In re Spansion, Inc.

In re Spansion, Inc. et al, Case Nos. 11-3323 & 11-3324 (3rd Cir. 2012, decided 12/21/2012)
Agreement that settled litigation between Spansion (the "Debtor") and Apple at the International Trade Commision pursuant to which the Debtor agreed not to sue Apple in the future over the use of flash memory products was a license, and its rejection by the Debtor pursuant to 11 U.S.C. Section 365 permitted Apple to elect to retain its rights as licensee under 11 U.S.C. Section 365(n).
Procedural context:
Debtor rejected the agreement under Section 365 of the Bankruptcy code. Apple elected to retain its rights under the agreement pursuant to Section 365(n). Debtor moved to enforce the rejection order, arguing that it terminated the agreement. Applie moved under FRCP 60(b) to clarify the rejection Order. The Bankruptcy Court granted the Rule 60(b) motion, and ruled that the entry of the rejection Order was without prejudice as to whether the agreement had been terminated or could be terminated. At the same time, the Bankruptcy Court denied Apple's Section 365(n) election, finding that the agreement was not a license. Apple appealed the denial of the Section 365(n) election and the Debtor cross-appealed the grant of the Rule 60(b) motion. The District Court upheld the Bankruptcy Court's clarification of the rejection Order under Rule 60(b). The District Court reversed the Bankruptcy Court on the issue of Apple's Section 365(n) election, holding that the agreement was a license because it was a promise not to sue and allowed Apple to retain its rights under Section 365(n). The Third Circuit affirmed the District Court, holding that a covenant not to sue is the equivalent of a license.
In November 2008, Spanision filed a patent infringement complaint over its fash memory products against Apple with the International Trade Commission (ITC). In a letter agreement dated February 10, 2009, Spansion agreed to dismiss the ITC action against Apple and promised to refraim from filing future actions related to those patents. In exchange, Apple agreed to continue to use Spanison as a supplier and to consider Spansion for future products if certain conditions were met. On March 1, 2009, Spansion filed for Chapter 11 bankruptcy in the Bankruptcy Court for the District of Delawre. After the filing of the bankruptcy case, Spansion moved to reject the letter agreement as an executory contract. The Bankruptcy Court granted the rejection motion, entering an Order which stated: "The Agreement ... is hereby rejected; and further ordered that ... this Order upon Apple, Inc. shall constitute adequate written notice of termination thereof." Apple then moved under 11 U.S.C. Section 365(n) to retain its rights under the agreement. Spansion moved to enforce the Rejection Order, arguing that it had terminated the agreement. Apple moved under Rule 60(b) of the Federal Rules of Civil Procedure to clarify the Order, claiming that termination had never been requested as relief with the rejection motion. The Bankruptcy Court clarified the rejection order as not having decided the issue of termination, but denied Apple's Section 365(n) election, ruling that the agreement was not a license.
Scirica, Fisher and Jordan

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