,
may

are
also

if

and

it

other

sufficiently
subject

the

discretionary relief it grants under § 1521 “to conditions it
considers appropriate, including the giving of security or the
filing of a bond.”

Id. § 1522(b).

Finally, all of the actions authorized in Chapter 15 are
subject

to

chapter

prevents

governed

by

§

1506,

this

the

which

provides

court

chapter

if

from
the
23

that

“[n]othing

refusing

to

action

would

take
be

in

an

this

action

manifestly

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contrary to the public policy of the United States.”

11 U.S.C.

§ 1506.
Chapter 15 thus authorizes an “ancillary” proceeding in a
United

States

bankruptcy

court

that

is

largely

designed

to

complement and assist a foreign insolvency proceeding by, among
other things, “bring[ing] people and property beyond the foreign
main proceeding’s jurisdiction into the foreign main proceeding
through the exercise of the United States’ jurisdiction.”

In re

ABC Learning Centres Ltd., 728 F.3d 301, 307 (3d Cir. 2013); see
also H.R. Rep. No. 109-31, pt. 1, at 106 (“Cases brought under
chapter 15 are intended to be ancillary to cases brought in a
debtor’s home country . . .”).

This structure reflects “the

United States policy in favor of a general rule that countries
other

than

proceeding
ancillary
preference

the

home

would

be

proceedings
to

a

country

of

brought,
in

system

aid
of

the

should
of

full

the

debtor,

where

usually
main

act

a

main

through

proceedings,

bankruptcies

(often

in

called

‘secondary’ proceedings) in each state where assets are found.”
H.R.

Rep.

general

No.

policy,

109-31,
Chapter

pt.
15

1,

at

also

108.

Notwithstanding

expressly

contemplates

this
that

“[a]fter recognition of a foreign main proceeding, a case under
another chapter of [the Bankruptcy Code] may be commenced . . .
if the debtor has assets in the United States.”
§ 1528.
24

11 U.S.C.

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Thus, taken as a whole, Chapter 15 -- like the Model Law on
which it was based -- takes “several modest but significant”
steps

toward

implementing

“a

modern,

harmonized

and

fair

framework to address more effectively instances of cross-border
insolvency.”
Law

on

UNCITRAL, Guide to Enactment of the UNCITRAL Model

Cross-Border

Insolvency

Law

Insolvency,

307,

307

in

(2005)

Legislative

Guide
“Guide

(hereinafter,

on
to

Enactment”).

III
Jaffé contends that the bankruptcy court erred by employing
§

1522(a)’s

“right

to

sufficient

administer

protection

[Qimonda’s]

requirement
U.S.

patents

to
.

subject

his

.

the

.

to

constraints imposed by § 365(n),” thus allowing the Licensees to
elect

to

retain

their

license

rights

under

Qimonda’s

patents, contrary to German law as he understands it.
Qimonda AG, 462 B.R. at 183.

U.S.
In re

The bankruptcy court limited the

authority it conferred on Jaffé under § 1521(a)(5) by balancing
the interests of the Licensees with the interests of Qimonda’s
estate under § 1522(a) and concluding that the Licensees should
receive the protection of § 365(n).

Id. at 180-83.

In support

of his challenge, Jaffé makes essentially three arguments:

(1)

that the district court and the bankruptcy court erred in even
considering

§

1522(a),

because

25

that

section

applies

only

to

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relief granted under § 1521, that the relief granted under §
1521 may be requested only by the foreign representative, and
that

he,

as

the

foreign

representative,

never

requested

the

inclusion of § 365(n) as part of the § 1521 relief; (2) that the
bankruptcy court misunderstood the type of protection afforded
by

§

1522(a)

by

applying

a

test

that

balanced

the

debtor’s

interests and the creditors’ interests instead of a test that
placed

all

balancing

creditors
the

on

competing

an

equal

footing;

interests,

the

and

(3)

that

bankruptcy

in

court

overstated the risks to the Licensees, especially in view of
Jaffé’s

offer

to

re-license

Qimonda’s

patents

to

failed to treat all creditors’ interests equally.

them,

and

We address

these points in order. 3

3

We note as well that the United States has appeared as
amicus curiae to express its concern that the bankruptcy court
overstepped its authority below.
Specifically, it criticizes
the bankruptcy court as “approach[ing] this case as though it
were empowered to decide whether the Foreign Administrator
should be permitted to reject appellees’ license agreements”
based on an erroneous assumption that it could “superimpose
Section 365(n) on the operation of German insolvency law in a
German proceeding.”
The United States therefore urges us to
“reverse[] on the threshold ground that Section 365(n) cannot
constrain the operation of German insolvency law in Germany.”
As already made clear, however, we take a different view of
the scope of the bankruptcy court’s holding.
Rather than
purporting to “constrain the operation of German insolvency law
in Germany,” the bankruptcy court conditioned its grant of power
to Jaffé to “administer the assets of Qimonda AG within the
territorial jurisdiction of the United States” with the
limitation that he was taking the company’s U.S. patents subject
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A
First, Jaffé argues that both the bankruptcy court and the
district court erred in even considering § 1522’s sufficient
protection requirement because § 1522(a) applies to relief that
may be granted under § 1521, and § 1521(a), in turn, provides
that

“the

court

representative,
added).

may,

grant

any

at

the

request

appropriate

of

relief.”

the

foreign
(Emphasis

He asserts that he “never asked the bankruptcy court to

include § 365 in its Supplemental Order or sought other relief
relating to § 365(n)” such that the Licensees would have the
option to retain their licenses under Qimonda’s U.S. patents.
Thus, according to Jaffé, because application of § 365 was not
specifically requested by him, the bankruptcy court’s sua sponte
inclusion of § 365 was legal error, the correction of which must
precede any consideration of § 1522(a)’s sufficient protection
requirement.
We believe that Jaffé’s view of the relationship between §
1521(a) and § 1522(a) is too myopic.

While it is true that

to the preexisting licenses, which he was obliged to treat in a
manner consistent with § 365(n).
As a result, Jaffé is
precluded from rejecting the U.S. patent licenses as a matter of
U.S. law. Although this limitation may have indirect effects in
the German proceeding, it does not represent an impermissible
application of U.S. law extraterritorially, which we understand
to be the main concern animating the United States’ position in
this case.
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Jaffé “never affirmatively requested rejection authority under §
365,” he did request several forms of discretionary relief under
§ 1521, among which was the privilege, pursuant to § 1521(a)(5),
to

have

the

bankruptcy

court

entrust

him

with

“[t]he

administration or realization of all or part of the assets of
[Qimonda]

within

the

territorial

jurisdiction

of

the

United

States,” specifically identifying the company’s U.S. patents as
among

the

prerequisite

U.S.
to

assets
awarding

he

sought

any

§

to

1521

control.
relief,

And,
the

as

court

a

was

required to ensure sufficient protection of the creditors and
the debtor.

Section 1522(a) states this explicitly, providing

in relevant part, “The court may grant relief under section . .
. 1521 . . . only if the interests of the creditors and other
interested
protected.”

entities,
11

including
U.S.C.

§

the

debtor,

1522(a)

are

sufficiently

(emphasis

added).

Additionally, the court was authorized to “subject” any § 1521
relief “to conditions it considers appropriate.”

Id. § 1522(b);

see also H.R. Rep. No. 109-31, pt. 1, at 116 (describing § 1522
as “giv[ing] the bankruptcy court broad latitude to mold relief
to meet specific circumstances, including appropriate responses
if it is shown that the foreign proceeding is seriously and
unjustifiably injuring United States creditors”).
This is precisely what the bankruptcy court did here.
granted

discretionary

relief

under
28

§

1521

and,

as

It

mandated,

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considered
1522(a).

the

Filed: 12/03/2013

question

of

Pg: 29 of 45

sufficient

protection

under

§

Upon such consideration, it conditioned its § 1521

relief on application of § 365(n), finding that such protection
was appropriate in the circumstances presented.
To be sure, the bankruptcy court did not frame its initial
inclusion of § 365 in the Supplemental Order as a condition on
the authority it was granting Jaffé under § 1521.
initially

faced

with

Jaffé’s

motion

to

amend,

described the inclusion of § 365 as “improvident.”

Indeed, when
the

court

But on the

Licensees’ appeal, the district court correctly recognized that
it was incumbent on the bankruptcy court, on remand, to consider
whether “the interests of the creditors and other interested
entities,

including

the

debtor,

[would

be]

sufficiently

protected” under § 1522(a) were the court to modify its earlier
order so as to grant Jaffé control over the administration of
Qimonda’s U.S. patents without providing for the application of
§ 365(n) to the licenses on those patents.

See In re Qimonda AG

Bankr. Litig., 433 B.R. at 557-58.
The bankruptcy court’s consideration of § 1522(a) was thus
undoubtedly appropriate when authorizing relief under § 1521.

B
Jaffé next contends that even if the bankruptcy court was
correct to consider § 1522’s sufficient protection requirement

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in granting § 1521 relief, the court nonetheless employed the
wrong

test

in

bankruptcy

applying

court’s

§

1522(a).

“ruling

He

fundamentally

maintains

that

the

misunderst[ood]

the

‘interests’ § 1522(a) protects” by failing to recognize that §
1522(a) is merely a procedural protection “designed to ensure
that

all

creditors

[could]

participate

in

the

bankruptcy

distribution on an equal footing” and thus should not be used to
protect parties from the substantive bankruptcy law that would
otherwise
added).

apply

in

the

foreign

main

proceeding.

(Emphasis

He asserts that “[d]isregarding foreign law based on an

open-ended balancing test under § 1522(a) is contrary to Chapter
15’s basic design,” which, according to Jaffé, requires U.S.
courts

to

defer

to

foreign

substantive

law

except

only

as

allowed under § 1506, which provides a narrow exception when the
court’s

action

would

otherwise

policies of the United States.”
109.

violate

“the

most

fundamental

H.R. Rep. No. 109-31, pt. 1, at

In sum, he argues (1) that the bankruptcy court erred by

interpreting

§

1522’s

sufficient

protection

requirement

as

incorporating a balancing test that could achieve a result that
treated creditors differently and that would therefore be in
tension with German law, and (2) that, to the extent § 1522(a)
was implicated at all, the bankruptcy court should have limited
its analysis to ensuring that the doors of the German insolvency

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proceeding would be open to the Licensees on equal footing with
Qimonda’s other creditors.
Jaffé’s theory of how the sufficient protection requirement
of § 1522(a) operates is not illogical.

The text of the statute

is broad and somewhat ambiguous regarding the test that courts
should employ to determine “if the interests of the creditors
and

other

interested

sufficiently protected.”

entities,

including

the

11 U.S.C. § 1522(a).

debtor,

are

But we are not

convinced that Jaffé’s theory can fully be squared with the text
or with Congress’s intent in enacting the text.
Section 1522(a) requires the bankruptcy court to ensure the
protection of both the creditors and the debtor.
1522(a).

11 U.S.C. §

The provision thus requires the court to ensure that

the relief a foreign representative requests under § 1521 does
not impinge excessively on any one entity’s interests, implying
that each entity must receive at least some protection.

And

because the interests of the creditors and the interests of the
debtor

are

often

antagonistic,

as

they

are

here,

providing

protection to one side might well come at some expense to the
other.

The

analysis

required

by

§

1522(a)

is

therefore

logically best done by balancing the respective interests based
on the relative harms and benefits in light of the circumstances
presented,

thus

inherently

calling

balancing test.
31

for

application

of

a

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We also find support for this interpretation in the Model
Law on Cross-Border Insolvency, on which Chapter 15 was based.
In

enacting

Chapter

15,

codify the Model Law.
so,

it

also

accompanying

stated

that

it

See 11 U.S.C. § 1501(a).

indicated
Guide

Congress

strongly

to

that

Enactment

the

by

to

And, in doing

Model

issued

intended

Law,

and

the

UNCITRAL

in

conjunction with its adoption of the Model Law, should inform
our interpretation of Chapter 15’s provisions.
15

provides

that

“[i]n

interpreting

this

Indeed, Chapter

chapter,

the

court

shall consider its international origin, and the need to promote
an

application

application

of

of

jurisdictions.”

this

chapter

similar

that

statutes

is

consistent

adopted

by

with

the

foreign

Id. § 1508; see also H.R. Rep. No. 109-31, pt.

1, at 109-10 (“Interpretation of this chapter on a uniform basis
will be aided by reference to the Guide and the Reports cited
therein, which explain the reasons for the terms used and often
cite their origins as well. . . . To the extent that the United
States courts rely on these sources, their decisions will more
likely be regarded as persuasive elsewhere” (emphasis added)).
Thus, the Model Law and its Guide to Enactment also provide
relevant

guidance

in

determining

the

appropriate

meaning

of

Chapter 15’s provisions.
The Guide to Enactment contains a number of paragraphs that
bear directly on the question of how a court should assess the
32

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interests

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of

others

and

Pg: 33 of 45

protect

them

prior

to

granting

the

discretionary relief sought by a foreign representative.

For

example, the Guide acknowledges that the representative of a
foreign main proceeding will “normally seek[] to gain control
over all assets of the insolvent debtor.”
¶ 158, at 347.
‘turnover’

of

Guide to Enactment

But it stresses that the Model Law makes “[t]he
assets

discretionary,”

adding

to

the

that

foreign

“the

representative

Model

Law

contains

.

.

.

several

safeguards designed to ensure the protection of local interests
before assets are turned over to the foreign representative.”
Id.

¶

157,

at

347

(emphasis

added).

Chief

among

those

“safeguards” is Article 22 of the Model Law, which is largely
codified

4

as

§ 1522. 4

According

to

the

Guide,

“The

idea

Article 22 of the Model Law provides in full:

1. In granting or denying relief under article 19 or
21, or in modifying or terminating relief under
paragraph 3 of this article, the court must be
satisfied that the interests of the creditors and
other interested persons, including the debtor, are
adequately protected.
2. The court may subject relief granted under article 19 or
21 to conditions it considers appropriate.
3. The court may, at the request of the foreign
representative or a person affected by relief granted
under article 19 or 21, or at its own motion, modify
or terminate such relief.
Comparing Article 22 and § 1522 reveals
relied heavily on the language of the Model Law.
33

that Congress
One of the few

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underlying

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[A]rticle

22

is

Pg: 34 of 45

that

there

should

be

a

balance

between relief that may be granted to the foreign representative
and the interests of the persons that may be affected by such
relief.

This balance is essential to achieve the objectives of

cross-border

insolvency

(emphasis added).

legislation.”

Id.

¶

161,

at

348

The Guide to Enactment separately indicates

that Article 22 is designed to “protect the interests of the
creditors (in particular local creditors), the debtor and other
affected

persons.”

Id.

¶

35,

at

314.

Finally,

the

Guide

states, “[i]n addition to [Article 22’s] specific provisions,”
Article 6 of the Model Law “in a general way provides that the
court may refuse to take an action governed by the Model Law if
the action would be manifestly contrary to the public policy of
the enacting State.”

Id. ¶ 36, at 314 (emphasis added).

Informed by the Guide to Enactment’s description of the
relationship between Articles 22 and 6 of the Model Law (§§ 1522
and 1506 in the U.S. Bankruptcy Code), we do not share Jaffé’s
view that § 1506’s public policy exception forecloses use of a
balancing analysis under § 1522.

Contrary to Jaffé’s position,

alterations that Congress made was to change “adequately” in
Article 22(1) to “sufficiently” in § 1522(a) -- a modification
that the legislative history indicates was made in order “to
avoid confusion with . . . ‘adequate protection,’” “a very
specialized legal term in United States bankruptcy.” H.R. Rep.
No. 109-31, pt. 1, at 115.
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Chapter

15

Filed: 12/03/2013

does

not

require

Pg: 35 of 45

a

U.S.

bankruptcy

court,

in

considering a foreign representative’s request for discretionary
relief under § 1521, to blind itself to the costs that awarding
such relief would impose on others under the rule provided by
the substantive law of the State where the foreign insolvency
proceeding is pending.
anticipates

the

Instead, Chapter 15, like the Model Law,

provision

of

particularized

protection,

as

stated in § 1522(a).
We

therefore

conclude,

through

interpretation

of

§ 1522(a)’s text and consideration of Chapter 15’s international
origin,

that

§ 1522(a)’s

the

district

sufficient

court

protection

correctly

requirement

as

interpreted
requiring

a

particularized balancing analysis that considers the “interests
of the creditors and other interested entities, including the
debtor,” 11 U.S.C. § 1522(a), and, in this case in particular, a
weighing of the interests of the foreign representative (the
debtor) in receiving the requested relief against the competing
interests of those who would be adversely affected by the grant
of such relief (here, the Licensees).
§ 1506

is

an

additional,

more

And we also agree that

general

protection

of

U.S.

interests that may be evaluated apart from the particularized
analysis of § 1522(a).
In reaching this conclusion, we join the Fifth Circuit,
which

interpreted

§

1522(a)

similarly,
35

based

largely

on

the

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language in the Guide to Enactment.

See In re Vitro S.A.B. de

C.V., 701 F.3d 1031, 1060, 1067 n.42 (5th Cir. 2012); see also
In re Int’l Banking Corp. B.S.C., 439 B.R. 614, 626-27 (Bankr.
S.D.N.Y. 2010); In re Tri-Cont’l Exch. Ltd., 349 B.R. 627, 637
(Bankr. E.D. Cal. 2006).

C
Finally,

Jaffé

contends

that

the

bankruptcy

court’s

balancing analysis, even if assumed appropriate, was flawed in
implementation.
overstated

the

He
risk

argues
to

the

that

the

Licensees’

court

dramatically

investments

made

in

reliance on the cross-license agreements, especially in light of
his offer to re-license Qimonda’s U.S. patents to the Licensees
at a RAND royalty rate.

In this regard, he maintains that the

court’s balancing analysis failed to recognize that “§ 1522(a)
requires courts to protect the interests of all ‘creditors and
other interested entities, including the debtor’ -- not just one
set of contracting parties.”
The Licensees respond, arguing that “the bankruptcy court
properly recognized that Dr. Jaffé’s offer to relicense did not
change

the

correctly

balance
“concluded

of

harms”

that,

and

without

that
§

the

365(n)

bankruptcy

court

protection,

the

Licensees would face both the immediate harm of a hold-up and
the future . . . destabilization of the licensing regime in the

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semiconductor industry.”
bankruptcy

court’s

Pg: 37 of 45

They maintain that in light of the

detailed

findings

and

careful

reasoning,

Jaffé simply “cannot meet his heavy burden to demonstrate that
the bankruptcy court abused its discretion in its application of
§ 1522.”
It

should

be

noted

that

after

hearing

four

days

of

evidence, the bankruptcy court considered the outcome of its
balancing

analysis

to

be

a

close

one.

But

in

the

end

it

concluded, reasonably we believe, “that the balancing of debtor
and creditor interests required by § 1522(a), Bankruptcy Code,
weigh[ed] in favor of making § 365(n) applicable to Dr. Jaffé’s
administration of Qimonda’s U.S. patents.”
462 B.R. at 182.

In re Qimonda AG,

The court recognized Jaffé’s claim that the

“application of § 365(n) [would] result in less value . . .
being realized by the Qimonda estate.”
“Qimonda’s

patent

portfolio

[would]

Id.

by

no

But it noted that
means

be

rendered

worthless” because the “U.S. patents [could] still be licensed
to parties that [did] not already have a license, and Dr. Jaffé,
to the extent permitted by German law, [would] be able to fully
monetize

the

bankruptcy
§ 365(n)

.

non-U.S.

court
.

.

found
[would

patents.”
it

Id.

significant

impose]

no

that

Additionally,
“[a]pplication

affirmative

burden

on

the
of
Dr.

Jaffé,” id., but instead would merely limit his ability -- and,
importantly, the ability of the patents’ subsequent owners -- to
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bring

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infringement

actions

Pg: 38 of 45

against

the

very

Qimonda had previously promised not to sue.

entities

that

See Imation Corp.

v. Koninklijke Philips Elecs. N.V., 586 F.3d 980, 987 (Fed. Cir.
2009)

(characterizing

a

patent

cross-license

agreement

as

essentially “a promise by the licensor not to sue the licensee”
for infringement (citation omitted)).
In considering and weighing the Licensees’ interests, the
bankruptcy court largely credited their evidence indicating that
entrusting Jaffé with the right to administer Qimonda’s U.S.
patents without making § 365(n) applicable to the preexisting
licenses
effects.

under

those

patents

would

have

broad-ranging

ill

It explained that “the risk to the very substantial

investment the [Licensees] -- particularly IBM, Micron, Intel,
and

Samsung

--

[had]

collectively

made

in

research

and

manufacturing facilities in the United States in reliance on the
design freedom provided by the cross-license agreements, though
not easily quantifiable, [was] nevertheless very real.”
Qimonda AG, 462 B.R. at 182-83.

In re

While the bankruptcy court

acknowledged that the Licensees had been unable “to identify
specific

Qimonda

manufacture[d]

and

patents
s[old],”

implicated
it

noted

by
that

the
the

products
lack

of

they
such

evidence was “not at all surprising, since the whole point of
portfolio cross-licenses [was] to eliminate the necessity (and
in some cases impossibility) of individually analyzing each and
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every patent that might possibly apply to determine if a new
design infringe[d] on it.”

Id. at 181.

bankruptcy

in

court

could

not,

the

Thus, although the

course

of

its

balancing

analysis, make “a finding that cancellation of the [Licensees’]
right to use Qimonda’s U.S. patents would have a specific dollar
impact on them,” it did find that it “create[d] a substantial
risk

of

harm,”

litigation

can

infringement.”

adding
be

as

that

“the

damaging

threat

as

an

of

actual

infringement
finding

of

Id.

We find the bankruptcy court’s thorough examination of the
parties’ competing interests to have been both comprehensive and
eminently reasonable.
Jaffé relies heavily on the mitigation that would result
from

his

commitment

Licensees

on

RAND

sufficient

protection

to

re-license

terms,
for

arguing
their

Qimonda’s
that

interests.

it

patents
would
Of

to

the

provide

course,

his

proposal -- first mentioned after the district court’s remand -does weigh
risks.

in

his

favor

by

decreasing

the

Licensees’

holdup

But just because the RAND proposal would reduce the

Licensees’ risks does not mean that their interests would be
sufficiently protected by Jaffé’s promise to re-license.

The

bankruptcy court expressly recognized this, explaining that “the
hold-up risk is lessened by Dr. Jaffé’s offer to re-license the
patents on RAND terms,” but emphasizing that “even if the WIPO
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expert determination process were to arrive at the same figure
that would have been agreed to in an ‘ex ante’ scenario, the
[Licensees], because of their sunk costs, [would] not have the
option of avoiding royalties altogether by designing around the
patent.”

In re Qimonda AG, 462 B.R. at 181-82.

that

bankruptcy

the

court’s

findings

in

this

We conclude

regard

are

not

unreasonable and that the bankruptcy court was justified in its
skepticism of Jaffé’s claim that the Licensees’ interests would
now be “sufficiently protected” by his commitment not to charge
them an exorbitant rate during their re-licensing negotiations.
Moreover, the bankruptcy court also noted that it remained
an “open question” whether any new license issued by Jaffé on
RAND terms would itself be secure, expressing its concern that
Dr. Jaffé could still sell the underlying patents to a
purchaser -- whether a practicing entity or a ‘troll’
-- that might itself file for insolvency under German
law or transfer the patent to a special purpose entity
for the purpose of having it file for insolvency under
German law.
Id. at 181-82 n.13.

The court’s recognition of this concern was

also reasonable, as it is far from clear whether, having once
facilitated

the

termination

of

license

rights

in

a

foreign

insolvency proceeding, the genie could ever be put back into the
bottle.

Rather,

as

indicated

by

expert

testimony

that

the

bankruptcy court credited, it would seem all too likely that
such a result would introduce a dangerous degree of uncertainty

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to a licensing system that plays a critically important role in
the semiconductor industry, as well as other high-tech sectors
of the global economy.
At bottom, we affirm the decision of the bankruptcy court,
finding reasonable its exercise of discretion in conducting the
balancing analysis under § 1522(a) and concluding that attaching
the protection of § 365(n) was necessary when granting Jaffé the
power to administer Qimonda’s U.S. patents.
S.A.B.

de

affirming

C.V.,
a

701

F.3d

bankruptcy

at

1069

court’s

(noting

decision

See In re Vitro
in

not

the
to

course

enforce

of
the

reorganization plan adopted in a foreign main proceeding that
“[i]t is not our role to determine whether the above-summarized
evidence would lead us to the same conclusion” and adding that
“[o]ur only task is to determine whether the bankruptcy court’s
decision was reasonable” (emphasis added)).

IV
It is important, we think, to recognize, as Jaffé would
have us do, the importance of Chapter 15 to a global economy, in
which businesses needing bankruptcy protection increasingly have
assets in various countries.

In mimicking the U.N.’s Model Law

on Cross-Border Insolvencies, Chapter 15 furthers a policy of
the

United

providing

States

fair

and

of

cooperating

efficient

with

insolvency

41

other

countries

proceedings

for

in
such

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international businesses.
Chapter

15

insolvency

provides

Pg: 42 of 45

Consistent with its stated purposes,

for

proceedings,

the

see

ready

11

recognition

U.S.C.

§

of

1517,

foreign

and

grants

automatic relief to protect U.S. assets upon entry of an order
granting recognition, see id. § 1520.

It also provides for a

broad range of discretionary relief under § 1521.

Thus, it

represents a full commitment of the United States to cooperate
with foreign insolvency proceedings, as called for by the U.N.’s
Model

Law

on

Cross-Border

Insolvency.

And

at

bottom,

such

cooperation will provide greater legal certainty for trade and
business to the benefit of the global economy.
But the United States’ commitment is not untempered, as is
manifested in both Chapter 15 and the Model Law on which it was
based.

Thus, § 1522(a) requires that a bankruptcy court, when

granting the discretionary relief authorized by § 1521, ensure
sufficient protection of creditors, as well as the debtor.

And

at a more general level, § 1506, which covers any action under
Chapter 15, authorizes a bankruptcy court to refuse to take an
action that would be manifestly contrary to U.S. public policy.
In

this

case,

it

is

sufficient

for

us

to

affirm

bankruptcy court, based on its application of § 1522(a).
doing

so,

we

understand

that,

by

affirming

the

the

But in

bankruptcy

court’s application of § 365(n) following its balancing analysis
under § 1522(a), we also indirectly further the public policy
42

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that underlies § 365(n).

Pg: 43 of 45

The Senate Report accompanying the

bill that became § 365(n) explicitly recognized that licensees
have

a

strong

intellectual
that

to

interest

property

deny

them

in

maintaining

following

that

right

the

their

right

would

use

bankruptcy

licensor’s

to

and

“impose[]

a

burden

on

American technological development that was never intended by
Congress.”

S. Rep. No. 100-505, at 1.

The Report added that

“[t]he adoption of this bill will immediately remove that burden
and

its

attendant

Technology.”
In

threat

to

the

development

of

American

Id. at 2.

this

case,

the

bankruptcy

court,

in

weighing

the

respective interests of the Licensees and the debtor under §
1522(a), found that without the protection of 365(n), the risk
of

harm

“design

to

the

freedom

agreements.”

Licensees
provided

would

be

very

[them]

by

real,

impairing

the

the

cross-license

In re Qimonda AG, 462 B.R. at 183.

And as the

bankruptcy court otherwise found, this potential harm to the
Licensees

would,

in

turn,

threaten

to

“slow

the

pace

of

innovation” in the United States, to the detriment of the U.S.
economy.

Id. at 185.

Thus, the court’s findings, which were,

to be sure, focused on the Licensees’ interests, nonetheless
necessarily furthered the public policy underlying § 365(n).
We thus recognize that by affirming the bankruptcy court,
even

though

on

its

§

1522(a)
43

analysis,

we

too

necessarily

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further

the

Filed: 12/03/2013

public

policy

Pg: 44 of 45

inherent

in

and

manifested

by

§ 365(n).
The judgment of the bankruptcy court is accordingly
AFFIRMED.

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WYNN, Circuit Judge, concurring in the judgment:
The

only

question

we

need

to

address

in

this

appeal

concerns the bankruptcy court’s discretion in ensuring that “the
interests

of

the

creditors

and

other

interested

entities,

including the debtor, are sufficiently protected” under Chapter
15 of the Bankruptcy Code, 11 U.S.C. § 1522, and whether the
bankruptcy court abused that discretion here.

I agree with the

majority opinion that in reviewing this issue, we look not to
whether

the

record

evidence

“would

lead

us

to

the

same

conclusion” but that “[o]ur only task is to determine whether
the bankruptcy court’s decision was reasonable.”
S.A.B.

de

C.V.,

701

F.3d

1031,

1069

(5th

In re Vitro
Cir.

2012).

Accordingly, I am happy to concur in the language in Parts I,
II, and III of the majority opinion that analyzes and addresses
only

this

issue.

I

do

not

join

unnecessary dictum.

45

in

Part

IV

because

it

is